Cost Variance (CV) determines how much a project has spent in relation to its budget and the difference between what was planned to be spent and what was actually spent at a certain time. It’s the difference between the Budgeted Cost of Work Performed (BCWP) and the Actual Cost of Work Performed (ACWP).

Definition: Cost variance is the difference between the actual cost incurred and the planned/budgeted cost at a given time on a project.

Purpose of Cost Variance (CV)

The purpose of Cost Variance is to help you track your finances as your project progresses and allow the Program Manager and program personnel to determine how best to utilize their remaining resources.

Who uses Cost Variance (CV)

The Program Manager and program personnel use cost variance to determine how best to utilize their remaining resources. The financial analysis also utilizes cost variance to track, analyze, and report variance causes. They frequently provide management with these findings and suggestions for future adjustments to reduce or raise the variance.

Benefits of Utilizing Cost Variance (CV)

Cost variance is essential since it enables the Program Manager and others to monitor a project’s financial development. It indicates how successful they are at monitoring and minimizing potential hazards, as well as how well they evaluate project-related data. They may also assess your cost variance to draw comparisons between the budget and actual costs throughout a project your team completes, allowing them to adjust their budgeting strategies to fit the objectives better. Another advantageous feature is using historical data from previous projects to develop a more accurate budget prediction.

Cost Variance (CV) Results

The Cost Variance results are calculated by finding the difference between the budgeted cost of work done (BCWP) and the actual cost of work done (ACWP) (Actual Cost of Work Performed). The best cost difference is when your ACWP is the same as your BCWP, but this is seldom possible. Cost differences can be good or bad, depending on how well your ACWP and BCWP match up. The Cost Variance Outcomes in Earned Value Management (EVM) are:

Positive: Under budget
Negative: Over budget.
Zero: On budget.

Reasons for Cost Variance (CV) Over and Under Budget Results

There are often two causes for cost variance to either increase or decrease rather than staying constant at zero. Overestimation or underestimation of the expected value of an outcome is one potential source of cost variation. Cost variations can also be caused by circumstances beyond the company’s control, such as shifts in the market. Unpredictable price differences may result from several different factors.

Labor Cost: Challenges in production, changes in employment, and other internal factors might directly impact direct labor expenses.
Production Cost: Product damage, delays in handling, a shortfall in the supply chain, or an increase in shipping rates are all examples of direct product costs that could have an unforeseen impact on a company’s bottom line.
Overhead Costs: Expenses that tend to be constant throughout a project include insurance, rent, salaries, and taxes, but it’s still important to keep tabs on them just in case.

Cost Variance (CV) Equations

4 Cost Variance (CV) Methods & Equations

There are four (4) different CV methods used in EVM.

Cost Variance
Cost Variance %
Cost Performance Indicator (CPI)
To Complete Cost Performance Indicator (TCPI)

1. Cost Variance (CV)

Cost Variance can be calculated using the following formulas:

Cost Variance (CV) = Earned Value (EV) – Actual Cost (AC)
Cost Variance (CV) = BCWP – ACWP

Cost Variance indicates how much over or under budget the project is in terms of percentage.

Positive = indicates how much under budget the project
Negative = indicates how much over budget the project

2. Cost Variance %

Cost Variance % can be calculated as using the following formula:

CV % = Cost Variance (CV) / Earned Value (EV)
CV % = CV / BCWP

Cost Variance % indicates how much over or under budget the project is in terms of percentage.

Positive % = indicates how much under budget the project is in terms of percentage
Negative % = indicates how much over budget the project is in terms of percentage

3. Cost Performance Indicator (CPI)

Cost Performance Indicator can be calculated using the following formulas:

CPI = Earned Value (EV) /Actual Cost (AC)
CPI = BCWP / ACWP

CPI is an index showing the efficiency of the utilization of the resources on the project.

Greater than (≥) 1: indicates efficiency in utilizing the resources allocated to the project is good.
Less than (≤) 1: indicates efficiency in utilizing the resources allocated to the project is not good.

4. To Complete Cost Performance Indicator (TCPI)

To Complete Cost Performance Indicator (TCPI) can be calculated using the following formulas:

TCPI = ( Total Budget – EV ) / ( Total Budget – AC )
TCPI = ( Total Budget – BCWP ) / ( Total Budget – ACWP)

TCPI is an index showing the efficiency at which the resources on the project should be utilized for the remainder of the project. If the results are:

Greater than (≥) 1: indicates utilization of the project team for the remainder of the project can be stringent.
Less than (≤) 1: indicates utilization of the project team for the remainder of the project should be lenient.

Cost Variance (CV) Example #1

An example of a CV is if a company had $ actual purchase expenses for June of $1000, but the budgeted amount for June was $600. The company had a cost variance of $400. This is an unfavorable CV because the actual cost is more than the budgeted amount.

Cost Variance (CV) Example #2

You are a project manager with a $100,000 budget and 12 months to complete the project. You’ve spent $60,000 for six months but have only completed 40% of the job. To determine whether you are now above or under budget, apply the cost variance calculation. The actual expense is $60k, while the value achieved is $40,000 (40% of $100k).

To figure out the price difference, you would do the following:

Budget discrepancy = 40,000 – 60,000 dollars
Cost Variance = -$20,000
Having finished 40% of the project, you’ve already spent $20,000 more than planned.

Cost Variance (CV) Tools and Resources

There are several tools that can be used to figure out how much a project’s costs have changed, which helps project managers keep track of and evaluate their projects’ financial success. These tools give useful information about cost management and help find differences between what was planned and what was spent on a project. Here are some tools that are often used:

Earned Value Management (EVM): EVM is a method that is often used to combine facts about a project’s scope, schedule, and costs. To figure out cost variance, it uses key measures like Planned Value (PV), Actual Cost (AC), and Earned Value (EV). By comparing the expected values to the actual values, project managers can figure out the cost difference and figure out how financially healthy the project is.
Project Management Software: Microsoft Project, Primavera P6, and Jira are all examples of project management software that come with built-in cost management tools. With these tools, project managers can set budgets for projects, keep track of spending, and make reports with cost variance analysis. They give you a central place to track prices, divide up resources, and look for cost overruns.
Spreadsheet programs: Tools like Microsoft Excel or Google Sheets can be used to make cost-tracking models that fit your needs. Project managers can put in data about planned and real costs and use formulas and functions to figure out the difference between the two. These solutions built on spreadsheets are flexible and can be changed to meet the needs of a specific project.
Cost Management Enterprise Resource Planning (ERP) Systems: Cost management tools are often part of ERP systems like SAP, Oracle, or NetSuite. With these modules, project managers can keep track of costs, make reports, and do cost variance analysis across an entire company. They combine knowledge about finances and project management to understand how much a project will cost fully.

It’s important to consider the project’s complexity, team size, budget, and specific reporting needs when choosing a tool for cost variance measurement. Each tool has its own strengths and features, so project managers should choose the one that fits best with the needs of their project and their organization’s general approach to project management.

EVM Definitions

– BCWP = Budgeted Cost of Work Performed
– ACWP = Actual Cost of Work Performed
– AC = Actual Cost

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Updated: 6/28/2023

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