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 your BCWP match up. The Cost Variance Outcomes in Earned Value Management (EVM) are:

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

### EVMS Gold Card: DAU EVM Gold Card 2020

### 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

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.

### EVM Definitions

– BCWP = Budgeted Cost of Work Performed

– ACWP = Actual Cost of Work Performed

– AC = Actual Cost

### AcqNotes Tutorial

### AcqLinks and References:

- Defense Acquisition Guidebook (DAG)
- DoD Earned Value Management Interpretation Guide – Jan 2018
- EVM Contract Requirements Checklist
- DAU EVM Gold Card – 2020
- DOE EVMS Gold Card – Feb 2019

Updated: 6/2/2021

Rank: G6