### Earned Value Management

Cost Variance

Cost Variance (CV) indicates how much over or under budget the project is. It is used to track expense line items, but can also be tracked at the project level, as long as there is a budget allocated to the item.  CV is used by the Program Manager and program personnel to determine how best to utilize their remaining resources.

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

### Cost Variance (CV) Results

The Cost Variance Outcomes in Earned Value Management (EVM) are:

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

### 4 Cost Variance (CV) Methods

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

1. Cost Variance
2. Cost Variance %
3. Cost Performance Indicator (CPI)
4. 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