Understanding Cost Variance in Project Management

If a project has an earned value of $80,000 and actual costs of $90,000, what is the cost variance?

• A. - $5,000
• B. - $10,000
• C. + $10,000
• D. + $170,000

Answer: (B)

To determine the cost variance in a project, the formula used is: Cost Variance (CV) = Earned Value (EV) - Actual Costs (AC). In this scenario, the earned value is $80,000 and the actual costs are $90,000. Plugging these numbers into the formula gives us: CV = $80,000 (Earned Value) - $90,000 (Actual Costs) CV = -$10,000 Thus, the cost variance is -$10,000, which indicates that the project is over budget by that amount. A negative cost variance means that the actual costs exceed the earned value, reflecting poor performance against the budget. Understanding cost variance is crucial for project managers as it provides insight into the financial health of the project, allowing them to take corrective actions if necessary.

In the world of project management, understanding the financial metrics that drive success is vital. One such metric is cost variance (CV), which indicates how well a project is adhering to its budget. So, if you’ve ever asked, “Am I overspending?” or “How far off am I from my budget?” this article is for you! Today, we’ll dive into a practical example of calculating cost variance and why it’s crucial for your project’s overall health.