Project Management guide · Cost and resources
Cost Variance (CV): Formula, Calculation and Examples
Cost variance (CV) is the difference between the value of work completed and what it actually cost. In earned value management it is calculated as CV = EV - AC; a negative result means the project is over budget for the work done so far.
Key takeaways
- CV = EV - AC; negative means over budget.
- CV% = CV / EV lets you compare projects of different sizes.
- Compare cost with work earned, not with planned spend.
- Investigate causes and update the EAC when CV is significant.
The formula
| Formula | Meaning |
|---|---|
| CV = EV - AC | Cost variance in money |
| CV% = CV / EV | Cost variance as a percentage of work done |
| VAC = BAC - EAC | Expected cost variance at completion |
| Result | Meaning |
|---|---|
| CV > 0 | Under budget for the work done |
| CV = 0 | On budget |
| CV < 0 | Over budget for the work done |
Worked example
BAC = $200,000. At month four, EV = $70,000 and AC = $85,000.
- CV = 70,000 - 85,000 = -$15,000.
- CV% = -15,000 / 70,000 = -21.4%.
- So the work done so far has cost 21.4% more than budgeted.
A second example: EV = $50,000, AC = $46,000 gives CV = +$4,000 (8% under budget).
Why compare with EV, not PV
A common mistake is to compare actual cost with the planned spend (PV). In the example, PV is $80,000 and AC is $85,000, which looks only $5,000 over. But the team has completed only $70,000 of work, so the true overrun for the work done is $15,000. Comparing with EV separates cost performance from schedule performance; see schedule variance.
Common causes of negative CV
- Optimistic estimates or missing items.
- Higher labour rates or material prices than planned.
- Rework from defects or unclear requirements.
- Scope creep absorbed without a change request.
- Low productivity, interruptions or inexperienced staff.
What to do about it
Free templates for this topic
Frequently asked questions
What is cost variance in project management?
The difference between earned value and actual cost, CV = EV - AC, showing whether completed work cost more or less than budgeted.
What does a negative cost variance mean?
The work done so far has cost more than its budget: the project is over budget.
What does a positive cost variance mean?
The work done cost less than budgeted: the project is under budget for the work completed.
How do you calculate cost variance percentage?
CV% = CV / EV x 100. For CV of -$15,000 and EV of $70,000, CV% is -21.4%.
What is the difference between cost variance and schedule variance?
CV = EV - AC measures cost; SV = EV - PV measures schedule. Both use EV.
Why doesn't cost variance compare actual cost with planned value?
Because PV reflects the planned timing of work, not what was achieved. Mixing them blends schedule and cost effects.
Is cost variance the same as budget variance?
In everyday finance, budget variance often compares actual spend with budget. In EVM, CV compares actual cost with the earned value of work done.
What is an acceptable cost variance?
It depends on thresholds agreed in the cost management plan; many projects investigate variances beyond a set percentage.
How does variance at completion relate to cost variance?
Variance at completion (VAC = BAC - EAC) is the cost variance expected when the project finishes.
How is cost variance related to CPI?
Both use EV and AC. CV is the difference (EV - AC), CPI is the ratio (EV / AC).
Can cost variance be positive when the project is in trouble?
Yes. A project can be under budget but well behind schedule, so always look at SV and SPI too.