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Cost Variance (CV)

5 minutes 5 Questions

Cost variance is a measure of cost performance on a project. It is the algebraic difference between earned value (EV) and actual cost (AC). CV = EV - AC. It helps determine if the project is under budget (CV > 0) or over budget (CV < 0). Maintaining a positive cost variance throughout the project s…

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CAPM - Cost Variance (CV) Example Questions

Test your knowledge of Cost Variance (CV)

Question 1

In the middle of a project, the actual cost is $40,000 but the earned value is $50,000. The project manager wants to know if they are over or under budget. What is the cost variance?

Correct Answer: $10,000

Cost Variance is calculated by subtracting the Actual Cost from the Earned Value. In this case, from the question, the Actual Cost is $40,000 and the Earned Value is $50,000. Therefore, subtracting $40,000 from $50,000 gives a positive $10,000 which indicates a favorable variance - the costs are under budget. The answer $-10,000 is incorrect because it suggests a negative variance, which would not be the case. The answer $90,000 and $30,000 are incorrect because they do not follow the method of subtracting the Actual Cost from the Earned Value.

Question 2

The planned value of a project is $60,000 and actual cost is $70,000, but the earned value is $50,000. What is the cost variance of this project?

Correct Answer: $-20,000

The cost variance (CV) of a project is calculated as the Earned Value (EV) minus the Actual Cost (AC). From the question details we have EV = $50,000 and AC = $70,000. So, the CV is $50,000 minus $70,000 which equals $-20,000. This means that the project is over budget (negative variance). The other answers are incorrect. An answer of '$10,000' would suggest that the project is under budget (positive variance), which is not true based on the CP value. The answer of '$20,000' suggests a bigger positive variance, which is also incorrect. And 'No variance' would mean that the EV and AC are same, which is not the case here.

Question 3

In a manufacturing project, the actual cost is $25,000 while the earned value is $30,000. The project is in the middle phase and the project director is concerned about being over or under the budget. What is the cost variance?

Correct Answer: $5000

Cost variance (CV) in project management is calculated using the formula CV = Earned Value (EV) - Actual Cost (AC). In this scenario, the earned value is $30,000 and the actual cost is $25,000. The CV = $30000 - $25000, so the cost variance is $5000. This is a positive value which indicates that the project is under budget. The answer '-$5000' is incorrect because a negative cost variance would indicate that the project is over budget, which is not the case based on the numbers given. The answers '$25000' and '-$25000' are not correct because they do not result from the correct calculation of earned value - actual cost.

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