Cost Variance (CV)
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 suggests that the project is efficiently using its resources.
Guide on Cost Variance (CV) in Earned Value Management under CAPM
What is Cost Variance (CV)?
Cost Variance (CV) is a concept under Earned Value Management (EVM). It is used to measure the cost performance of a project by comparing the actual cost against the earned value (work performed).
Why is Cost Variance (CV) Important?
CV is important because it gives a clear view of how much more or less the costs are compared to the original plan. A positive CV indicates that the project is under budget, while a negative CV indicates that the project is over budget. This allows project managers to make necessary adjustments for maintaining the budget.
How Does Cost Variance Work?
CV is calculated using the formula: CV = EV - AC where EV is Earned Value and AC is Actual Cost. This gives a numerical value, the interpretation of which can provide project performance insights.
Exam Tips: Answering Questions on Cost Variance (CV)
1. Understand the CV concept thoroughly, especially the meaning of positive and negative CV.
2. Be familiar with the CV formula and be able to use it to calculate CV when given EV and AC.
3. Get used to interpreting CV in context. It's not just about computing a number but about understanding what that number signifies in the grand scheme of the project.
4. In case studies, draw upon your understanding of CV to make informed recommendations or predictions about the project’s cost performance.
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