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Complete Guide on Cost Variance Analysis for PMP Exam

Cost Variance Analysis is a fundamental part of cost management in project management. It pertains to the PMBOK Guide Seventh Edition.

Why is it important?
It helps in assessing the efficiency of cost performance of any project. It enables project managers to understand if they are over or under the budget, which is crucial for project success.

What is it?
Cost variance analysis is measuring the cost performance by comparing the budgeted costs of work performed (earned value), with the actual cost of the work performed. A negative cost variance means the project is over budget and a positive variance indicates the project is under budget.

How does it work?
Cost Variance (CV) is calculated by subtracting the actual cost (AC) from the earned value (EV). The formula is CV = EV - AC.

Answering exam questions on Cost Variance Analysis:
1. Understand the difference between a negative and positive variance.
2. Remember the Cost Variance formula and understand how to use it.
3. Ensure to read the question carefully before choosing the answer.
4. Practice as many questions as possible on cost variance, to solidify your understanding.

Exam Tips: In the exam, you could be given a scenario and asked to calculate the cost variance. Always remember that negative variance means the project is over budget and a positive one means it's under budget.

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Cost Variance Analysis practice test

Cost Variance Analysis is a method used by project managers to evaluate the financial performance of a project by comparing its planned costs to its actual costs. This analysis involves calculating cost variances, which represent differences between the budgeted cost (baseline) and actual cost. Cost variance can be positive (favorable) when actual costs are lower than budgeted costs or negative (unfavorable) when actual costs exceed budgeted costs. This technique allows project managers to identify trends in cost performance, detect potential cost overruns, and determine the causes of cost deviations, such as inefficiencies, scope changes or variances in resource utilization.

Time: 5 minutes   Questions: 5

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Project Management Professional Preparation Package (2024)

  • Earn 35 PDUs needed for your PMP certification
  • 12955 Superior-grade Project Management Professional practice questions.
  • Accelerated Mastery: Deep dive into critical topics to fast-track your mastery.
  • Unlock Effortless PMP preparation: 5 full exams.
  • 100% Satisfaction Guaranteed: Full refund with no questions if unsatisfied.
  • Bonus: If you upgrade now you get upgraded access to all courses
  • Risk-Free Decision: Start with a 7-day free trial - get premium features at no cost!