Which formula is used to determine Cost Variance?

Cost Variance (CV) is a crucial metric in project management that tells you how much under or over budget a project is at a specific point in time. The formula for calculating Cost Variance is determined by subtracting Actual Cost (AC) from Earned Value (EV).

In this context, Earned Value refers to the value of the work that has actually been completed in terms of the budget, while Actual Cost is the total expenditure incurred to complete that work. By using the formula CV = EV - AC, project managers can identify whether the costs incurred are above or below the planned expenditure.

If the result of this calculation is positive, it indicates that the project is under budget, signaling a favorable variance, whereas a negative result suggests that the project is over budget, implying unfavorable variance. Understanding this formula is essential for effective financial tracking and control in project management.