How do you calculate cost variance (CV) and what does it indicate?

How do you calculate cost variance (CV) and what does it indicate?

• A. CV = EV − AC; positive indicates cost underrun.
• B. CV = AC − EV; positive indicates cost underrun.
• C. CV = EV − AC; positive indicates cost underrun.
• D. CV = EV × AC; positive indicates underrun.

Answer: (C)

In earned value management, cost variance measures whether you're under or over budget by comparing the value of work actually performed to what you’ve actually spent. The correct formula is CV = EV − AC, where EV is the earned value and AC is the actual cost. If EV exceeds AC, CV is positive, signaling a cost underrun—you're achieving more value for less money. If EV is less than AC, CV is negative, signaling a cost overrun. A CV of zero means you’re exactly on budget. Using AC − EV would flip the sign and mislead about budget status, and multiplying EV by AC isn’t a valid variance measure.

In earned value management, cost variance measures whether you're under or over budget by comparing the value of work actually performed to what you’ve actually spent. The correct formula is CV = EV − AC, where EV is the earned value and AC is the actual cost. If EV exceeds AC, CV is positive, signaling a cost underrun—you're achieving more value for less money. If EV is less than AC, CV is negative, signaling a cost overrun. A CV of zero means you’re exactly on budget. Using AC − EV would flip the sign and mislead about budget status, and multiplying EV by AC isn’t a valid variance measure.