As a Certified Associate in Project Management (CAPM), calculating Cost Variance (CV) and Schedule Variance (SV) is a crucial skill to keep projects on track. These variances are important project management metrics that provide useful information about your project’s health and effectiveness.

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Understanding Cost Variance (CV)

Cost Variance is a measure of the budget performance of a project. It’s the difference between the budgeted cost of work performed, also known as Earned Value (EV), and the actual cost of work performed, known as Actual Cost (AC). The formula for calculating Cost Variance is:

Cost Variance (CV) = Earned Value (EV) – Actual Cost (AC)

Here, a positive CV indicates that the project is under budget, whereas a negative CV suggests that the project is over budget. For instance, if the budgeted cost for a task was $5000 (EV) and the actual cost incurred is $7000 (AC), then the cost variance would be $-2000 indicating the project is over budget.

Understanding Schedule Variance (SV)

Schedule Variance measures the schedule performance of the project. It’s the difference between the Earned Value and the Planned Value (PV). The formula for calculating Schedule Variance is:

Schedule Variance (SV) = Earned Value (EV) – Planned Value (PV)

A positive SV indicates that the project is ahead of schedule, and a negative SV suggests that the project is behind schedule. Suppose your project had a Planned Value of $5000 and an Earned Value of $7000, then the Schedule Variance would be $2000, indicating that your project is ahead of schedule.

Interpreting CV and SV

Aspects Positive Value Negative Value
CV Under Budget Over Budget
SV Ahead of Schedule Behind Schedule

Example

Let’s analyze a project with the following figures:

  • Planned Value (PV): $10,000
  • Earned Value (EV): $8,000
  • Actual Cost (AC): $9,000

Here, CV can be computed as:

CV = EV – AC

CV = $8,000 – $9,000 = $-1,000

This reveals the project is over budget.

Similarly, SV can be found as:

SV = EV – PV

SV = $8,000 – $10,000 = $-2,000

This reveals the project is behind schedule.

Monitoring and controlling your project using Cost Variance and Schedule Variance allows you to identify problems early. By consistently computing these measures throughout the lifecycle of your project, you can make necessary adjustments to ensure it stays on time and within budget. Remember, as a CAPM, your role is not just about executing the project as per the plan but to ensure its success by adapting to the changing dynamics during the course of project execution.

Practice Test

True or False: Cost Variance (CV) is calculated by subtracting the Actual Cost (AC) from the Earned Value (EV).

  • True
  • False

Answer: True

Explanation: This statement is true. The formula for Cost Variance (CV) is indeed CV = EV – AC. It indicates how far under or over budget the project is.

In project management, which of the following formula is used to calculate Schedule Variance (SV)?

  • A) SV = AC – EV
  • B) SV = PV – EV
  • C) SV = EV – AC
  • D) SV = EV – PV

Answer: D) SV = EV – PV

Explanation: Schedule Variance (SV) is calculated by subtracting the Planned Value (PV) from the Earned Value (EV).

True or False: A negative CV indicates the project is over budget.

  • True
  • False

Answer: True

Explanation: When CV is negative, it means the project’s actual cost is higher than the earned value, which implies it’s over budget.

True or False: A positive SV indicates that the project is behind schedule.

  • True
  • False

Answer: False

Explanation: A positive SV indicates that the project is ahead of schedule as the Earned Value (EV) is more than the Planned Value (PV).

What does a zero CV indicate in a project?

  • A) The project is behind schedule
  • B) The project is ahead of schedule
  • C) The project is over budget
  • D) The project is exactly on budget

Answer: D) The project is exactly on budget

Explanation: A CV of zero implies that the project’s actual cost equals the earned value, which means the project is exactly on budget.

True or False: The Schedule Variance (SV) and Cost Variance (CV) can be calculated at any point in the project.

  • True
  • False

Answer: True

Explanation: Both SV and CV can be calculated at any time in the project to give a snapshot of project performance.

What does a negative SV indicate in a project?

  • A) The project is behind schedule
  • B) The project is ahead of schedule
  • C) The project is over budget
  • D) The project is exactly on budget

Answer: A) The project is behind schedule

Explanation: A negative SV means the work accomplished so far is less than what was planned. Hence, the project is behind schedule.

True or False: If CV is positive, it indicates that the project is under budget.

  • True
  • False

Answer: True

Explanation: A positive CV indicates that the projected cost is less than the actual cost, which means the project is under budget.

Which of the following situations would give a positive SV?

  • A) The project is running behind schedule
  • B) The project is running ahead of schedule
  • C) The project is exactly on budget
  • D) The project is over budget

Answer: B) The project is running ahead of schedule

Explanation: A positive SV indicates that the project is ahead of schedule, as the Earned Value (EV) is more than the Planned Value (PV).

In project management, which of the following formula is used to calculate Cost Performance Index (CPI)?

  • A) CPI = EV / AC
  • B) CPI = AC / EV
  • C) CPI = EV – AC
  • D) CPI = AC – EV

Answer: A) CPI = EV / AC

Explanation: Cost Performance Index (CPI) measures the cost efficiency of the project. It is calculated by dividing the Earned Value (EV) by the Actual Cost (AC). A CPI less than 1 indicates the project is over budget.

Interview Questions

What is cost variance in project management?

Cost variance (CV) in project management is the difference between the budgeted cost of work performed (BCWP) and the actual cost of work performed (ACWP).

What is the formula to calculate Cost Variance (CV)?

The formula to calculate Cost Variance (CV) is CV = EV – AC, where EV is the Earned Value and AC is the Actual Cost.

What does a positive cost variance indicate?

A positive cost variance indicates that the project is under budget, meaning the project is spending less than planned.

How is Schedule Variance (SV) calculated?

Schedule Variance (SV) is calculated using the formula SV = EV – PV, where EV is the Earned Value and PV is the Planned Value.

What does a negative schedule variance mean?

A negative schedule variance means that the project is behind schedule.

What is Earned Value (EV) in project management?

Earned Value (EV) is a measure of the amount of work actually completed on a project against the original budget.

How is Planned Value (PV) defined in project management?

Planned Value (PV) is the estimated cost for the work planned or scheduled at a certain point in time.

What is Actual Cost (AC) in terms of project management?

Actual Cost (AC) is the total amount of money spent on a project up to the present point of time.

What does a cost variance of zero signify?

A cost variance of zero means that the project is perfectly on budget, with actual costs matching planned costs.

What does it imply if Schedule Variance (SV) is zero?

If Schedule Variance (SV) is zero, it means that the project is perfectly on schedule.

How does one interpret a positive schedule variance?

A positive schedule variance indicates that the project is ahead of schedule.

In project management, what is Schedule Performance Index (SPI)?

Schedule Performance Index (SPI) is a measure of the efficiency of time utilization on the project. It’s calculated with the formula SPI = EV/PV.

How do you interpret the Schedule Performance Index (SPI)?

If the SPI is greater than 1, the project is ahead of schedule. If the SPI is less than 1, the project is running behind schedule. If the SPI is exactly 1, the project is on schedule.

What is the Cost Performance Index (CPI) in project management and how is it calculated?

The Cost Performance Index (CPI) is a measure of the cost efficiency of project work, calculated as CPI = EV/AC.

How do you interpret the Cost Performance Index (CPI)?

If the CPI is greater than 1, the project is under budget. If the CPI is less than 1, it’s over budget. If the CPI is exactly 1, the project is on budget.

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