PMcrunch

Traditional cost variance measurements are based on a comparison of actual costs to the budgeted (planned) costs.  This ignores the work accomplished (value earned) on the project and can be misleading.
 

Using earned value performance measurements, the cost and schedule variances are calculated as:
 

Cost Variance (CV) = Earned Value – Actual Costs
 

Schedule Variance (SV) = Earned Value – Planned Value

 

A negative schedule variance indicates the project has not accomplished the work scheduled and is behind schedule.  Working with a project scheduling tool (such as MS Project), the project manager can make adjustments to the critical path and resource assignments to bring the project back on track.
 

A negative cost variance indicates the value of the work accomplished (earned value) is less than the actual costs incurred in completing the work.  In other words, it is costing more than originally planned to complete deliverables.
 

In addition to cost and schedule variances, performance indices are calculated as:
 

Cost Performance Index (CPI) = Earned Value / Actual Costs
 

Schedule Performance Index (SPI) = Earned Value / Planned Value

 

The performance indices are used to forecast the total project costs.  A favorable performance index will be greater than 1.  A Cost Performance Index less than 1 indicates the deliverables are costing more than originally estimated and there will be a cost overrun on the project.  When the Schedule Performance Index is less than 1, the work is progressing slower than planned.  This could lead to a schedule overrun, cost overrun, or both.
 

The earned values formulas can be confusing to those studying for their PMP or CAPM exams.  To assist in remembering the formulas for CV, SV, CPI and SPI, just remember three simple rules:
 

1. Earned Value is first in all formulas.
2. Both CV and CPI are cost related; hence they both use Actual Costs.  SV and SPI are schedule (i.e. plan) related so they use Planned Value.
3. Variance formulas (CV and SV) are calculated by subtracting, while Index formulas (CPI and SPI) are calculated by dividing.

 

Gord Gibben
Author:  Electronic Project Office