PMI CAPM Exam - Topic 4 Question 120 Discussion

According to the PMBOK Guide, specifically the Control Costs process, Cost Variance (CV) is the amount of budget deficit or surplus at a given point in time, expressed as the difference between earned value and the actual cost.

The Formula:

$$CV = EV - AC$$

(Where $EV$ is Earned Value and $AC$ is Actual Cost).

The Components:

Earned Value ($EV$): The value of the work actually performed to date.

Actual Cost ($AC$): The total cost actually incurred and recorded in accomplishing the work performed.

Interpreting the Result:

Positive CV ($> 0$): The project is under budget. You have spent less than the value of the work you have accomplished.

Negative CV ($< 0$): The project is over budget. You have spent more than the value of the work you have accomplished.

Zero CV ($= 0$): The project is exactly on budget.

Analysis of other options:

Option A: $EV / BAC$ (Budget at Completion) is not a standard performance index, though $EV / BAC$ is sometimes used to calculate the 'percent complete' of the total project budget.

Option C: $EV - BAC$ is not a standard formula. Variance at Completion (VAC) is $BAC - EAC$, which measures the projected budget performance at the end of the project.

Option D: $EV / AC$ is the formula for the Cost Performance Index (CPI). While related to CV, it is an index (ratio) used to measure the cost efficiency of resources, not the variance (absolute currency value).

Per PMI standards, the Cost Variance (CV) is a critical metric for tracking the financial health of a project, and it is always calculated by subtracting the Actual Cost from the Earned Value.