Question 91

Cost variance (CV) is calculated using the equation CV = EV - AC.

Cost variance (CV) measures the difference between the earned value (EV) and the actual cost (AC) of work performed. Therefore, the correct equation to determine CV is CV = EV - AC.

A) CV = EV / BAC

This option is incorrect because it suggests that cost variance is calculated by dividing earned value (EV) by the budget at completion (BAC). This does not reflect the actual performance against costs, which is crucial for determining variance.

B) CV = EV - BAC

This choice is not correct as it indicates that cost variance is calculated by subtracting the budget at completion (BAC) from earned value (EV). This formula does not provide insight into the actual costs incurred, which is essential for understanding cost performance.

C) CV = EV / AC

This option is incorrect because it proposes that cost variance is determined by dividing earned value (EV) by actual cost (AC). This does not give a proper measure of variance, as it fails to account for the difference between what was earned and what was spent.

D) CV = EV - AC

This is the correct option, as it accurately represents the formula for cost variance. By subtracting actual cost (AC) from earned value (EV), this equation provides a clear picture of whether a project is under or over budget.

Conclusion

The correct equation for calculating cost variance is CV = EV - AC, as it directly compares the value of work completed against the costs incurred. Options A, B, and C fail to capture this essential comparison, making them unsuitable for determining cost variance in project management. Understanding cost variance is critical for effective budget management and financial analysis.