Question 91

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

Cost variance (CV) is determined by subtracting the actual cost (AC) from the earned value (EV). This equation helps in assessing the financial performance of a project.

A) CV = EV / BAC

This option is incorrect because it describes a ratio of earned value to budget at completion (BAC), which does not provide a measure of cost variance. Cost variance requires a direct comparison between earned value and actual costs, not a division.

B) CV = EV - BAC

This option is also incorrect as it calculates the difference between earned value and budget at completion (BAC). While it may provide insight into budget performance, it does not assess actual costs incurred, which is essential for determining cost variance.

C) CV = EV / AC

This option is incorrect because it presents a ratio of earned value to actual cost. While it may indicate cost efficiency, it does not directly calculate cost variance, which is determined by the difference between earned value and actual costs.

D) CV = EV - AC

This is the correct equation for calculating cost variance. By subtracting the actual cost (AC) from the earned value (EV), this formula directly measures how much a project is over or under budget.

Conclusion

The correct answer, CV = EV - AC, accurately reflects the calculation needed to determine cost variance in project management. All other options fail as they either focus on ratios or incorrect values that do not provide a clear measure of cost performance against the budget. Understanding cost variance is crucial for effective project management and ensuring financial accountability.