Question 25

A negative cost variance occurs when the actual cost is more than the earned value.

A negative cost variance (CV) occurs when the actual cost of work performed exceeds the earned value, indicating that the project is over budget.

A) When cost variance is more than schedule variance

This option is incorrect because it conflates cost variance with schedule variance. A negative cost variance specifically relates to the difference between actual costs and earned value, not a comparison between the two types of variance.

B) When the earned value is more than the actual cost

This option is incorrect as it describes a scenario of positive cost variance. A situation where the earned value is greater than the actual cost indicates that the project is under budget, which is not a negative cost variance.

C) When the actual cost is more than the earned value

This option is correct. A negative cost variance occurs precisely in this situation, where the expenses incurred surpass the value of the work completed, signaling that the project is exceeding its budget.

D) When schedule variance is more than cost variance

This option is incorrect because it focuses on the relationship between schedule and cost variances rather than directly addressing the definition of cost variance itself. A negative cost variance does not depend on the relative sizes of these two variances.

Conclusion

A negative cost variance clearly indicates budget overruns, occurring specifically when the actual costs exceed the earned value. Options A, B, and D fail to address the definition of cost variance, while C accurately captures the essence of the situation where a project is over budget. Thus, C is the definitive correct answer regarding negative cost variance in earned value management.