Question

Calculate CV (Cost Variance). What does that tell you about the project?

a) CV = Earned Value - Actual Cost
b) CV = Actual Cost - Earned Value
c) CV indicates the cost performance of the project.
d) CV measures the schedule performance of the project.

Answer 1

Cost Variance (CV) is calculated as CV = Earned Value - Actual Cost and reflects whether a project is over or under budget. It is vital for assessing the cost performance of a project, distinguishing it from measures of schedule performance and per-unit cost analysis such as average variable cost. A positive CV indicates a project under budget, while a negative CV shows an over budget status.

Step-by-step explanation:

The calculation of Cost Variance (CV) is represented by the formula CV = Earned Value - Actual Cost. This formula indicates how much over or under budget a project is at a point in time. CV is a critical metric in project management, as it indicates the cost performance of the project. A positive CV indicates that the project is under budget, while a negative CV suggests the project is over budget. This concept is different from the calculation of average total cost, average variable cost, and marginal cost, which are based on a per-unit analysis.

In contrast to CV, which is focused on cost performance, the measurement of schedule performance is done through Schedule Variance (SV), not CV. Understanding the differences between these concepts is essential for effective project management and economic analysis. Moreover, recognizing when a firm's average variable cost is lower than the market price helps in assessing the profit-making potential if fixed costs are ignored.