Returning to our graph, we can see that our **actual cost** is less than our **earned value**, which is another way of saying that our project is **under budget**.

In other words, *relative to our original project plan*, the work we have completed (or **earned**) is worth more than we have spent.

How far are we under budget?

Well, our **cost variance** can be calculated using the following formula:

CV = EV – AC

Therefore in our example, **earned value is $2,750** and the **actual cost of work performed is $2,300**. So at this point we are **$450 under budget**.

And look – on our graph, $450 is the distance between our earned value and actual cost!

Note that the relationship between *actual cost* and *planned value* is **not** a meaningful guide to project performance.

*Think about it for a moment* – at a given point in the project, we might have spent $5,000 versus a planned value of $10,000.

This might look like a good thing, but if we have only done the equivalent of $1,000 worth of work (EV), we should actually be quite concerned!

**Don’t fall into this trap! **

**Cost variance is always the difference between earned (not planned) value and actual cost.**

Our graph also shows that earned value is greater than planned value – this suggests that we are **ahead** of schedule.

Schedule variance is an expression of the relationship between *earned value* and *planned value*.

In other words, how much have we **completed** (*earned*) versus what we **planned** to do at this point?

Therefore, the formula is:

SV = EV – PV

In our example, Monday’s **earned value is $2,750** versus a **planned value of $2,500**, so the **schedule variance is $250**. And yes, looking at our chart confirms this.

We could also use the **schedule variance method** to say that we have earned 1½ days’ value versus one day of planned value, meaning we are half a day ahead of schedule.

And, what do you know, that relationship is also graphically evident!

Having said that, though, you usually refer to schedule variance in **dollars** for reasons that we will explain shortly.

Quizzes