Cost Variance (CV) is also known as budget variance as it deals with the budget of the software development.
Cost variance is the difference of the actual cost and the budgeted cost or in other words it is difference between what was expected to be spent and what was actually spent.
The difference between the earned value and the actual cost is known as Cost Variance.
CV = EV - AC
Interpretation of Cost Variance (CV):
- If CV is negative, the task is over budget.
- If CV is zero, the task is on budget.
- If CV is positive, the task is under budget.
Schedule Variance (SV):
Schedule variance is basically used to indicate whether a project is running ahead or behind. It is the difference of Budgeted Cost of Work Performed (BCWP) and Budgeted Cost of Work Scheduled (BCWS). Schedule variance is computed by calculating the difference between Earned Value and Planned Value.
SV = EV - PV
Interpretation of Schedule variance:
- If SV is negative, the project is behind schedule.
- If SV is zero, the project is right on schedule.
- If SV is positive, the project is ahead of schedule.
What is EV, AC and PV?
Co-relation of SV and CV:
- SV and CV are positive:
The project is ahead of schedule and it is under budget.
- SV is positive and CV is negative:
The project is ahead of schedule and it is over budget. In other words we can say that the tasks performed are over budget but more of them have been performed before scheduled.
- SV is negative and CV is positive:
The project is behind schedule and it is under budget.
In other words we can say that the tasks performed were efficient but more of them should have been performed earlier.
- SV and CV are negative:
The project is behind schedule and it is over budget.
Given a budgeted cost of a project at Rs. 9, 00, 000. It is to be completed in 9 months. After a month, you have completed 10 percent of the project at a total expense of Rs. 1, 00, 000.
The planned completion should have been 15 percent. Calculate Cost Variance and Schedule Variance.
= Planned Completion (%) * Actual Budget
= 15% * Rs. 9, 00, 000
= Rs. 1, 35, 000
= Actual Completion (%) * Actual Budget
= 10% * Rs. 9, 00, 000
= Rs. 90, 000
= EV – AC
= Rs. 90, 000 – Rs. 1, 00, 000
= Rs. - 10, 000
= EV – PV
= Rs. 90, 000 – Rs. 1, 35, 000
= Rs. - 45, 000
Since the Cost Variance is negative, this means the project is over-budget and Schedule Variance is negative, the project is behind schedule.