Overview
The Cost Variance Percentage measures project cost performance compared to project cost estimates. This is frequently
used to evaluate cost management performance for both individual projects and project portfolios.
Measurement Method
Cost Variance = (Budget at Completion - Actual Cost) / Budget at Completion - where:
Budget at Completion (BAC) = Total budgeted costs, frequently the total original estimated project costs, for a
specified completed project. Cost can be quantified in terms of currency (e.g., dollars) or effort (e.g.,
person-hours).
Actual Cost (AC) = Total costs actually spent on same specified project. Cost must be quantified in the same units as
BAC, above.
The same formula can be used to evaluate multiple projects within a project portfolio for a defined evaluation period:
Portfolio Cost Variance = (Sum(BAC) - Sum(AC)) / Sum(BAC) – where:
Sum(BAC) = the sum of budget costs for the targeted completed projects for the specified evaluation period.
Sum(AC) = the sum of actual costs for the targeted completed projects for the specified evaluation period.
Measurement Analysis
Cost Variance Percentage indicates how accurately projects estimate actual costs or, alternatively, how well projects
deliver their defined project objectives within their original budgets. Rendered as a percentage, this metric
facilitates trend charting and comparisons from period to period to determine cost management performance over time.
Cost Variance Percentage should fall between optimal values, frequently ranging from +/- 5% to +/- 20%. However, the
optimal range is dependent on the type of projects under evaluation. For example, highly predictable projects, such as
maintenance or small enhancement projects, require a narrower range of evaluation (say, +/- 5%); whereas, highly risky
projects require a wider range of evaluation (say, +/- 20%). Additional ranges can be used to establish tiered
evaluation to characterize low, moderate, high variance conditions.
Upon establishing the evaluation ranges, if a project or portfolio falls within the optimal range, the project or
portfolio is evaluated with optimal cost performance. Otherwise, the project or portfolio is evaluated at a lower level
of cost performance.
Alternatively, a chart similar to the one that follows can classify portions of project portfolios by Cost Variance
Percentage. This allows evaluation of portfolio performance from period to period.
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