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Project management

Cost variance: the key to keep projects under budget

Rachel Hakoune 5 min read
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All projects have various costs associated with them. Ideally, these costs have been planned for ahead of time and detailed in a project budget.

The tricky part can be tracking spending and expenses as your project progresses. The tracking process includes cost variance: the delta (difference) between actual cost and projected/budgeted cost. Said another way, the cost variance is what you expected to spend versus what you actually spent.

In this blog post, we’ll break down how to perform cost variance analyis, provide a mini-guide to keeping your projects within budget, and discuss how can help calculate and manage cost variance.

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How do you calculate cost variance?

When it comes to cost variance, there are three main ways to measure it:

  1. Point-in-time (or period-by-period) cost variance
  2. Cumulative cost variance
  3. Variance at completion

Point-in-time cost variance is the most basic, simple form of cost variance — the difference between actual costs and earned value* … within a specific period. It’s a snapshot in time.

*Earned value = value of work actually performed

Cumulative cost variance considers the entire project budget vs. cost up to a specific point in time. Like point-in-time cost variance, it’s also a snapshot in time, but time starts at the beginning of the project.

Variance at completion is most similar to cumulative cost variance as the calculation takes into account the budget vs. cost from the start of the project, but the end date is the end of the project. This technique is used most often in future forecasting

All three methods follow a similar cost variance formula, as outlined by the Project Management Institute (PMI):

The cost variance formula is defined as the ‘difference between earned value and actual costs. (CV = EV – AC)’ (PMI, 2004, p. 357) Sometimes this formula is expressed as the difference between budgeted cost of work performed and actual cost work performed. If the variance is equal to 0, the project is on budget. If a negative variance is determined, the project is over budget and if the variance is positive the project is under budget.

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What are 3 ways to help keep projects within budget?

Measuring cost variance is just one piece of the budget puzzle to consider. Here are 3 ways to ensure that happens (or at least stack the odds in your favor):

1. Spend the time upfront to understand project needs: Do the work. Or better yet, do the hard work. Take time to truly understand the full scope of the project. Is this project similar to previous projects, or is it something entirely new? What have you learned from past budgets that can help refine this budget?

Be sure every project requirement has been identified, documented, and confirmed with all necessary parties.

2. Plan for the unknown: All sound budgets consider the unknown, the unexpected. Global pandemics aside, it’s important that your budget has some wiggle room build into it. Depending on your specific project, there can be many factors outside of your control that can have a huge impact on your budget, leading to a sizable cost variance — labor costs, supply pricing, shortages, currency exchange fluctuation, and so on.

3. Manage change: Alongside planning for the unknown, it’s also essential to be able to manage this change when it happens — and it will happen. Having the communication tools in place — email, chat, in-app messaging, weekly status meetings, etc. — will reduce the confusion, limit the surprises, and ultimately help manage your budget.

Keeping your budget on track — and avoiding negative cost variance — is no easy task. Incorporating some of the suggestions above will help minimize fluctuations in budgeting.

Templates: your answer to managing budgets (and cost variance) easily has dozens and dozens of fully customizable templates for every industry. When it comes to managing project budgets, there are two that stand out:

Project Cost Management Template: This template helps project managers stay on top of project costs and reach their outlined objectives more efficiently.

High Level Project Cost Management

Expense Tracking Template: This template ensures teams keep up-to-date on payments and clearly get the picture of all monthly expenses.

Expense Tracking

A few perks of this template include:

  • Easy-to-use: No accounting (or coding or programming) experience needed. Simply all bill information into the appropriate columns.
  • Flexible: Any business, any industry. All labels and columns can be renamed with a quick click for a fully-personalized template.
  • Set reminders: Pre-programmed automations make it easy to set up alerts. Never miss a payment again.

Budget Tracking Template: This template provides a clear picture of your budget — easily plan your future spendings! budget tracker template

Each of the above templates is your starting point to manage your project budget and associated cost variance.

This help article details the process for managing your budget in

When it comes to cost variance, it’s as simple as two columns + a formula:

  • Numbers Column #1: Budget Target
  • Numbers Column #2: Money Spent
  • Formula: IF({Actual Cost} > {Estimated Cost}, “Over budget”, “Good”)

From basic calculations to complex formulas, the Formula Column will do all the heavy lifting (aka, you don’t have to do math!), leaving you with what you need to know to stay on track.

But don’t take our word for it. Test out today. Sign up. Download a template. 14-day free trial —no credit card needed.

Rachel Hakoune is a Content Marketing Manager at Originally from Atlanta, she is finding the balance between southern charm and Israeli chutzpah.
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