{"id":52090,"date":"2021-03-19T18:43:19","date_gmt":"2021-03-19T18:43:19","guid":{"rendered":"https:\/\/staging-mondaycomblog.kinsta.cloud\/?post_type=pm&p=52090"},"modified":"2023-11-14T11:30:03","modified_gmt":"2023-11-14T11:30:03","slug":"cost-variance-how-to-keep-projects-within-budget-using-templates","status":"publish","type":"post","link":"https:\/\/monday.com\/blog\/project-management\/cost-variance-how-to-keep-projects-within-budget-using-templates\/","title":{"rendered":"Cost variance: the key to keep projects under budget"},"content":{"rendered":"

All projects have various costs associated with them. Ideally, these costs have been planned for ahead of time and detailed in a project budget.<\/p>\n

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

In this blog post, we\u2019ll break down how to perform cost variance analyis, provide a mini-guide to keeping your projects within budget, and discuss how monday.com can help calculate and manage cost variance.<\/p>\n

Get started<\/a><\/p>\n

How do you calculate cost variance?<\/h2>\n

When it comes to cost variance, there are three main ways to measure it:<\/p>\n

    \n
  1. Point-in-time (or period-by-period) cost variance<\/li>\n
  2. Cumulative cost variance<\/li>\n
  3. Variance at completion<\/li>\n<\/ol>\n

    Point-in-time cost variance is the most basic, simple form of cost variance \u2014 the difference between actual costs and earned value* … within a specific period. It\u2019s a snapshot in time.<\/p>\n

    *Earned value = value of work actually performed<\/em><\/p>\n

    Cumulative cost variance considers the entire project budget vs. cost up to a specific point in time. Like point-in-time cost variance, it\u2019s also a snapshot in time, but time starts at the beginning of the project.<\/p>\n

    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<\/p>\n

    All three methods follow a similar cost variance formula, as outlined by the Project Management Institute<\/a> (PMI):<\/p>\n

    The cost variance formula is defined as the \u2018difference between earned value and actual costs. (CV = EV \u2013 AC)\u2019 (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.<\/em><\/p>\n

    Get started<\/a><\/p>\n

    What are 3 ways to help keep projects within budget?<\/h2>\n

    Measuring cost variance is just one piece of the budget puzzle to consider.\u00a0Here are 3 ways to ensure that happens (or at least stack the odds in your favor):<\/p>\n

    1. Spend the time upfront to understand project needs:<\/strong> 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?<\/p>\n

    Be sure every project requirement has been identified, documented, and confirmed with all necessary parties.<\/p>\n

    2. Plan for the unknown:<\/strong> All sound budgets consider the unknown, the unexpected. Global pandemics aside, it\u2019s 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 \u2014 labor costs, supply pricing, shortages, currency exchange fluctuation, and so on.<\/p>\nLeaving room for the unknown in budget planning is essential.<\/span><\/a>\n

    3. Manage change:<\/strong> Alongside planning for the unknown, it\u2019s also essential to be able to manage this change when it happens \u2014 and it will happen. Having the communication tools in place \u2014 email, chat, in-app messaging, weekly status meetings, etc. \u2014 will reduce the confusion, limit the surprises, and ultimately help manage your budget.<\/p>\n

    Keeping your budget on track \u2014 and avoiding negative cost variance \u2014 is no easy task. Incorporating some of the suggestions above will help minimize fluctuations in budgeting.<\/p>\n

    Templates: your answer to managing budgets (and cost variance) easily<\/h2>\n

    monday.com has dozens and dozens of fully customizable templates<\/a> for every industry. When it comes to managing project budgets, there are two that stand out:<\/p>\n

    Project Cost Management Template<\/strong><\/a>: This template helps project managers stay on top of project costs and reach their outlined objectives more efficiently.<\/p>\n

    \"High<\/p>\n

    Expense Tracking Template<\/strong><\/a>: This template ensures teams keep up-to-date on payments and clearly get the picture of all monthly expenses.<\/p>\n

    \"Expense<\/p>\n

    A few perks of this template include:<\/p>\n