## Cost Variance and Cost Performance Index

For cost performance evaluation, we need only two pieces of data: earned value and the actual cost. We use these data to compute the cost variance. The CV (Cost Variance) is the earned value minus the actual cost. The calculation is: EV - AC = CV. Using our example, it is 2,000 - 2,400 = -400.

Again, although we use the term cost, it also works with labor hours (or any other weight factor). If the EV is 80 hours and the AC is 96 hours, the CV is -16.

It is actually more useful to express this variance as a fraction. The CPI (Cost Performance Index) is the EV divided by the AC, or 2,000/2,400 = 0.8333. We are looking for a CPI that is 1.000 or greater, so this 0.8333 signifies subpar cost performance. We spent $2,400 to do $2,000 worth of work (or 96 hours to do 80 hours of work).

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