Cost Variance Analysis in Project Management
You are managing a project that is 15% over budget at the midpoint. The earned value (EV) is $100,000, actual cost (AC) is $115,000, and planned value (PV) is $110,000. What is the most likely reason for the cost variance?
Quick Answer
The answer is that costs are higher than planned for the work performed. This is the most likely reason because cost variance analysis in project management compares earned value (EV) to actual cost (AC), and here AC of $115,000 exceeds EV of $100,000, producing a negative cost variance of -$15,000. Since the project is 15% over budget at the midpoint, the actual expenditures have outpaced the value of work completed, confirming a cost overrun rather than a schedule or scope issue. On the PMP exam, this scenario tests your ability to interpret EVM metrics and distinguish between cost variance (CV = EV - AC) and schedule variance (SV = EV - PV); a common trap is confusing a negative CV with being behind schedule, but here the schedule is also behind since EV is less than PV. A useful memory tip is to remember that cost variance is about the budget spent versus work done, so if AC is greater than EV, you are spending more for less—think “AC > EV = cost overdrive.”
⚠ Common exam trap
PMP often tests whether candidates can compute and interpret CV and SV signs correctly — the trap is confusing a negative CV (over budget) with a negative SV (behind schedule), or assuming any variance implies scope change.
Answer choices
Why each option matters
Answer the question above first, then reveal the full breakdown to understand why each option is right or wrong.
Correct answer & explanation
✓
Costs are higher than planned for the work performed
Cost Variance (CV) = EV − AC = $100,000 − $115,000 = −$15,000, a negative CV indicating the project is over budget. Since EV represents the budgeted value of work actually completed and AC is what was actually spent, a negative CV means the work performed cost more than planned — i.e., costs are higher than planned for the work completed.
Answer analysis
Option-by-option breakdown
For each option: why learners choose it and why it is or isn't the right answer here.
- ✓
Costs are higher than planned for the work performed
Why this is correct
CV equals EV minus AC, giving $100,000 minus $115,000, a negative $15,000 variance. The schedule is ahead, since EV exceeds PV, so the overspend stems from actual costs exceeding the budgeted cost of work performed, not from schedule slippage.
- ✗
The project is ahead of schedule
Why it's wrong here
Schedule position is measured by schedule variance (EV minus PV = -10,000) and schedule performance index (0.91); the project is behind schedule, not ahead. It is tempting because a positive cost variance is often confused with progress, but cost variance (EV minus AC = -15,000) is independent of schedule.
- ✗
The project is under budget
Why it's wrong here
Cost variance is EV minus AC, giving 100,000 minus 115,000 = -15,000, which is over budget, not under. It is tempting because EV exceeds the midpoint expectation, but EV is compared against AC for cost and against PV for schedule; here AC exceeds EV.
- ✗
The scope was increased without adjusting the budget
Why it's wrong here
Scope growth without budget adjustment would raise both AC and EV together, leaving cost performance index near 1.0; here CPI is 100,000/115,000 = 0.87, so cost per unit of work rose. It is tempting because unapproved scope is a common overrun cause, but the figures indicate cost inefficiency, not scope.
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Same concept, more angles
2 more ways this is tested on PMP
These questions test the same concept from different angles. Work through them to make sure you can recognise it however the exam phrases it.
Variation 1. Your project is running 15% over budget at the midpoint. The cost variance is due to higher-than-expected material costs. What is the BEST action?
medium- A.Reduce the quality of deliverables to cut costs
- ✓ B.Analyze the variance and implement corrective actions such as reducing scope or using cheaper materials
- C.Request additional budget from the sponsor
- D.Inform the sponsor of the overrun and wait for instructions
Why B: When a project is over budget at the midpoint, the PM should first analyze the variance to understand root cause, then implement corrective actions that bring performance back in line with the cost baseline. Reducing scope or sourcing cheaper materials are legitimate corrective actions that address the variance without compromising quality or bypassing governance. This aligns with PMBOK's Control Costs process: measure, analyze, and act.
Variation 2. You are managing a project that is running 15% over budget at the midpoint. The variance is due to higher-than-expected material costs. The sponsor is concerned about cost overruns. What should you do FIRST?
medium- A.Ask the team to find cheaper alternatives for materials immediately
- B.Reduce the project scope to bring costs back in line with the budget
- ✓ C.Analyze the cost variance to determine the root cause and update the EAC
- D.Request additional budget from the sponsor to cover the overrun
Why C: The PM should first analyze the root cause of the cost variance and determine if the trend is likely to continue. Based on this analysis, the PM can develop a revised estimate at completion (EAC) and communicate it to the sponsor. Simply asking for more budget or reducing scope without analysis is premature.
JA
Written and reviewed by Johnson Ajibi, MSc IT Security
Senior Network & Security Engineer · founder of Courseiva
Last reviewed September 2026 · checked against the official PMI exam blueprint
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