Cost Variance Corrective Actions: PMP Exam Insights
Your project is running 15% over budget at the midpoint. Earned value analysis shows CPI = 0.87 and SPI = 1.02. The project is ahead of schedule but over budget. Which THREE actions should you take?
Quick Answer
Conducting a variance analysis is the necessary first move because the earned value data given here, a CPI of 0.87 alongside an SPI of 1.02, tells you clearly that there's a cost problem happening despite the schedule actually running ahead, and that combination only makes sense once you understand what's driving the cost overrun specifically. Without knowing the cause, whether it's underestimated costs, resource inefficiency, scope additions that were never formally priced, or something else entirely, any corrective action the project manager takes would be a guess rather than a targeted fix. Variance analysis turns the raw index numbers into an actual diagnosis, which is what then allows for informed next steps like communicating the situation to the sponsor and stakeholders or pursuing a change request for additional funding or scope adjustment. Jumping straight to requesting more budget or cutting scope without first understanding why the CPI is below one risks solving the wrong problem or repeating the same overrun later in the project. Whenever a scenario hands you specific earned value figures like CPI and SPI, treat the numbers as a signal that something needs investigating rather than a self-explanatory answer, and expect the correct response to start with analyzing the root cause before any corrective or communicative action is taken.
⚠ Common exam trap
The trap here is that candidates often jump to requesting more budget (option C) or cutting quality (option B) without first performing variance analysis, which is a required step in the PMI process for controlling costs.
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
✓
Inform the sponsor and stakeholders about the cost performance and planned actions.
The PMBOK Guide requires the project manager to proactively communicate cost performance and planned corrective actions to stakeholders and the sponsor, especially when the CPI is 0.87 (15% over budget). This transparency maintains trust and enables informed decision-making, such as approving a change request for additional funds or scope adjustments.
Answer analysis
Option-by-option breakdown
For each option: why learners choose it and why it is or isn't the right answer here.
- ✓
Inform the sponsor and stakeholders about the cost performance and planned actions.
Why this is correct
Transparent communication with stakeholders is critical when performance deviates.
- ✗
Reduce quality testing to cut costs.
Why it's wrong here
Reducing quality can lead to rework and increased costs later; PMI does not recommend cutting quality.
- ✗
Request additional budget immediately to cover the overrun.
Why it's wrong here
Requesting more funds without first analyzing and presenting a recovery plan is premature.
- ✓
Implement cost control measures such as reducing scope or using cheaper resources.
Why this is correct
After analysis, implementing corrective actions (through change control if needed) is appropriate.
- ✓
Conduct a variance analysis to understand the cause of the overrun.
Why this is correct
Understanding root causes is essential to take effective corrective action.
Go deeper
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Same concept, more angles
3 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: The PM should analyze the variance, determine root cause, and develop corrective actions, then communicate to stakeholders.
Variation 2. A project is running over budget due to underestimation of effort. The project manager wants to bring costs under control. Which THREE actions are MOST appropriate?
hard- ✓ A.Submit a change request to reduce scope.
- B.Ask the team to work overtime without additional pay.
- ✓ C.Implement a continuous improvement program to reduce waste.
- ✓ D.Re-estimate the remaining work using bottom-up estimating.
- E.Fast-track remaining activities to finish earlier.
Why A: Submitting a change request to reduce scope is a formal control action that directly lowers costs. Option C is correct because implementing a continuous improvement program to reduce waste cuts costs without affecting scope or schedule. Option D is correct because re-estimating remaining work using bottom-up estimating provides a more accurate cost baseline, enabling better control. Options B and E are incorrect: working overtime without pay is unethical and unsustainable, and fast-tracking increases risk and typically does not reduce costs.
Variation 3. 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 by Johnson Ajibi, MSc IT Security
Senior Network & Security Engineer · founder of Courseiva
This PMP practice question is part of Courseiva's free PMI certification practice question bank. Courseiva provides original exam-style practice questions with explanations, topic-based practice, mock exams, readiness tracking, and study analytics to help learners prepare for the PMP exam.