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.
Option E is correct because with CPI = 0.87 the project is spending more than planned, and a variance analysis (comparing actual costs against earned value, e.g., CV = EV − AC) is the standard first step to identify the root cause of the overrun before choosing corrective actions. Option D is correct because cost control measures such as reducing scope, negotiating cheaper resources, or improving efficiency directly address the negative cost variance and aim to bring CPI back toward 1.0. Option A is correct because transparency with the sponsor and stakeholders about the cost performance and the planned corrective actions is a required communication and stakeholder-engagement activity when a project is 15% over budget at midpoint. Option B is not appropriate because cutting quality testing risks quality defects and rework, which typically increases total cost rather than reducing it. Option C is not appropriate as an immediate action because requesting additional budget should follow analysis and corrective measures, and SPI = 1.02 shows the schedule is not the problem driving the overrun.
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
Transparency with the sponsor and stakeholders is essential when cost performance deviates, as CPI of 0.87 signals overspending. Reporting the variance and planned corrective actions fulfils the project manager's accountability for stakeholder engagement and keeps decision-makers informed before further budget is committed.
- ✗
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
With CPI 0.87, each unit of spend delivers less value, so corrective action must cut the cost baseline. Reducing scope or substituting cheaper resources lowers planned expenditure directly, addressing the over-budget constraint while SPI 1.02 confirms schedule needs no intervention.
- ✓
Conduct a variance analysis to understand the cause of the overrun.
Why this is correct
Variance analysis compares planned versus actual cost to isolate whether the CPI 0.87 overrun stems from labour rates, rework, or scope creep. Identifying the root cause precedes corrective action, ensuring cost measures target the actual driver rather than masking the variance.
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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: 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. 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: Option A is correct because submitting a change request to reduce scope is the formal, approved way to lower the work content and therefore the cost baseline, directly addressing the root cause of the overrun (underestimated effort) without unapproved scope creep. Option C is correct because a continuous improvement program (e.g., Lean/Kaizen waste reduction) lowers the cost of remaining work by eliminating non-value-adding activities, improving productivity without adding budget. Option D is correct because re-estimating the remaining work with bottom-up estimating produces a more accurate, granular forecast of the effort still required, enabling realistic cost control and corrective action on the estimate-to-complete. Option B is not appropriate because unpaid overtime is unethical, likely illegal, and demoralizing, and it does not fix the estimation problem. Option E is not appropriate because fast-tracking (running activities in parallel) compresses the schedule, not the cost, and typically increases risk and rework costs rather than bringing the budget under control.
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.