Cost variance: how to keep projects under budget - Monday.com

The cost variance is defined as the 'difference between earned value and actual costs. (CV = EV – AC)' (PMI, 2004, p. 357) Sometimes this ... SkiptomaincontentSkiptofooterLinkCopied!Home>Costvariance:aquicktiptokeepprojectsunderbudgetCostvariance:aquicktiptokeepprojectsunderbudgetDJWaldow|6minread|Mar192021LinkCopied!Nothinginlifeistrulyfree.Thesamecanbesaidforbusiness,especiallyprojects.Allprojectshavevariouscostsassociatedwiththem.Ideally,thesecostshavebeenplannedforaheadoftimeanddetailedinaprojectbudget.Theprojectbudgetiswhatguidesanysuccessfulproject.It’sacrucialpartoftheprojectplanningprocess.Thetrickypartcanbetrackingspendingandexpensesasyourprojectprogresses.Thetrackingprocessincludescostvariance:thedelta(difference)betweenactualcostandprojected/budgetedcost.Saidanotherway,thecostvarianceiswhatyouexpectedtospendversuswhatyouactuallyspent.Inthisblogpost,we’llbreakdownhowtocalculatecostvariance,provideamini-guidetokeepingyourprojectswithinbudget,discusshowmonday.comcanhelpcalculateandmanagecostvariance.HowtocalculatecostvarianceWhenitcomestocostvariance,therearethreemainwaystomeasureit:Point-in-time(orperiod-by-period)costvarianceCumulativecostvarianceVarianceatcompletionPoint-in-timecostvarianceisthemostbasic,simpleformofcostvariance—thedifferencebetweenactualcostsandearnedvalue*…withinaspecificperiod.It’sasnapshotintime.*Earnedvalue=valueofworkactuallyperformedCumulativecostvarianceconsiderstheentireprojectbudgetvs.costuptoaspecificpointintime.Likepoint-in-timecostvariance,it’salsoasnapshotintime,buttimestartsatthebeginningoftheproject.Varianceatcompletionismostsimilartocumulativecostvarianceasthecalculationtakesintoaccountthebudgetvs.costfromthestartoftheproject,buttheenddateistheendoftheproject.ThistechniqueisusedmostofteninfutureforecastingAllthreemethodsfollowasimilarcostvarianceformula,asoutlinedbytheProjectManagementInstitute(PMI):Thecostvarianceisdefinedasthe‘differencebetweenearnedvalueandactualcosts.(CV=EV–AC)’(PMI,2004,p.357)Sometimesthisformulaisexpressedasthedifferencebetweenbudgetedcostofworkperformedandactualcostworkperformed.Ifthevarianceisequalto0,theprojectisonbudget.Ifanegativevarianceisdetermined,theprojectisoverbudgetandifthevarianceispositivetheprojectisunderbudget.Getstartedwithmonday.com3suggestionstohelpkeepprojectswithinbudgetSuccessfulprojectsstaywithinbudget.Unsuccessfulprojectsgooverbudget.Ahhh,ifitwereonlythatsimple.However,manydojudgeprojectsuccessbasedoncostvariance.Afterall,it’saneasy(single)datapointtomeasure.But…costvarianceisjustonemetric.Eitherway,it’salwaysbestpracticetodoeverythinginyourpowertokeepprojectswithinbudget.Hereare3waystoensurethathappens(oratleaststacktheoddsinyourfavor):1.Spendthetimeupfronttounderstandprojectneeds:Dothework.Orbetteryet,dothehardwork.Taketimetotrulyunderstandthefullscopeoftheproject.Isthisprojectsimilartopreviousprojects,orisitsomethingentirelynew?Whathaveyoulearnedfrompastbudgetsthatcanhelprefinethisbudget?Besureeveryprojectrequirementhasbeenidentified,documented,andconfirmedwithallnecessaryparties.2.Planfortheunknown:Allsoundbudgetsconsidertheunknown,theunexpected.Globalpandemicsaside,it’simportantthatyourbudgethassomewiggleroombuildintoit.Dependingonyourspecificproject,therecanbemanyfactorsoutsideofyourcontrolthatcanhaveahugeimpactonyourbudget,leadingtoasizablecostvariance—laborcosts,supplypricing,shortages,currencyexchangefluctuation,andsoon.Leavingroomfortheunknowninbudgetplanningisessential.3.Managechange:Alongsideplanningfortheunknown,it’salsoessentialtobeabletomanagethischangewhenithappens—anditwillhappen.Havingthecommunicationtoolsinplace—email,chat,in-appmessaging,weeklystatusmeetings,etc.—willreducetheconfusion,limitthesurprises,andultimatelyhelpmanageyourbudget.Keepingyourbudgetontrack—andavoidingnegativecostvariance—isnoeasytask.Incorporatingsomeofthesuggestionsabovewillhelpminimizefluctuationsinbudgeting.Templates:Youranswertomanagingbudgets(andcostvariance)Sometimesit’shardtoknowwhereandhowtogetstartedwiththebudgetprocess.Enter:templates.monday.comhasdozensanddozensoffullycustomizabletemplatesforeveryindustry.Whenitcomestomanagingprojectbudgetstherearetwothatstandout:ProjectCostManagementTemplate:Thistemplatehelpsprojectmanagersstayontopofprojectcostsandreachtheiroutlinedobjectivesmoreefficiently.ExpenseTrackingTemplate:Thistemplateensuresteamskeepup-to-dateonpaymentsandclearlygetthepictureofallmonthlyexpenses.Afewperksofthistemplateinclude:Easy-to-use:Noaccounting(orcodingorprogramming)experienceneeded.Simplyallbillinformationintotheappropriatecolumns.Flexible:Anybusiness,anyindustry.Alllabelsandcolumnscanberenamedwithaquickclickforafully-personalizedtemplate.Setreminders:Pre-programmedautomationsmakeiteasytosetupalerts.Nevermissapaymentagain.BudgetTrackingTemplate:Thistemplateprovidesaclearpictureofyourbudget—easilyplanyourfuturespendings!Eachoftheabovemonday.comtemplatesisyourstartingpointtomanageyourprojectbudgetandassociatedcostvariance.Thishelparticledetailstheprocessformanagingyourbudgetinmonday.com.Whenitcomestocostvariance,it’sassimpleastwocolumns+aformula:NumbersColumn#1:BudgetTargetNumbersColumn#2:MoneySpentFormula:IF({ActualCost}>{EstimatedCost},“Overbudget”,“Good”)Frombasiccalculationstocomplexformulas,theFormulaColumnwilldoalltheheavylifting(aka,youdon’thavetodomath!),leavingyouwithwhatyouneedtoknowtostayontrack.Butdon’ttakeourwordforit.Testoutmonday.comtoday.Signup.Downloadatemplate.14-dayfreetrial.Nocreditcardisneeded.Getstartedwithmonday.comOneplatformforbetterteamworkwithmonday.comWorkOSGetstartedHavingproblemssigningup?Contactus,we'rehere,24/7DJisafreelancewriterspecializinginallthingswords.He'safatherof4(includingtwins),husbandtoone,andanalumoftheUniversityofMichigan.DJisaself-proclaimedgiphymasterand#HashtagAddict.ProjectmanagementExploremorecontentLow-code|No-codeMarketingProductupdatesCRMandSalesSoftwaredevelopmentComparisonsTeamworkRemoteworkWorkOSProductivityCreativeteamsPMOTaskmanagementMondayappsProjectmanagementMostPopularHowtowriteakillerprojectplanin6simplesteps&nbspThecompleteguidetoportfoliomanagementin2021&nbspFindtherightprojectmanagementframework foryourteam12minreadMorefromProjectmanagementProjectmanagement7skillseverydigitalprojectmanagershouldmasterin2022Projectmanagement8projectmanagementtechniqueseveryprojectmanagershouldknowProjectmanagementIt’sofficial:monday.comisacertifiedgreatplacetoworkProjectmanagement3must-havesforprojectmanagementsoftwareforsmallteamsProjectmanagementAdebriefonWorkOS[+thecomparisonsyou’relookingfor]Getstartedforfree