Difficulty: Medium

Average Score: 58%

When does a negative cost variance (CV) occur in earned value management?

Rationale

When the actual cost is more than the earned value.

A negative cost variance (CV) occurs in earned value management when the actual costs incurred for work performed exceed the earned value, indicating that the project is over budget.

A (When cost variance is more than schedule variance) YOUR ANSWER

Cost variance is calculated as the difference between earned value and actual cost, while schedule variance reflects the difference between earned value and planned value. Therefore, this option does not directly relate to the definition of negative cost variance; it merely compares two different metrics without indicating whether costs exceed earned value.

B (When the earned value is more than the actual cost) YOUR ANSWER

This situation describes a positive cost variance, where the project is under budget because the value of the work completed (earned value) is greater than the actual costs incurred. Thus, this scenario does not represent a negative cost variance.

C (When the actual cost is more than the earned value) CORRECT

This accurately describes a negative cost variance, as it reflects a situation where expenditures exceed the value of the work completed. This indicates financial inefficiency, signaling that the project is over budget.

D (When schedule variance is more than cost variance) YOUR ANSWER

This option compares schedule variance and cost variance without addressing the actual costs relative to earned value. It does not provide any information regarding whether costs are within budget or not, making it irrelevant to identifying a negative cost variance.

Conclusion

In earned value management, a negative cost variance occurs when the actual cost surpasses the earned value, indicating that the project is over budget. Understanding this concept is crucial for effective project management and financial oversight, allowing managers to identify and address budgetary issues promptly. Other choices either misinterpret the relationship between earned value and actual costs or focus on unrelated variances.

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