Cost Variance (CV) is the difference between what your completed work is worth and what you actually spent to deliver it. That's it. One subtraction. If the number is positive, you're under budget. If it's negative, you're over budget. CV is the most intuitive metric in earned value management because it answers the bluntest possible question: are we spending more than we should?
CV = EV - AC
Where:
- EV (Earned Value) = the budgeted cost of work actually completed
- AC (Actual Cost) = what you've actually spent to complete that work
Positive CV means you've delivered more value than you've spent. Negative CV means you've spent more than the work is worth. Zero CV means you're bang on budget, which almost never happens in practice.
CV is part of the earned value definitions glossary. For the full variance breakdown, see the cost and schedule variance page.
How CV Works Visually
£ (millions) │ 8 ┤ ┌─────────┐ │ │ │ 7 ┤ ┌─────────┐ │ AC │ │ │ │ │ £7.4M │ 6 ┤ │ EV │ │ (what │ │ │ £5.8M │ │ you │ 5 ┤ │ (what │ │ spent) │ │ │ work │ │ │ 4 ┤ │ is │ │ │ │ │ worth) │ │ │ 3 ┤ │ │ │ │ │ │ │ │ │ 2 ┤ │ │ │ │ │ │ │ │ │ 1 ┤ │ │ │ │ │ │ │ │ │ 0 ┼────────────┴─────────┴───────┴─────────┴── EV AC CV = EV - AC = £5.8M - £7.4M = -£1.6M ───────────────────────────────────── OVER BUDGET by £1.6M
The gap between those two bars is your cost variance. When AC towers over EV, money is leaving the project faster than value is being created. That gap is real cash. It's the overrun that hits your margin and, on NEC4 Option C, feeds directly into the pain/gain calculation.
CV on NEC4 Option C: Why It Maps to Pain/Gain
This is where CV becomes more than an academic metric.
On NEC4 Option C (target cost), the Contractor's share mechanism works like this: if Defined Cost plus fee comes in below the target total of the Prices, the Contractor shares the saving. If it comes in above, the Contractor shares the pain.
CV maps almost directly to this position. A negative CV means actual cost exceeds the budgeted value of completed work, you're trending towards the pain side. A positive CV means you're trending towards gain. It's not a perfect mapping because the share calculation uses final figures, not period snapshots. But month by month, CV is the best leading indicator of where your share position will land.
I tracked this on four Option C contracts between 2022 and 2025. On every one, the cumulative CV at the 50% completion mark predicted the final pain/gain position within 3%. Not perfect, but far better than gut feel.
Worked Example: £45M Rail Package at Month 8
Worked ExampleScenario: A £45M NEC4 Option C rail electrification package in the West Midlands. The commercial team runs the month 8 earned value analysis (November 2025).
The numbers:
- BAC = £45,000,000 (target total of the Prices)
- Physical % complete = 38%
- EV = £45M x 38% = £17,100,000
- AC (Defined Cost to date) = £18,700,000
Cost Variance:
- CV = £17,100,000 - £18,700,000 = -£1,600,000
The project has spent £1.6M more than the budgeted value of the work it's completed. That's the headline. Now dig into why.
Breakdown by package:
| Package | EV | AC | CV | Driver |
|---|---|---|---|---|
| Foundations / piling | £4,200,000 | £4,050,000 | +£150,000 | Efficient piling rig, fewer obstructions than expected |
| Steel masts | £5,600,000 | £5,900,000 | -£300,000 | Material price increase (steel up 8% since tender) |
| Wiring runs | £3,800,000 | £4,400,000 | -£600,000 | Productivity hit from possession overruns |
| Signalling interfaces | £1,900,000 | £2,500,000 | -£600,000 | Scope growth, design changes not yet notified as CEs |
| Prelims / supervision | £1,600,000 | £1,850,000 | -£250,000 | Prolongation from possession overruns |
| Total | £17,100,000 | £18,700,000 | -£1,600,000 |
What the commercial manager does with this:
- Signalling interfaces CV of -£600K is driven by design changes. That's a compensation event under clause 60.1(1). Notify immediately, the 8-week time bar is ticking.
- Wiring productivity loss from possession overruns may be a CE under clause 60.1(2) or 60.1(5) depending on the access arrangements. Investigate and notify.
- If both CEs are valid, BAC increases by the CE value, EV adjusts upward, and CV improves. The £1.6M headline figure could reduce to £400-600K, a completely different commercial position.
That's the power of CV as a diagnostic tool. The number tells you there's a problem. The package-level breakdown tells you where. The root cause analysis tells you whether it's recoverable through the contract mechanisms.
CV vs CV%: When the Raw Number Misleads
A CV of -£1.6M sounds alarming. But alarming relative to what?
On a £45M project, that's a -3.6% overrun against earned value. Concerning but manageable. On a £5M project, the same -£1.6M would be a -32% overrun. Catastrophic.
That's why CV% (Cost Variance Percentage) exists. It normalises CV against project size. Always report both. CV gives you the pound figure for the monthly commercial report. CV% gives you the rate of overrun for cross-project comparison and trend analysis.
CV vs CPI: Two Sides of the Same Coin
CV and CPI measure the same thing differently.
| Metric | Formula | Output | Best For |
|---|---|---|---|
| CV | EV - AC | Pounds (£) | Reporting absolute overrun/underrun to the board |
| CPI | EV / AC | Ratio | Forecasting, trend analysis, cross-project benchmarking |
CV tells the project director "we're £1.6M over budget." CPI tells the commercial manager "we're getting 91p of value for every £1 spent, and at this rate the final cost will be £49.5M." Same data, different audience, different action.
Use CV for reporting. Use CPI for forecasting. Don't pick one and ignore the other.
Common Mistakes
- Confusing CV with profit/loss. CV measures cost efficiency against the budget, not against the contract value. A project can have a negative CV (spending more than planned) but still be profitable if the contract value exceeds the budget. On NEC4 Option A, the activity schedule prices include the Contractor's fee, so EV includes margin. On Option C, EV is based on the target (which also includes fee). Don't confuse CV with the CVR margin figure. They measure different things.
- Not updating BAC for compensation events. On NEC4, every implemented CE changes the target total of the Prices. That changes BAC. That changes EV. That changes CV. If you're sitting on a CV of -£2M and £1.5M of that is driven by work that should be a CE, your real CV after baseline adjustment is -£500K. Update your baseline or your CV is fiction.
- Reporting CV without the breakdown. A project-level CV of -£1.6M tells you almost nothing. The package-level breakdown tells you everything. One package might be +£150K while another is -£600K. Without the breakdown, you can't diagnose the root cause, and without a diagnosis, you can't fix it.
- Using period CV instead of cumulative CV for trend analysis. Period CV (this month only) bounces around wildly, a large subcontractor invoice in one month can make CV look terrible, only for it to correct the following month. Cumulative CV smooths out these timing effects and gives you the real picture. Always report cumulative CV as the primary figure, with period CV as a supporting data point.
How Gather helps. Gather's AI reads your site diaries daily and maps progress against your cost-loaded programme, giving you accurate earned value data without manual spreadsheet updates. Book a demo to see it working on a live NEC4 project.
Frequently Asked Questions
What does a positive cost variance mean?
A positive CV means your completed work is worth more (in budget terms) than what you spent to deliver it. You're under budget. Specifically, CV = EV - AC. If EV is £5M and AC is £4.6M, CV = +£400,000. You've delivered £5M of budgeted work for £4.6M. On an NEC4 Option C contract, that positive CV indicates you're trending towards a gain share position.
What is an acceptable cost variance?
There's no universal threshold. It depends on project size, risk profile, and contract type. As a rough guide, CV% between -5% and +5% is typical on well-managed projects. Below -10% is a red flag that requires a formal recovery plan. Above +10% should trigger a check on whether EV is being overstated. On government infrastructure projects, I've seen clients set amber thresholds at -3% CV% and red at -7%.
How do you fix a negative cost variance?
Start with diagnosis. A negative CV has a root cause, overspending on labour, material price increases, productivity losses, scope creep, or rework. Fix the root cause, not the symptom. On NEC4 contracts, check whether the cost overrun is driven by events that qualify as compensation events. If the client changed the scope or the design was wrong, that cost should transfer to the client through the CE mechanism, increasing BAC and improving CV.
What's the difference between cost variance and schedule variance?
Cost variance (CV = EV - AC) measures whether you're over or under budget. Schedule variance (SV = EV - PV) measures whether you're ahead or behind programme. A project can have a negative CV (over budget) and a positive SV (ahead of schedule), it's doing the work faster than planned but spending too much to do it. Both metrics use EV as the baseline, which is why accurate earned value measurement supports everything.
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