What is the implication of a negative cost variance?

A negative cost variance indicates that the actual costs incurred on the project exceed the planned budgeted costs at a given point in time. In project management, this is a crucial metric because it highlights financial inefficiencies that could impact the overall success of the project.

When the cost variance is negative, it specifies that the project is over budget, as expenses have surpassed what was originally allocated. This situation often accompanies project delays, leading to the conclusion that the project is also behind schedule. Therefore, identifying the project as over budget and behind schedule directly explains the negative cost variance.

In various contexts, understanding cost variance supports project managers in making informed adjustments to control costs and realign the project's path to success. This is particularly important for maintaining stakeholder confidence and ensuring that resources are managed effectively.