Contractor Finance Glossary
What is Cost Variance (Estimate Accuracy)?
Definition reviewed .
Also called: estimate accuracy, estimated vs actual cost, budget variance
Cost variance compares a job's cost with its revised approved budget (original estimate plus approved changes). It uses actual cost for closed jobs and estimated cost at completion for open jobs, to investigate estimating, execution and scope patterns.
A job overrun may indicate an estimating error, an execution issue or an approved scope addition. Compare closed-job actual costs or open-job estimated cost at completion with the original estimate plus the approved change-order budget, and investigate patterns before assuming the next jobs will repeat the loss.
Tracked job by job, cost variance separates one-off surprises from systematic estimating error. A consistent bias (labor always over, materials always under) can indicate a fixable estimating input or a repeated execution issue. Random scatter can point to field execution or change orders that never got captured. Either way, you cannot improve an estimate you never check against actuals.
How it is calculated
For closed jobs, cost overrun = actual job cost minus the revised approved budget. For open jobs, projected overrun = estimated cost at completion minus the revised approved budget; cost incurred to date alone is not a completed-job comparison. Percentage overrun = that difference divided by revised approved budget, when the budget is positive. Positive is unfavorable here. Earned-value management uses cost variance = earned value minus actual cost, a different measure and sign convention. Compare by cost code as well as job total.
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