Contractor Finance Glossary
What is Cost Variance (Estimate Accuracy)?
Also called: estimate accuracy, estimated vs actual cost, budget variance
Cost variance is the gap between what a job was estimated to cost and what it actually cost, and it is the single best measure of whether your estimating is telling you the truth.
Every job margin starts as a promise in the estimate. Cost variance checks whether that promise held. A job that came in far over its estimated cost did not just lose margin once; it means the estimating model that priced it is wrong, and it will misprice the next ten jobs the same way.
Tracked job by job, cost variance separates one-off surprises from systematic estimating error. A consistent bias (labor always over, materials always under) is a fixable input. Random scatter points at 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
Cost variance = actual job cost minus estimated job cost. As a percentage: (actual cost minus estimated cost) divided by estimated cost. Positive means the job ran over budget; negative means it came in under.
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