Cost Performance Index (Earned Value Analysis)

The Cost Performance Index, usually abbreviated as CPI, is one of the fundamental outputs of the Earned Value Management System. Menu Inprojectmanagement,gettinganearlyindicationofproblemsisthesilverbulletthatallowstheprojectmanagertocorrecttheproblemsbeforetheystart. TheCost PerformanceIndex,usuallyabbreviatedasCPI,isoneofthefundamentaloutputsoftheEarnedValueManagementSystem. Ittellstheprojectmanagerhowfaraheadorbehindtheprojectisatthepointofanalysis(usuallyrightnow). Formula CPI=EV/AC Where: CPI= CostPerformanceIndex EV=EarnedValue(dollars,euros,etc.) AC= ActualCost (dollars,euros,etc.) InterpretationofResults IfCPIislessthan1,thetaskis overbudget. IfCPIisone,thetaskisonbudget. IfCPIisgreaterthan1,thetaskis underbudget. Forexample, CPI=0meanstheprojectworkhasnotstarted. CPI=0.5meanstheprojecthasspenttwicetheamountthatitshouldhaveatthispoint. CPI=1.0meanstheprojectisonbudget. CPI=2.0meanstheprojecthasspent halftheamountthatitshouldhaveatthispoint. Background The CostPerformanceIndexrepresentstherelativeamountthatthetaskisoverorunderbudget. Forexample,thetaskBuildFencehasabudgetof$4,000.andthe costperformanceindexis1.25. Thiswouldrepresentataskthatis25%underbudget. TheunderlyingEarnedValue(EV)andActualCost(AC)mustbecalculatedonataskbytaskbasisandsummedtodeterminetheoverallproject’sCPI. Itmusthaveatimepointofreference,inotherwords,itisa“snapshot”atacertainpointintime. Thecostperformanceindexisalwayschanging,andtheprojectisgettingmore overorunderbudget astimegoesonandasworkisperformed. Related EarnedValueMetrics Thecost performanceindex shouldbeanalyzedinconjunctionwiththeSchedulePerformanceIndex(SPI),whichtellsyouhowfaraheadorbehindscheduletheprojectis. CPIandSPIarebothgreaterthan1.0: Theprojectisunderbudgetandaheadofschedule(hooray!) CPIis greaterthan1.0 andSPIislessthan1.0: Theprojectisunderbudgetbutbehindschedule. Inotherwords,thetasksperformedwereefficient,butmoreofthemshouldhavebeenperformedbynow. CPIis lessthan1.0 andSPIisgreaterthan1.0: Theprojectisoverbudgetbutaheadofschedule. Inotherwords,thetasksperformedareoverbudget,butmoreofthemhavebeenperformedthanscheduled. CPIandSPIarebothlessthan1.0: Theprojectisoverbudgetandbehindschedule(boo!) TheCost Variance(CV)issimilartoCPIbutgivesyoutheabsolute,ratherthanrelative,amounttheprojectisoverorunderbudget. Cost Baseline InordertocalculatetheCPI,theprojectmustinitiallybedividedintotasksandeachtaskmustbeassignedthefollowingdata: StartandFinishDates Budget Thisiscalledthecostbaseline,anditgivestheprojectmanagersomethingtotrackagainst.ThisplanningstepispartofProjectscheduling whichisoneofthefundamentalaspectsofprojectmanagement. EarnedValue(EV) AlsoknownasBudgetedCostofWorkPerformed(BCWP),EarnedValueistheamountofthetaskthatisactuallycompleted. Itiscalculatedfromtheprojectbudget. EV=PercentComplete(actual)xTaskBudget Forexample,iftheactualpercentcompleteis75%andthetaskbudgetis$4,000,EV=75%x$4,000=$3,000. ActualCost (AC) AlsoknownasActual CostofWorkPerformed(ACWP),ActualCostistheamountthathasbeenspentonthetask. Itshouldincludevaluesforlabor,materials,equipment,andanyotheritemofcostthatwasnecessarytocompletethetask. Forexample,iftheactualcostis$500forlumberand$2,000forlabor,AC=$500+$2,000=$2,500. Example Let’ssaywehaveaprojectwithtwotasks,buildingafenceandlayingsod. Theinitial costbaselineis: ID Task Startdate EndDate Budget 100 BuildFence Feb.10 Feb.20 $4,000 200 LaySod Feb.12 Feb.25 $3,000 TOTAL $7,000 Let’ssayit’sFeb.15. Determinethe Cost PerformanceIndex fortheproject. Step1: Determinethepercentcompleteforeachtask. Sincethisisnotarealprojectwewillassume thetasksare75%and10%complete,respectively. Wewilladdapercentcompletecolumntothetable. ID Task Startdate EndDate Budget %Complete 100 BuildFence Feb.10 Feb.20 $4,000 75% 200 LaySod Feb.12 Feb.25 $3,000 10% TOTAL $7,000   Step2:DetermineEarnedValue(EV) Task100is75%complete,thereforeEV=75%x$4,000=$3,000. Task200is10%complete,thereforeEV=10%x$3,000=$300. NextwewilladdacolumncalledEV. ID Task Startdate EndDate Budget %Complete EV 100 BuildFence Feb.10 Feb.20 $4,000 75% $3,000 200 LaySod Feb.12 Feb.25 $3,000 10% $300 TOTAL $7,000     Step3: DetermineActualCost(AC). Again,sincethisisnotarealprojectwewillhavetoassumethatTask100hasanactualcostof$2,500,andTask200hasanactualcostof$400. NowwewilladdacolumncalledAC. ID Task Startdate EndDate Budget %Complete EV AC 100 BuildFence Feb.10 Feb.20 $4,000 75% $3,000 $2,500 200 LaySod Feb.12 Feb.25 $3,000 10% $300  $400 TOTAL $7,000       Step4:Determine CostPerformanceIndex(CPI) CPI=EV /AC. ID Task Startdate EndDate Budget %Complete EV AC CPI 100 BuildFence Feb.10 Feb.20 $4,000 75% $3,000 $2,500 1.20 200 LaySod Feb.12 Feb.25 $3,000 10% $300 $400 0.75 TOTAL $7,000    $3,300 $2,900 1.14 Theoverallproject costperformanceindex,CPI= 1.14,thereforetheprojectis14%underbudget. Eventhoughthe secondtaskisoverbudget,thefirsttaskis underbudget byagreateramount,thereforetheprojectisingoodshapeoverall. Relatedposts: CostPerformanceIndex–EarnedValueManagement SchedulePerformanceIndex(EarnedValueAnalysis) CostVariance(EarnedValueAnalysis) WhatistheSchedulePerformanceIndex? CostVariance–EarnedValueManagement ACWP(EarnedValueAnalysis) AboutBernieRoseke,P.Eng.,PMPBernieRoseke,P.Eng.,PMP,isthepresidentofRosekeEngineering.Asabridgeengineerandprojectmanager,hemanagesprojectsrangingfromsmall,localbridgestomulti-milliondollarprojects.HeisalsothetechnicalbrainsbehindProjectEngineer,theonlineprojectmanagementsystemforengineers.Heisalicensedprofessionalengineer,certifiedprojectmanager,andsixsigmablackbelt.HelivesinLethbridge,Alberta,Canada,withhiswifeandtwokids. LeaveaReplyCancelreply Youremailaddresswillnotbepublished.Requiredfieldsaremarked*CommentName* Email* Website ProjectManagementSoftware FreeProjectManagementSoftware (3freeprojects,nocreditcards,justmanageyourprojects) Login CreateAccount Forgot Username/Password? PMPExam:TheUltimateStudyGuide RELATEDPOSTS CostPerformanceIndex–EarnedValueManagementSchedulePerformanceIndex(EarnedValueAnalysis)CostVariance(EarnedValueAnalysis)WhatistheSchedulePerformanceIndex?CostVariance–EarnedValueManagementACWP(EarnedValueAnalysis) Quicklinks Certification RecentPosts EstimatingActivityDurations TypesofTaskDependencies GuidetoLeanSixSigma GuidetoDevelopingtheProjectActivityList The6PartsofProjectPortfolioManagement The5PartsofProgramManagement PMIProjectKnowledgeAreas,Intro PMIProjectKnowledgeAreas,Video1:ProjectIntegration HowtoHoldaUsefulSprintRetrospectiveMeeting FINDITHERE SubscibetoProjectEngineer.NETchannel–YouTube SubscribetoProjectEngineer.NET Skiptotoolbar AboutWordPress WordPress.org Documentation SupportForums Feedback LogIn Search