What is CPI - Cost Performance Index? - Ten Six Consulting

Cost Performance Index is a useful way of combining progress with budget to give a straightforward numerical assessment of project performance. SkiptomaincontentSkiptoprimarysidebarSkiptofooterYouarehere:Home/EarnedValueMgmt/WhatisCPI–CostPerformanceIndex?May24,2021ByTenSixCostPerformanceIndex(CPI)isanimportantfiguretocalculateandunderstandifyourorganizationisusingearnedvaluemanagementmethods. Butwhatexactlyisit?ThisisyourcompleteguidetoCPIinprojectmanagement,andwe’llstartwithmakingsurewe’reclearonwhatthetermmeans. Here’sadefinitionofCPI: CPImeasureshowmuchworkhasbeencompletedonaprojectforthemoneyspent. It’sawayoftrackingtheefficiencyandeffectivenessofprojectperformancebycomparingtheplannedbudgettotheactualbudget,takingintoaccountwhatworkhasbeendeliveredforthatinvestment. What’sthepurposeofCPI? CostPerformanceIndexisausefulwayofcombiningprogresswithbudgettogiveastraightforwardnumericalassessmentofprojectperformance.Theendresultofthecalculationisasinglenumber,andit’seasytointerprettoo(moreonthatlater).ThatmakesCPIahelpfulwaytocommunicatestatusandtotaketheemotionandsubjectivityoutofconversationsaboutprogress. Thecalculationhelpsyouassesswhethertheprojectisontrackornot,andifnot,byhowmuch.Thevarianceisusefulinformationtohelpyougettheprojectbackontrack.Itactsasanearlywarningsignalforpotentiallylargerproblems,soyoucanactquicklytotakecorrectivestepstoadjusttheproject’sperformance. WhatdoyouneedtocalculateCPI? TocalculateCPIyouneed: Thebaselinedprojectscope:usethistoworkouttheactivitythathasbeencompleted Thebaselinedprojectbudget:usethistoworkouttheplannedcostfortheactivitythathasbeencompleted Theactualbudget:usethistoworkouttheactualcostoftheactivitythathasbeencompleted Thosemeasuresgiveyoutheinformationyouneedtocompletethecalculation. Ifyourprojectdoesn’thavedataatthatlevelofdetail,startbyimprovingthewayyourecordandmeasurewhattheprojectisdelivering.Documentingdeliverablesbyworkpackage,forexample,andattachingacosttoaworkpackage,isastepintherightdirection. HowisCPIcalculated? CPIispresentedasaratio.It’scalculatedbytakingthebudgetedcostofworkcompleted(alsoknownastheearnedvalueorEV)anddividingitbytheactualcostofworkperformed. TheCPIformulais: CPI=EV/AC Thatgivesyouanumber,whichinturntellsyouhowtheprojectisperformingfinancially.Thenumberyougetisonlyasaccurateasthedatayouusedforthecalculation.Ifyourprojectteamaren’taccuratelyreportingprogressintimeforyouranalysis,forexample,yourCPInumberswillbeoutofdatebeforeyou’veevencalculatedthem. Assumingyou’vegotgooddataandhavecompletedthecalculation,let’slooknextathowtointerprettheresult. Whatisagoodcostperformanceindex? ACPIof1meansthatyourbudgetedcostofworkcompletedisthesameastheactualcostofworkperformed:inotherwords,yourprojectisexactlyonbudget.That’sgoodnews. IfyourCPIisgreaterthanone,yourprojectisunderbudget.You’vemanagedtodomoreworkthanyouplannedtodoforthesamemoney.Thisisalsogoodnews. However,aCPIoflessthanoneiswhereyouneedtodigintotheprojectperformanceinmoredetail.Thattellsyouthattheprojectisoverbudget:you’vespentmorethanyouanticipatedtogettothecurrentpoint. Thatmightnotbeterriblenewsdependingonthecause.Perhapsyouintroducedmorescopeitemsandhaven’tyetupdatedyourcostbaseline,forexample. WhatevertheCPInumberforyourproject,therewillbeareasonforit.Numbersarehelpfulastheygiveyouastartingpointforunderstandingprogress,butthenarrative–thestory–oftheprojectwillhelpfleshoutthatunderstandingandallowyoutomakebettermanagementdecisionsaboutyournextsteps. HowdoesCPIrelatetoSPI? SchedulePerformanceIndex(SPI)isanotherwayofmeasuringtheefficiencyofaproject.Costperformanceonlytellsonepartofthestory:itgivesyouinformationabouthowwelltheprojectiscontrollingcosts,butitdoesn’tgiveyouinformationabouthowwelltheprojectteamisdeliveringontime.That’swhatSPIdoes. Together,SPIandCPInumbersgiveyouaroundedviewofprojectperformanceandplentyofinformationfromwhichtoreviewvariancesandmakesmartdecisionsabouthowtoleadtheprojectsuccessfullytocompletion. Earnedvalueanalysisasawholeprovidesadetailedwayoflookingatyourproject’sperformance.Ithelpsyouidentifytrendsandtrackprogressovertimeinameasurableway.CPIisonepartofthewholeapproachtoearnedvaluemanagement,andnowyouknowmoreaboutit,youcanconsidermakingthemovetoimplementingearnedvalueonyourprojects. PrimarySidebar JoinOurMailingList PhoneThisfieldisforvalidationpurposesandshouldbeleftunchanged. 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