What is Cost Performance Index? - Definition & Formula

Definition and Formula of Cost Performance Index ... Earned value is abbreviated as EV and actual cost as AC. Earned value denotes how much money should be spent ... forTeachers forSchools forWorkingScholars® forCollegeCredit Login SignUp Menu forWorkingScholars® forCollegeCredit Plans Plans Courses Courses FindCoursesbySubject Science Math Business Psychology History English SocialScience Humanities Spanish ProfessionalDevelopment ByEducationLevel College HighSchool MiddleSchool TestPrep PopularTests… PopularTests SAT ACT TOEFL GMAT GRE CLEP GED ASVAB RealEstate TeacherCertification… TeacherCertification AEPA CEOE CSET/CBEST FTCE GACE ILTS MTEL MTLE MTTC MoGEA/MEGA NES NYSTCE OAE Praxis RICA TExES VCLA WEST Nursing… NursingTests HESI TEAS NCLEX PAXRN CNE OtherTests… OtherTests AP ASCP ASWB Accuplacer CHSPE CTEL DSST Finance FSA HSPT ISEE MBLEx NCE PERT PHR SHSAT TASC TECEP UExcel Exploreover 4,600 videocourses BrowseAllCourses SAT ACT TOEFL GMAT GRE CLEP GED ASVAB RealEstate AEPA CEOE CSET/CBEST FTCE GACE ILTS MTEL MTLE MTTC MoGEA/MEGA NES NYSTCE OAE Praxis RICA TExES VCLA WEST HESI TEAS NCLEX PAXRN CNE AP ASCP ASWB Accuplacer CHSPE CTEL DSST Finance FSA HSPT ISEE MBLEx NCE PERT PHR SHSAT TASC TECEP UExcel Credit Credit CreditOptions CreditOptions OnlineCollegeCredit HighSchool&GED CertificatesofCompletion HowitWorks TransferCredit TransferCredit AllTransferCredit FindYourSchool CollegeCoursesforCredit TransferringCredit HowItWorks EarnTransferableCredit&GetyourDegreefast Learnmore ContactSupport Instructor: SaranyaRamachandran Showbio SaranyahasaBachelorsinSciencefocusedonElectronicsandTelecommunicationandaMastersinBusinessAdministration.Shehas8yearsofProjectManagementExperienceandisPMPCertified. ThislessonexplainstheconceptofcostperformanceindexwhichiscommonlyreferredasCPI.CPIcanhelpaprojectmanagerassessiftheprojectisonbudgetandgivesasenseofhowefficientlycostsareallocated. Createanaccount IntroductionAbudgetisallocatedtoaprojectbeforeitbegins.Thebudgetisthesumofallthecostslikelytobeincurredduringthelifeoftheproject.Theprojectmanager'sgoalistostaywithinthebudgetandmakesuretheprojectissuccessful.Thereareseveralindicatorsoftheefficiencyoftheproject.Theseindicatorsalsopointoutiftheprojectisprogressingaccordingtoplanorifanycorrectiveactionsareneeded.Costperformanceindexisusedasaperformanceindicator. Lesson Quiz Course 7.1K views DefinitionandFormulaofCostPerformanceIndexCostperformanceindex(CPI)iscalculatedusingthefollowingformula: CPI=(earnedvalue)/(actualcost) EarnedvalueisabbreviatedasEVandactualcostasAC.EarnedvaluedenoteshowmuchmoneyshouldbespentataparticularpointintheprojectwhereasActualCostindicatestheactualexpenditureontheprojectatthatpoint.Consideraprojectbudgetof$100,000.Theprojectallocatesthebudgetasfollows: Design-$25,000 Build-$50,000 Closeout-$25,000 Attheendofthedesignphasetheprojectisestimatedtobe25%complete.Thisactualcostoftheprojectat25%completionis$30,000.Thisiscalculatedbyaddingalltheexpensesincurredontheprojectupuntilthispoint.Theearnedvalueis$25,000andisessentiallythebudgetedvalueat25%completion.Notethattheearnedvaluecanbecalculatedbeforetheprojectinitiationatvariousstages.Intheexampleabove,iftheprojectis80%completeattheendofthebuildstate,theearnedvalueoftheproject(at80%)is$75,000($50,000+$25,000).Let'sapplythistoourcostperformanceindexformula: CPI=(25,000)/(30,000) CPI=0.833 Thecostperformanceindexislessthanonewhichindicatesthattheprojectisoverbudgetatthisstage.Generally,whilecalculatingthecostperformanceindex,ifthevalueisexactlyonetheprojectisonbudgetandifthevalueisgreaterthanonetheprojectisunderbudget. Now,whatifthedesignphaseissupposedtolastsixmonthsbutit'sdelayed?Attheendofsixmonths,theactualcostincurredis$25,000.Sincethedesignisnotcomplete,theearnedvalueisapproximately$20,000whichputstheprojectoverbudget.Thecostperformanceindexinthisscenariois: CPI=($20,000)/($25,000) CPI=0.8 Inbothofthescenariosthecostperformanceindexislessthanonewhichplacestheprojectoverbudget.Thisrequiresfurtherinvestigationofthecauseoftheextracosts.Oncetheinvestigationiscomplete,necessarycorrectiveactionsmayberequiredtoplacetheprojectbackonbudget.LessonSummaryProjectsmightnotproceedaccordingtoplanduetovarietyofreasons.Costperformanceindicatorisausefulindicatorofprojectperformance.IfCPIisequalto1,thentheprojectisproceedingexactlyperplan.Ifitisgreater1,thenprojectisunderbudget.Eventhoughthisisagoodscenario,itmightbeusefultocheckwhylessmoneywasspent.IfCPIisunderthan1,itmeansprojectisoverbudgetandcorrectiveactionsmightneedtobetaken. TounlockthislessonyoumustbeaStudy.comMember. 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ProjectManagementFormulas&Calculations ProjectManagementMaturityModel:Definition&Levels SchedulePerformanceIndex:Definition&Examples WhatisCostPerformanceIndex?-Definition&Formula NextLesson CostPerformanceIndexvs.SchedulePerformanceIndex PlannedValueinProjectManagement:Definition&Formula ActualCostinProjectManagement:Definition&Formula 5:42 PlannedValuevs.EarnedValueinProjectManagement EarnedValueAnalysisinProjectManagement EstimateatCompletion(EAC)inProjectManagement 7:06 EstimateatCompletion(EAC)vs.EstimatetoComplete(ETC) RiskAssessmentMatrix:Definition&Examples 5:25 Goto ProjectManagementFormulas&Calculations Ch11. 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