HKSM
Cost Performance Index (CPI)
An indicator of how efficiently the project is using its budgeted resources, calculated as earned value divided by actual cost (EV/AC).
Key Points
- Formula: CPI = EV / AC.
- Interpretation: CPI > 1 means under budget; CPI < 1 means over budget; CPI = 1 means on budget.
- Forecasting: A common estimate at completion is EAC = BAC / CPI when future performance is expected to mirror current trends.
- Relationship to cost variance: CV = EV - AC; CV > 0 aligns with CPI > 1, and CV < 0 aligns with CPI < 1.
Example
Midway through a project, EV is 400,000 and AC is 500,000. CPI = 400,000 / 500,000 = 0.80, meaning the team delivers 0.80 units of value for each 1.00 unit of cost, indicating a cost overrun. If BAC is 1,200,000 and performance continues, EAC is approximately 1,200,000 / 0.80 = 1,500,000.
PMP Example Question
During a status review, a project reports EV = 250,000 and AC = 200,000. What is the CPI and what does it indicate?
- 0.80 - The project is over budget.
- 1.25 - The project is under budget.
- 1.25 - The project is over budget.
- 0.80 - The project is under budget.
Correct Answer: B - CPI of 1.25 indicates the project is under budget
Explanation: CPI = EV / AC = 250,000 / 200,000 = 1.25; a value greater than 1 means the project is achieving more value per unit of cost than planned.
