Finding the Cost Performance Index

The cost performance index (CPI) measures the project based on its financial performance. It's an easy formula: earned value divided by actual costs, as Figure 7-9 demonstrates. Your project, in this example, has a budget of $500,000 and you're 40 percent complete with the project work. This is an earned value of how much? Yep. It's 40 percent of the $500,000, for an earned value of $200,000.

Your actual costs for this project to date (the cumulative costs) totals $234,000. Your PMI exam will always tell you your actual costs for each exam question. Let's finish the formula. To find the CPI, we divide the earned value by the actual costs, or $200,000 divided by $234,000. The CPI for this project is .85, which means that we're 85 percent on track financially, not too healthy for any project, regardless of its budget.

Another fun way to look at the .85 value is that you're actually losing 15 cents on every dollar you spend on the project. Yikes! That means for every dollar you spend for labor, you actually only get 85 cents worth. Not a good deal for the project manager. As you can guess, the closer to one, the better the project is performing.

Budget at Completion $500,000

Budget at Completion $500,000

Figure 7-8 Schedule variance is the difference of earned value and planned value.

Budget at Completion $500,000

Budget at Completion $500,000

Figure 7-9 The CPI is found by dividing earned value by the actual costs.
Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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