Cost performance index (CPI)

Description

Earned value management (EVM), earned value project management, or earned value performance management (EVPM) is a project management technique for measuring project performance and progress in an objective manner.

In addition to managing technical and schedule performance, large and complex projects require that cost performance be monitored and reviewed at regular intervals. To measure cost performance, planned value (or BCWS – Budgeted Cost of Work Scheduled) and earned value (or BCWP – Budgeted Cost of Work Performed) must be in units of currency (the same units that actual costs are measured.) In large implementations, the planned value curve is commonly called a Performance Measurement Baseline (PMB) and may be arranged in control accounts, summary-level planning packages, planning packages and work packages. In large projects, establishing control accounts is the primary method of delegating responsibility and authority to various parts of the performing organization. Control accounts are cells of a responsibility assignment (RACI) matrix, which is the intersection of the project WBS and the organizational breakdown structure (OBS). Control accounts are assigned to Control Account Managers (CAMs). Large projects require more elaborate processes for controlling baseline revisions, more thorough integration with subcontractor EVM systems, and more elaborate management of procured materials.

CPI greater than 1 is favourable (under budget): < 1 means that the cost of completing the work is higher than planned (bad); = 1 means that the cost of completing the work is right on plan (good); > 1 means that the cost of completing the work is less than planned (good or sometimes bad). Having a CPI that is very high (in some cases, very high is only 1.2) may mean that the plan was too conservative, and thus a very high number may in fact not be good, as the CPI is being measured against a poor baseline. Management or the customer may be upset with the planners as an overly conservative baseline ties up available funds for other purposes, and the baseline is also used for manpower planning.

Related formulas