The Cost Performance Index is often abbreviated as CPI. It is one of the most important and valuable outputs of the Earned Value Management System. This gives the idea about project performance that how far along we have gone and how much work there is still needed to do.
The cost performance Index (CPI) is a rate of cost-effectiveness on a project. It is known that CPI is advantageous and beneficial when it is greater than one. The CPI is a proportion of Gained Value Control.
- In a business getting an early alarm is a very helpful thing in a management process. It means that you can manage a problem before it happens
- Another important factor in project management is the management and analyzing the cost and finances. An important part of project management concerns the forecasting and management of cost.
- The Schedule Performance Index (SPI) and Cost Performance Index (CPI) are valuable and relatively simple techniques to assist managers to manage a project effectively.
In this article, we will discuss what is CPI, the formula of CPI, and the Key Feature of CPI.
What Is the Cost Performance Index (CPI)?
The cost performance index is an element of the divergence and variation assessment procedures in accordance with PMI methodology. This is a strategy for cost control The Cost Performance Index (CPI) is utilized to evaluate expenses and received value in an ongoing project. This phenomenon can be applied to single or multiple projects as well.
The purpose of the Cost Performance Index (CPI) must be clearly established to describe how project costs will be managed throughout the duration of the project.
Elements of Cost Performance Index
Project Cost Management is a well-defined and very helpful project management strategy.
Mostly the Cost Performance Index (CPI) is utilized by Project Managers to handle and control project costs. This astonishing tool is applied to determine the quantity of both cost and plan performance.
To measure project performance, quite a few metrics will be employed to gain cost and plan performance for the Project. The following system of measurement will be collected and described by the Project Managers:
- Cost Performance Index (CPI) will be registered and updated monthly and is the project’s EV/AC
- Schedule Performance Index (SPI) will be stated monthly and is the project’s EV/PV
How is the Cost Performance Index Calculated?
The Cost Performance is defined as the ratio of the earned value with the actual cost. In simple words, if the value of CPI is greater than one it shows that the project is under budget.
As we calculate the cost variance, the cost performance index needs the following input parameters
- Earned value (EV)
- Actual cost (AC)
The cost performance index is analyzed and assessed by applying the next formula:
CPI = EV/AC
- CPI = Cost Performance Index
- EV = Earned Value (dollars, euros, etc.)
- AC = Actual Cost (dollars, euros, etc.)
Cost Performance Index VS Schedule Performance Index
Cost Performance Index (CPI) and Schedule Performance Index (SPI) are two factors and are used to calculate and analyze the effectiveness and productivity of a project. The difference between the two is one calculates expense at the same time as the other measures the calendar.
By the help of these two workings together permits a project manager to estimate final project accomplishment evaluations. This includes information like will the project be within the allocated budget and will it finish on time or not.
As we know by now the Cost Performance Index (CPI) assesses the expense and budget productivity of a project. If you need to determine CPI you must have two pieces of information, the earned value, and the actual cost.
Benefits of CPI Earned Value Management Template
As we had a look at all the aspects of the Cost Performance Index. It is understood that it is a must-have tool for the management and planning of a project. It helps and facilitates the members of the project to run the project smoothly and complete it on time.
The thing to keep in consideration while measuring CPI is that it is the measurement of the budget effectiveness and SPI is the measurement of the plant productivity.
Both are invaluable and extremely in recognizing and identifying the effectiveness of a project and to predict the project end assessments.