Cost Performance Index (CPI) is a project management metric that measures the cost efficiency of a project. The CPI compares the earned value (EV) of the work completed on the project to the actual cost (AC) incurred in completing that work. The CPI is used to determine whether a project is under or over budget.
The formula for calculating CPI is:
CPI = Earned Value (EV) / Actual Cost (AC)
where EV is the value of the work that has been completed up to a certain point in time, and AC is the actual cost incurred in completing that work.
For example, let’s say a project has a budget of $100,000, and at the end of week 5, the project is 30% complete. The EV for the project would be $30,000 (30% x $100,000). If the actual cost incurred at the end of week 5 is $35,000, then the CPI would be:
CPI = $30,000 / $35,000 = 0.86
This would indicate that the project is 86% efficient in terms of cost performance. A CPI value of less than 1 indicates that the project is over budget, while a value of greater than 1 indicates that the project is under budget. A value of 1 indicates that the project is on budget.
CPI is a useful metric for project managers as it can provide an early warning of potential budget overruns and help identify areas where corrective action may be necessary to bring the project back on track.
