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Cost Performance Index and Schedule Performance Index, Explained

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There are no shortcuts to studying for the Project Management Professional (PMP)® certification test. To ace the exam, you must persist through the difficult work of understanding concepts, especially those that can be a little confusing. Case in point: the cost performance index (CPI) and schedule performance index (SPI).

While the concepts themselves are pretty straightforward, many find them a little tricky. For one, you must memorize the formulas becausea slip up on any part of the computation will be a major blunder. There’s also the pressure to understand the given context to interpret calculations correctly.

These tricky situations are commonly encountered in The PMP test. According to our lead instructor Cornelius Fichtner, it challenges either the calculation or interpretation skills of test takers.

He said, “I have read hundreds of lessons learned from the PMP® exam and we're finding that you don't have to calculate formulas during the exam, but be able to interpret and determine what to do based on a given scenario. However, PMI has a tendency to change the PMP® exam again and again. Formulas were not on the exam, and then they came back, now they are back focusing on interpretation, so it's a constant evolution.”

If you’ve tried a few PMP® exam simulators, you’ll notice a combination of formula-based and interpretation-oriented questions. In this article, Cornelius reviews the basics of the CPI and SPI to help you tackle the complexities in the PMP® exam.

Cost Performance Index vs Schedule Performance Index

First, understand that both performance indices measure the efficiency of the project. Cost performance index evaluates the cost efficiency, how much the project has spent for the work done at a particular period. Schedule performance index evaluates the schedule efficiency, how close the project is to being done compared to the plotted deadline.

These performance metrics are important to project managers, as they help in various business decisions, including:

  • Project forecasting. The cost performance index and schedule performance index provide insights as to where your project stands, as well as where it should have been as planned. With this, you can estimate how the project will be completed, particularly if the budget will be spent as planned or if the schedule is being followed as planned.

    These insights can help you in making adjustments accordingly, perhaps changing the project scope, acquiring more resources, investing in high-tech tools and equipment, etc.

  • Profitability analysis. In these indices, you’re essentially tracking the cost and schedule, the two crucial factors that affect your profit gains. Obviously, a task that takes too long to finish and goes over budget will affect your bottom line. By using cost performance index and schedule performance index, you can better manage the time and budget it takes to complete a project.
  • Performance tracking and accountability. At the core of calculating the cost performance index and schedule performance index, you must monitor employees' progress and accomplishments. Being intentional in tracking these will result in better performance. Those who are doing well will be motivated to press on, while those who are lagging behind will double their efforts to keep up with the top members.

    Employees are not the only ones accountable for their performance. The project managers themselves must report to senior executives. Thus, this intentional measuring of project efficiency will result in a culture of accountability

Put simply, the performance indices allow project managers to improve operations. That said, it’s important to understand these concepts and prepare for the different types of PMP® exam questions, especially those mentioned earlier.

What Is Cost Performance Index?

Measuring the cost efficiency, the cost performance index is the ratio of earned value to actual cost. Essentially, you’re trying to understand if the project will be under, over, or within budget as you complete it.

The cost performance index formula is expressed as:

CPI = EV / AC.

What is actual cost and earned value?

The actual cost is the amount of the budget that was spent for the work completed so far. The earned value, on the other hand, refers to the value of the project at the current timeframe. Its formula is expressed as:

EV = Percent complete (actual) x Task Budget.

How exactly do you interpret the cost performance index?

  • A CPI of 1.0 means that the project is exactly on budget. The work completed so far matches the cost spent so far.
  • A CPI greater than 1.0, on the other hand, means more work was completed than the cost spent. The project is under budget, spending the funds more efficiently than planned.
  • A CPI less than 1.0 means less work was done than the cost spent. The project is over budget, spending more than planned.
Example 1: The Build a Community Garden Project must be completed within 12 months, given a budget of $1,000,000. Six months passed and $400,000 was spent. The work progress was at 30 percent completion. What is the cost performance index? Evaluate if the project is under, over, or within the budget.
  • a. 1.0
  • b. 0.75
  • c. 1.1
  • d. The project's performance cannot be determined based on the information given.

Solution:

  • Actual cost = $400,000
  • Earned value = 30% x $1,000,000 = $300,000
  • CPI = $300,000 / $400,000 = 0.75

Answer: B. CPI is 0.75. Since the CPI is less than 1.0, the project has done less work done than the cost spent, meaning, it has gone over the budget.

Example 2: Robert is preparing a report of the performance of the App Optimization Project. The project's CPI is 1.1. What should Robert report regarding the current project performance?

  • a. The project has incurred higher cost than planned.
  • b. The project has incurred lower cost than planned.
  • c. The project is within budget.
  • d. The project's performance cannot be determined based on the information given.

Answer: B. Since the CPI is greater than 1, the project is spending funds more efficiently than planned.

Example 3: The cost performance index on the Chocolate Factory Project is 0.67, while the earned value is $20,000. How much is the actual cost?

  • a. $45,000
  • b. $25,000
  • c. $30,000
  • d. The actual cost cannot be determined based on the information given.
Answer: C. From the base formula CPI = EV / AC, you can derive the formula for actual cost. AC = EV / CPI. Applying this to the question, the formula will be expressed as AC = $20,000 / 0.67, which is equal to $29,850. Round it off and you’ll get $30,000.

What Is Schedule Performance Index?

Schedule performance index, measuring the schedule efficiency of the project, is the ratio of earned value to planned value. In this case, you're trying to understand if the project will be completed behind, ahead, or within schedule.

The schedule performance index formula is expressed as:

SPI = EV / PV.

What is planned value?

Planned Value (PV) is the budgeted cost for the work scheduled to be completed. Its formula is expressed as:

PV = Percent Planned Complete x Budget At Completion (BAC).

How exactly do you interpret the schedule performance index?

  • An SPI of 1.0 means that the project is exactly on schedule. The work completed so far is the work planned to be done so far.
  • An SPI greater than 1.0, on the other hand, means more work was completed than the planned work. The project is ahead of schedule.
  • An SPI less than 1.0 means less work was done than the planned work. The project is behind schedule.
Example 1: Joseph is building a modern home for his client, Mary. Mary said she wants to have her house finished within six months. With a budget of $50,000, Joseph started the construction. Four months into the project, he spent $35,000 and completed 35 percent of the work. What is the schedule performance index? Evaluate if the project is within schedule.
  • a. 1.0
  • b. 0.42
  • c. 0.52
  • d. 1.2

Solution:

  • Actual cost = $35,00
  • Earned value = 35 percent x $50,000 = $17,500
  • Planned value = 67 percent of $50,000 = $33,500
  • SPI = $17,500 / $33,500 = 0.52

Answer: C. SPI is 0.52. Since the SPI is less than 1.0, the project had less work done than the planned work, meaning, it’s behind schedule.

Example 2: Your project has a schedule performance index of 1.3. Which of the following is true?

  • a. The planned value is greater than the earned value.
  • b. The project's performance cannot be determined based on the information given.
  • c. The project is behind schedule.
  • d. The project is ahead of schedule.

Answer: D. Since the SPI is greater than 1.0, the project had more work done than the planned work, meaning it’s ahead of schedule.

Example 3: The swimming pool construction project has an actual cost of $35,000 and an earned value of $20,000. Find out what the schedule performance index is

  • a. 1.0
  • b. 0.78
  • c. 0.54
  • d. The project's performance cannot be determined based on the information given.

Answer: D. The question lacks key information, such as the Percent Planned Complete and Budget at Completion to compute for Planned Value.

Practice solving other PMP® formula questions, this time with a timer. As you build up experience through exercises, you’ll be a lot more comfortable and familiar with the test. Use exam simulators to try a variety of questions.

Cost Performance Index and Schedule Performance Index In a Nutshell

For a quick reference to the performance indices, use this table below:
Performance Index Description Formula Interpretation
Cost Performance Index It measures cost efficiency, how much the project has spent for the work done at a particular period.

CPI = Earned Value / Actual Cost

EV = Percent complete (actual) x Task Budget

  1. < 1.0 means the project is over budget (bad).
  2. 1.0 means the project is within the estimated budget (good).
  3. >1.0 means the project is under budget (good).
Schedule Performance Index It measures schedule efficiency, how close the project is to being done compared to the plotted deadline.

SPI = Earned Value / Planned Value

PV = Percent Planned Complete x Budget At Completion (BAC).

  1. <1.0 means the project is behind schedule (bad).
  2. 1.0 means the project is within schedule (good).
  3. >1.0 means the project is ahead of schedule (good).

The cost performance index and schedule performance index are concepts important to understand to tackle the PMP® test with success. More importantly, they’re useful in improving your project management practice.

Start practising today by using the exam simulator and other resources available on our website!

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