CPI Calculation
Question
A project manager is creating the monthly report for top management.
The project manager has collected the information below: AC = 100 - PV = 80 - EV = 120 - Based on this information, the CPI reflects which of the following about the project?
Answers
Explanations
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A. B. C. D.A.
Explanation - The cost performance index (CPI) is calculated this way: CPI = EV / AC Excerpt From: Kim Heldman.
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To understand the answer, we need to know what each of the given values represents in the Earned Value Management (EVM) formula:
- Actual Cost (AC): The total actual cost incurred in completing the work done so far.
- Planned Value (PV): The authorized budget for the work scheduled to be done up to this point in time.
- Earned Value (EV): The value of the work completed so far, based on the authorized budget.
Now, let's calculate the two important EVM metrics using the given values:
- Cost Performance Index (CPI): It indicates how efficiently the project team is using the budget to complete the work. It is calculated by dividing the Earned Value (EV) by the Actual Cost (AC). The formula is CPI = EV/AC. In this case, CPI = 120/100 = 1.2.
- Schedule Performance Index (SPI): It indicates how efficiently the project team is using the time to complete the work. It is calculated by dividing the Earned Value (EV) by the Planned Value (PV). The formula is SPI = EV/PV. In this case, SPI = 120/80 = 1.5.
Now, let's analyze the answer options:
A. It is under budget. The CPI is greater than 1, which means that the project team is completing the work at a lower cost than planned. So, option A is a possible answer.
B. It is over budget. The CPI is greater than 1, which means that the project team is completing the work at a lower cost than planned. So, option B is not the correct answer.
C. It is ahead of schedule. The SPI is greater than 1, which means that the project team is completing the work faster than planned. However, the question is asking about the CPI, not the SPI. So, option C is not the correct answer.
D. It is behind schedule. There is no information given about the project's schedule, so we cannot determine whether it is behind schedule or not based on the given values. So, option D is not the correct answer.
Therefore, the correct answer is A. It is under budget. The Cost Performance Index (CPI) of 1.2 indicates that the project team is completing the work at a lower cost than planned.
