CPI: Cost Performance Index
Question
Which of the following is true for Cost Performance Index (CPI)?
Answers
Explanations
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A. B. C. D.A.
Cost performance index (CPI) is used to calculate performance efficiencies of project.
It is used in trend analysis to predict future performance.
CPI is the ratio of earned value to actual cost.
If the CPI value is greater than 1, it indicates better than expected performance, whereas if the value is less than 1, it shows poor performance.
Incorrect Answers: B: CPI is the ratio of earned value to actual cost, i.e., CPI = Earned Value (EV) / Actual Cost (AC)
C: Cost performance index (CPI) is used to calculate performance efficiencies of project and not its schedule.
D: The CPI value of 1 indicates that the project is right on target.
Cost Performance Index (CPI) is a key project management metric that helps in measuring the cost efficiency of a project. The correct answer to the question is A. If the CPI > 1, it indicates better than expected performance of the project.
Explanation: A. If the CPI > 1, it indicates better than expected performance of the project: CPI is a ratio that compares the actual cost spent on a project to the value of work completed at that time. If the ratio of earned value to actual cost is greater than 1, it indicates that the project is performing better than expected, and it is completing work at a lower cost than originally planned. For example, if a project has an earned value of $100,000 and actual cost of $90,000, then the CPI would be 1.11, indicating that the project is performing better than expected.
B. CPI = Earned Value (EV) * Actual Cost (AC): This statement is incorrect. The correct formula for calculating CPI is CPI = Earned Value (EV) / Actual Cost (AC).
C. It is used to measure performance of schedule: This statement is incorrect. CPI is used to measure the cost efficiency of a project, not the schedule performance.
D. If the CPI = 1, it indicates poor performance of the project: This statement is also incorrect. If the CPI = 1, it means that the project is performing as expected, neither better nor worse. It does not necessarily indicate poor performance of the project.
In summary, the correct answer is A. If the CPI > 1, it indicates better than expected performance of the project.
