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You are the project manager of a project that has a budget of $875,000 and you have completed 40 percent of the project work. Due to some errors, however, you have actually spent $425,000 of the budget. Management wants to know what the project's cost performance index is. What value do you report?
Cost performance index (CPI) is used to calculate performance efficiencies. It is used in trend analysis
to predict future performance. CPI is the
ratio of earned value to actual cost. The CPI is calculated based on the following formula:
CPI = Earned Value (EV) / Actual Cost (AC)
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. The CPI value of 1 indicates that the project is right on target. In this instance it's
$350,000 divided by $425,000 for a CPI
of .82.
Answer option B is incorrect. $350,000 is the earned value of the project.
Answer option A is incorrect. -$75,000 is the cost variance for the project.
Answer option D is incorrect. -$187,500 is the predicted variance at the completion of the project.