Cost Performance Index
This guideline describes how to measure Cost Performance Index (CPI) to measure how effective you are managing the cost.
Main Description

Overview

The Cost Performance Index (CPI) metric is used for measure how effective you are managing the cost in an iteration or in a project This helps in identifying the trend of how are we spending cost against the plan. CPI can help do a better cost management.

Measurement Method

CPI = Earned Value / Actual Cost  - where

Earned Value = Value of completed work items to date in terms of the budget assigned to the work item. It can be referred as the budgeted cost of work performed (BCWP)

Actual Cost = Total costs actually spent in completed work items to date. Cost can be cost (dollars) or effort (person-hours).

Measurement Analysis

CPI indicates the value that we getting back from a dollar or effort we spend. CPI should be close to 1 as much as possible. If CPI is more than one, it indicates favorable condition which shows that the team is getting more value back than they have planned. If SPI is lower than 1, it indicates unfavorable condition which shows that the team is getting less value back than they have planned.

From the following table, at the end of week 4 (9/26/2008), the teams plan on completed 48 hours of work but they can only completed 36 hours of work and taking 4 hour more than expected. The CPI of this project is 0.9 (36/40). This indicates that 1 hour you have spend on the project, you only getting 0.9 hours of work completed. This shows the unfavorable sign which can be the sign of over budget.

Dates Plan Value
(person-hours)
Earned Value
(person-hours)
Actual Cost 
(person-hours)
09/05/2008 6
09/12/2008 20 20 20 
09/19/2008 32  32 32 
09/26/2008 48 36 40 
10/3/2008 87