Cost Performance Index
This guideline describes how to use a Cost Performance Index (CPI) to measure how effectively you are managing project cost.
Main Description

Purpose

The Cost Performance Index (CPI) measures how effectively you are managing the cost in an iteration or a project This helps you see the trend of spending compared to the budget in the plan.

Definition

CPI = Earned Value / Actual Cost 

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

Analysis

CPI indicates the value that you are getting from a dollar or effort that you spend. CPI should be as close to one as possible. If the CPI is more than one, it indicates a favorable condition, which shows that the team is getting more value than they have planned to expect. If the CPI is lower than one, that indicates an unfavorable condition.



CPI Value
Analysis
Equal to 1
A favorable condition; the team is getting value as expected.
More than 1 A favorable condition; the team is getting more value than expected.
1 < CPI <= 0.95 An unfavorable condition; the team is getting less value than expected. It is still in an acceptable condition, but the performance should be improved.
0.95 < CPI <= 0.9 An unfavorable condition; the team is getting much less value than expected. It shows the ineffective project performance and must be improved.
Less than 0.9 An unfavorable condition; the team is getting an unacceptable less value than expected. It shows the deficient project performance. The team should assign the highest priority in improving the project performance.

As the following table shows, at the end of Week 4 (9/26/2008), the team planned to have completed 48 hours of work, but they completed only 36 hours of work. Thus, the work took four hours more than they expected. That makes the CPI of this project 0.9 (36/40). This indicates that for every hour you have spent on the project, you completed only 0.9 hours of work. Therefore, this is an unfavorable result and might mean that you have gone over your 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

Frequency and reporting

Planned Value estimates are provided at the beginning of each iteration. Earned Values are reported at the end of each iteration. The Earned versus Actual Cost/ Effort chart is reviewed with the team during each iteration retrospective and discussed with stakeholders to help identify trends.
 

Collection and reporting tools

IBM® Rational® Project Conductor® (version 2.0 and below) collects cost data. Effort data is collected in IBM® Rational® Team Concert®. IBM® Rational® Insight® reports on this metric at the executive level.

Pitfalls, advice, and countermeasures

  • Do not compare effort to cost, but compare planned financial cost to actual financial cost or planned effort to actual effort.
  • Use this metric to track cost / effort performance compared to the plan during the lifecycle.
  • Earned Value management is not an effective approach for projects in which the requirements are not stable, or projects that are not able to plan cost and schedule completion. If there are changes to the plan, planned cost and earned value must be updated.