Cost Performance Index (CPI) in Project Management

Cost Performance Index (CPI) is a vital Key Performance Indicator (KPI) in project management that measures the cost efficiency of a project. It is the ratio of the earned value to the actual cost. In essence, it answers the question: "Are we getting out what we put into the project?"

CPI is an essential tool for project managers - it helps them understand how efficiently the project resources are being used. A CPI value of less than 1 indicates cost overruns, whereas a value greater than 1 represents cost efficiency.

Calculation of Cost Performance Index

The Cost Performance Index is calculated by dividing the earned value by the actual cost.

Here is the formula for calculating the CPI:

Cost Performance Index (CPI) = Earned Value (EV) / Actual Cost (AC)

In this formula:

• Earned Value (EV) is the value of the work actually completed. It's the budgeted amount for the work that has been accomplished up to a particular point in time.
• Actual Cost (AC), also known as actual cost of work performed (ACWP), refers to the total costs incurred for all work performed on the project up to a specific point in time.

If the CPI is less than 1, it suggests that the project is over budget. If the CPI is equal to 1, it means that the project is on budget, and if the CPI is greater than 1, the project is under budget.

By monitoring the CPI, project managers can keep track of the financial health of their projects, identify potential issues early, and take appropriate corrective actions to ensure cost efficiency.