Definition:
A fundamental project management tool, the Cost Performance Index (CPI) gauges cost effectiveness by matching the value of work accomplished to the actual cost paid. It enables one to determine whether a project is underfunded or overfunded.
Formula:
CPI=EarnedValue(EV)ActualCost(AC)CPI = \frac{Earned Value (EV)}{Actual Cost (AC)}
- CPI > 1: Indicates cost efficiency (project is under budget).
- CPI < 1: Indicates cost overrun (project is over budget).
- CPI = 1: Indicates cost alignment with planned budget.
Example:
If a project has completed work worth $100,000 (EV) but spent $120,000 (AC), then CPI = 100,000/120,000 = 0.83, indicating poor cost efficiency.
Challenges & Solutions:
- Fluctuations in CPI: Regular cost tracking prevents late-stage surprises.
- Misinterpretation: Pairing CPI with other metrics (e.g., SPI) improves analysis.
Conclusion:
Monitoring financial success depends on CPI, which also helps project managers to respond before cost overruns become crucial.
