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# Understanding Cost Performance Index Cpi, Earned Value Ev, Actual

October 18, 2023
Bill Kimball

Because you have an SPI value below “1” which means that the planned value has not been realized and therefore the project is not complete. At that time, it was over budget and ahead of schedule.

• It answers the question, “How much did we plan to spend as of this date?
• The sum of the task that is actually performed is called Earned Value.
• If the activity is on critical path, and it is delayed, the project will delay.
• If an important supplier goes out of business, management reserves can be set aside to cover the resulting costs.

The two most critical parameters of project management are schedule and cost-efficiency. The cost performance index is used at a time or over several project cycles to measure costs and earned benefits. For every money spent on the project, it determines how much one earns, thus, reveals just how well the project sticks to the budget. It also assists the project management professional to determine whether their performance in project management is up to standard by conducting a cost-performance analysis.

## How To Calculate Schedule Variance Sv

In a bottom-up estimate, the size of the individual work items is one of the factors that drives the accuracy of the estimates. Intangible costs can be easily measured in monetary terms. The variance calculations using this earned value data element are described below.

When I look at the formulas and the examples, it seems to assume that costs are spread evenly throughout the project (eg. 3 consultants working from start to finish of the project). My logic says to calculate the CPI, I would calculate EV in nominal terms using the nominal budget so that it can be compared against the actual .

A. The project has been cancelled while it was executed. At that time the project was behind schedule and on budget. The project manager should investigate the cause of the deviation.

However, another school of thought holds that all work can be planned, even if in weekly timeboxes or other short increments. Figure 3 shows the same EV curve with the actual cost data from Figure 1 . It can be seen that the project was actually under budget, relative to the amount of work accomplished, since the start of the project.

IT project managers must be able to present and discuss project information both in financial and technical terms. At the work package level, BCWP is earned in the same manner that BCWS was established. That is, if work were planned using the milestone technique, BCWP must be earned using the milestone technique. For a project with a BAC of \$75,000 and an EAC of \$85,000, the variance at completion would be \$10,000. Expressed as a percentage, the VAC would be \$10,000 divided by \$75,000. An SV of 0 means the project budget is currently exactly on schedule. The Cost Variance calculation lets you know how far ahead or behind you are budget-wise for a project at any given time.

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In the above example, we calculated an SPI of 0.67, which indicates that the work is behind schedule. An SPI of 0.67 means that the project team only completes 0.67 hours worth of work for every hour of planned work. In project management, the estimated and management of the budget is deemed as one of the most crucial aspects.

It answers the question, “How much did we plan to spend as of this date? ” A variant of this question is, “How much work should have been completed by this date? ” PV can be computed from the project plan, or it can be approximated by multiplying the total budget by the fraction of total project duration at the analysis date. For example, if the project budget is \$100 and 20 percent of the project’s time has elapsed, the approximate PV is \$20. There are a number of different calculations you can make in order to tell whether or not a project is on schedule according to cost and amount of time left. This needs to be done throughout a project so that teams (and accountants!) understand how far ahead or behind a project is falling.

## The Advantages Of Using Earned Value Management

It’s calculated using Earned Value and subtracting Actual Cost . The Actual Cost is, quite literally, the actual amount you’ve spent on work at any given time.

In more detailed terms, CPI measures the amount of work completed for every dollar spent. Values lower than one tell you that the project is over budget, and values higher than one tell you that you are under budget. To create your baseline, review your project schedule and estimate the time and cost required to complete the work needed. Engineering, construction, and IT development regularly hire project managers to oversee planning and delivery.

## Analogous Estimates Are Called Activity

C/SCSC was often considered a financial control tool that could be delegated to analytical specialists. AC is what it actually costs to accomplish all the work completed as of the analysis date.

Cost Performance Index can be calculated by dividing the earned value by the actual cost . It can be determined by measuring the ratio of the earned value to the actual cost.

Past variances would have continued to occur into the future. Generally, the EAC can be calculated in four different ways, depending on whether the CPI is readily available and on assumptions about future CVs.

The actual critical path is ultimately the determining factor of every project’s duration. This can lead to “gaming” the SV and Schedule Performance Index or SPI metrics by ignoring critical path activities in favor of big-budget activities that may have much float. This can sometimes even lead to performing activities out-of-sequence just to improve the schedule tracking metrics, which can cause major problems with quality. These initial three steps define the minimal amount of planning for simplified EVM. The final step is to execute the project according to the plan and measure progress. When activities are started or finished, EV is accumulated according to the earning rule.

## A Schedule Performance Index Of One Means That The Project Is On Schedule

You have a project to be completed in 12 months, and the budget of the project is 100,000 USD. 6 months have passed, and 60,000 USD has been spent, but upon closer review, you find that only 40% of the work has been completed. You have a project to be completed in 12 months, and the budget is 100,000 USD. Six months have passed, and 60,000 USD has been spent, but upon closer review, you find that only 40% of the work has been completed so far.

There are plenty of indicators of the project’s performance and CPI is deemed as one of the common performance indicators. This indicator often shows whether the project is going according to the planned schedule or whether there is a need for any corrective action. CPI can assist a project manager to evaluate if the project is on budget and provides a sense of how the cost is expended effectively. A Schedule Performance Index is very similar to CPI, but instead of calculating cost efficiency, like with CPI, the SPI calculates schedule efficiency. It measures how efficiently the team is completing work based on the Earned Value and Planned Value . Planned Value is calculated by the planned % complete x BAC. A cost performance index is calculated by dividing earned value by actual costs.

## Understanding The Cost Performance Index

Use the options in this section to define what is Exceptional, Warning, and Critical when assessing index performance. The values you specify determine which indicators apply to the Cost Performance Index , Schedule Performance Index , and To Complete Performance Index . Use this section to specify parameters for Performance, Earned Value, and Index values that appear in dashboard Project Performance portlets and on the Portfolios Performance Status tab. Budgetary estimates are made even before a project is officially started. A budgetary estimate is the most accurate of the three types of estimates. If an important supplier goes out of business, management reserves can be set aside to cover the resulting costs.

The second step is to assign a value, called planned value , to each work package. For large projects, PV is almost always an allocation of the total project budget, and may be in units of currency (e.g. dollar, euro or naira) or in labor hours, or both.