You are the project manager of a project that has a budget of $875,000 and you have completed
40 percent of the project work. Due to some errors, however, you have actually spent $425,000 of
the budget. Management wants to know what the project’s cost performance index is. What value
do you report?

A.
-$75,000

B.
$350,000

C.
.82

D.
-$187,500

Explanation:
Cost performance index (CPI) is used to calculate performance efficiencies. It is used in trend
analysis to predict future performance. CPI is the ratio of earned value to actual cost. The CPI is
calculated based on the following formula: CPI = Earned Value (EV) / Actual Cost (AC) If the CPI
value is greater than 1, it indicates better than expected performance, whereas if the value is less
than 1, it shows poor performance. The CPI value of 1 indicates that the project is right on target.
In this instance it’s $350,000 divided by $425,000 for a CPI of .82.
Answer option B is incorrect. $350,000 is the earned value of the project.
Answer option A is incorrect. -$75,000 is the cost variance for the project.
Answer option D is incorrect. -$187,500 is the predicted variance at the completion of the project.