You are the project manager of the JKM Project for your organization. Your project is supposed to
be 60 percent complete but you are only 45 percent complete. The project has an assigned
budget of $765,000 but you have already spent $365,000 to reach this point in the project due to
some errors and rework. Management is pressing you on when you’ll complete the project and
how much the project will likely cost based on the current performance. You need to tell
management what the project’s current cost performance index (CPI) is. What value should you
report to management based on your project’s performance?
A.
$306,000
B.
.94
C.
$344,250
D.
.75
Explanation:
Management wants to know the cost performance index (CPI). You can find the CPI by first finding
the earned value (EV) and then dividing it by the actual costs (AC) spent to date on the project.
You find EV by multiplying percent complete by the project’s budget; in this instance that’s
$344,250. The actual costs are reported as $365,000. The formula for the CPI on this project is
$344,250 / $365,000 for a value of .94. What is CPI? 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. What is BCWP (or EV)? Budgeted cost of
work performed (BCWP) or Earned Value (EV) is the value of completed work. It is the budgeted
amount for the work actually completed on the schedule activity during a given time period.
Answer options C, A, and D are incorrect. These do not reflect an accurate value for the project’s
cost performance index. The project is performing moderately well on cost as the closer the CPI is
to 1 the better the project’s performance.