Introduction to Cost Performance Index (CPI) and Schedule

Performance Index (SPI)

Earned Value (EV) Analysis leverages the Earned Value Fundamental Formula to determine the
project performance indices pertaining to project cost and schedule. Earned Value is part of
the Control Costs process group in Project Cost Management. Earned Value Performance formula
consist of:
Cost Performance Index (CPI): Represents the amount of work being completed
on a project for every unit of cost spent. CPI is computed by Earned Value / Actual Cost . A
value of above 1 means that the project is doing well against the budget.
Schedule Performance Index (SPI): Represents how close actual work is being
completed compared to the schedule. SPI is computed by Earned Value / Planned Value. A
value of above one means that the project is doing well against the schedule.

Abbreviations
You'll start to see many different abbreviations in the next few sections - I've listed them out here
to help as you continue reading.

EV = Earned Value

PV = Planned Value

BAC = Budget at Completion

AC = Actual Cost

Formulas
The following formulas will be used for the following examples.

PV = Planned Completion (%) * BAC

EV = Actual Completion (%) * BAC

CPI = EV/AC

SPI = EV/PV

Earned Value Analysis Example 1

Suppose you have a budgeted cost of a project at $900,000. The project is to be completed in 9
months. After a month, you have completed 10 percent of the project at a total expense of
$100,000. The planned completion should have been 15 percent.

Now, lets see how healthy the project is by computing the CPI and SPI.

From the scenario, you can extract the following:

BAC = $900,000
AC = $100,000
The Planned Value (PV) and Earned Value (EV) can then be computed as follows:

Planned Value = Planned Completion (%) * BAC = 15% * $ 900,000 = $ 135,000

Earned Value = Actual Completion (%) * BAC = 10% * $ 900,000 = $ 90,000
Compute the earned value variances:

Cost Performance Index (CPI) = EV / AC = $90,000 / $100,000 = 0.90. This

means for every $1 spent, the project is producing only 90 cents in work.
 Schedule Performance Index (SPI) = EV / PV = $90,000 / $135,000 = 0.67. This
means for every estimated hour of work, the project team is completing only 0.67 hours
(approximately 40 minutes).
Interpretation: Since both Cost Performance Index (CPI index) and Schedule Performance Index
(SPI index) are less than 1, it means that the project is over budget and behind schedule. This
example project is in major trouble and corrective action needs to be taken. Risks management
needs to kick-in.

Earned Value Analysis - Example 2

Suppose you are managing a software development project. The project is expected to be
completed in 8 months at a cost of $10,000 per month. After 2 months, you realize that the project
is 30 percent completed at a cost of $40,000. You need to determine whether the project is on-time
and on-budget after 2 months.

Step 1: Calculate the Planned Value (PV) and Earned Value (EV)

From the scenario,

Budget at Completion (BAC) = $10,000 * 8 = $80,000

Actual Cost (AC) = $40,000
Planned Completion = 2/8 = 25%
Actual Completion = 30%
Therefore,

Planned Value = Planned Completion (%) * BAC = 25% * $ 80,000 = $ 20,000

Earned Value = Actual Completion (%) * BAC = 30% * $ 80,000 = $ 24,000
Step 2: Compute the Cost Performance Index (CPI) and Schedule Performance Index (SPI)

Cost Performance Index (CPI) = EV / AC = $24,000 / $40,000 = 0.6

Schedule Performance Index (SPI) = EV / PV = $24,000 / $20,000 = 1.2
Interpretation: Since Cost Performance Index (CPI) is less than one, this means the project is over
budget. For every dollar spent we are getting 60 cents' worth of performance. Since Schedule
Performance Index (SPI) is more than one, the project is ahead of schedule. However, this has
come at a cost of going over budget. If work is continued at this rate, the project will be delivered
ahead of schedule and over budget. Therefore, corrective action should be taken.
Apart from computing the Cost Performance Index (CPI) and Schedule Performance Index (SPI), you
can calculate the earned value cost and schedule variance. In addition, you can use earned value
forecasting formula.

slide 1 of 3

Introduction to Earned Value Project Performance Formulae

Earned Value is a part of the Project Cost Management knowledge area. This is the last in the series
of articles on Earned Value computations. The other articles in this series are:

Compute the Earned Value (EV) of a Project

Examples of Cost Variance (CV) and Schedule Variance (SV) in a Project
How to Compute Cost Performance Index (CPI) and Schedule Performance Index
(SPI) in Projects
 To gauge project performance by using Earned Value Analysis formulae, use the following:

Estimate at Completion (EAC): Computes project performance by looking at the

total cost of the project when it is completed based on the current rate of progress.
Estimate to Complete (ETC): Calculates project performance by looking at the
amount of money required to complete the project based on the current rate of progress.
Variance at Completion (VAC): Computes project performance by looking at the
variance of the total project cost at completion when compared with the project budget.
To-Complete Performance Index (TCPI) based on BAC: Represents the level of
project performance that future project work needs to be implemented to meet the budget.
TCPI based on EAC: Represents the level of project performance that future
project work needs to be implemented to meet the projects cost based on past project
performance.

Next, let's look at a couple of examples to compute project performance.

slide 2 of 3

Example 1

Suppose you have a budgeted cost of a project at $900,000. The project is to be completed in 9
months. After a month, you have completed 10 percent of the project at a total expense of
$100,000. The planned completion should have been 15 percent. Now, lets see the project
performance.

From the scenario, you can extract the following project performance parameters:

BAC = $900,000
AC = $100,000

The project performance in terms of Planned Value and Earned Value can then be computed as
follows:

Planned Value = Planned Completion (%) * BAC = 15% * $900,000 = $135,000

Earned Value = Actual Completion (%) * BAC = 10% * $900,000 = $90,000
Cost Performance Index = EV / AC = $90,000 / $100,000 = 0.90

The Earned Value Project Performance formulae are as follows:

Estimate at Completion (EAC) = BAC / CPI = $900,000 / 0.9 = $1,000,000. At

the current rate, the project performance in terms of cost is: Project completion in $1,000,000
as opposed to a planned budget of $900,000.
Estimate to Complete (ETC) = EAC AC = $1,000,000 - $100,000 = $900,000. If
the project performance continues at this rate, the project requires $ 900,000 to be completed.
Variance at Completion (VAC) = BAC EAC = $900,000 - $1,000,000 = -
$100,000. The project will be $100,000 over-budget at completion. The project will run
$100,000 over-budget at completion.
To-Complete Performance Index (TCPI) based on BAC = (BAC EV) / (BAC
AC) = ($900,000 - $90,000) / ($900,000 - $100,000) = $810,000 / $800,000 = 1.01
 TCPI based on EAC = (BAC EV) / (EAC AC) = ($900,000 - $90,000) /
($1,000,000 - $100,000) = $810,000 / $900,000 = 0.9

Note: Read the Protect Your Project Against Cost Overruns article to understand how to use
buffers.

slide 3 of 3

Example 2

Suppose you are managing a software development project. The project is expected to be
completed in 8 months at a cost of $10,000 per month. After 2 months, you realize that the project
is 30 percent completed at a cost of $40,000. You need to determine whether the project is on-time
and on-budget after 2 months. Let's see the project performance.

Step 1: Calculate the Planned Value (PV) and Earned Value (EV)

slide 1 of 3

Introduction to Earned Value Project Performance Formulae

Earned Value is a part of the Project Cost Management knowledge area. This is the last in the series
of articles on Earned Value computations. The other articles in this series are:

Compute the Earned Value (EV) of a Project

Examples of Cost Variance (CV) and Schedule Variance (SV) in a Project
How to Compute Cost Performance Index (CPI) and Schedule Performance Index
(SPI) in Projects

To gauge project performance by using Earned Value Analysis formulae, use the following:

Estimate at Completion (EAC): Computes project performance by looking at the

total cost of the project when it is completed based on the current rate of progress.
Estimate to Complete (ETC): Calculates project performance by looking at the
amount of money required to complete the project based on the current rate of progress.
Variance at Completion (VAC): Computes project performance by looking at the
variance of the total project cost at completion when compared with the project budget.
To-Complete Performance Index (TCPI) based on BAC: Represents the level of
project performance that future project work needs to be implemented to meet the budget.
TCPI based on EAC: Represents the level of project performance that future
project work needs to be implemented to meet the projects cost based on past project
performance.

Next, let's look at a couple of examples to compute project performance.

slide 2 of 3
 Example 1

Suppose you have a budgeted cost of a project at $900,000. The project is to be completed in 9
months. After a month, you have completed 10 percent of the project at a total expense of
$100,000. The planned completion should have been 15 percent. Now, lets see the project
performance.

From the scenario, you can extract the following project performance parameters:

BAC = $900,000
AC = $100,000

The project performance in terms of Planned Value and Earned Value can then be computed as
follows:

Planned Value = Planned Completion (%) * BAC = 15% * $900,000 = $135,000

Earned Value = Actual Completion (%) * BAC = 10% * $900,000 = $90,000
Cost Performance Index = EV / AC = $90,000 / $100,000 = 0.90

The Earned Value Project Performance formulae are as follows:

Estimate at Completion (EAC) = BAC / CPI = $900,000 / 0.9 = $1,000,000. At

the current rate, the project performance in terms of cost is: Project completion in $1,000,000
as opposed to a planned budget of $900,000.
Estimate to Complete (ETC) = EAC AC = $1,000,000 - $100,000 = $900,000. If
the project performance continues at this rate, the project requires $ 900,000 to be completed.
Variance at Completion (VAC) = BAC EAC = $900,000 - $1,000,000 = -
$100,000. The project will be $100,000 over-budget at completion. The project will run
$100,000 over-budget at completion.
To-Complete Performance Index (TCPI) based on BAC = (BAC EV) / (BAC
AC) = ($900,000 - $90,000) / ($900,000 - $100,000) = $810,000 / $800,000 = 1.01
TCPI based on EAC = (BAC EV) / (EAC AC) = ($900,000 - $90,000) /
($1,000,000 - $100,000) = $810,000 / $900,000 = 0.9

Note: Read the Protect Your Project Against Cost Overruns article to understand how to use
buffers.

slide 3 of 3

Example 2

Suppose you are managing a software development project. The project is expected to be
completed in 8 months at a cost of $10,000 per month. After 2 months, you realize that the project
is 30 percent completed at a cost of $40,000. You need to determine whether the project is on-time
and on-budget after 2 months. Let's see the project performance.

Step 1: Calculate the Planned Value (PV) and Earned Value (EV)

From the scenario, you can extract the following project performance parameters:
 Budget at Completion (BAC) = $10,000 * 8 = $80,000
Actual Cost (AC) = $40,000
Planned Completion = 2/8 = 25%
Actual Completion = 30%

Therefore, the project performance in terms of Planned Value, Earned Value, and Cost Performance
Index is:

Planned Value = Planned Completion (%) * BAC = 25% * $80,000 = $20,000

Earned Value = Actual Completion (%) * BAC = 30 % * $80,000 = $24,000
Cost Performance Index = EV / AC = $24,000 / $40,000 = 0.6

The Earned Value Project Performance formulae are as follows:

Estimate at Completion (EAC) = BAC / CPI = $80,000 / 0.6 = $133,333. At the

current rate, the project performance will be such that it will be completed with $133,333 as
opposed to a planned budget of $80,000.
Estimate to Complete (ETC) = EAC AC = $133,333 - $40,000 = $93,333.
Project performance at this rate means that the project requires $93,333 to be completed.
Variance at Completion (VAC) = BAC EAC = $80,000 - $133,333 = -$53,333.
The project performance in terms of budget will be: $53,333 over-budget at completion.
To-Complete Performance Index (TCPI) based on BAC = (BAC EV) / (BAC
AC) = ($80,000 - $24,000) / ($80,000 - $40,000) = $56,000 / $40,000 = 1.4
TCPI based on EAC = (BAC EV) / (EAC AC) = = ($80,000 - $24,000) /
($133,333 - $40,000) = $56,000 / $93,333 = 0.6

Following the golden rules for managing risk and scope creep will get the project back on-track.