PMP Terms 29

CPI (Cost Performance Index)

CPI (Cost Performance Index) measures cost efficiency: how much budgeted work is accomplished for each dollar of actual cost.

Formula:

CPI (Cost Performance Index) = EV (Earned Value) ÷ AC (Actual Cost)

What makes it an index?

An index takes underlying measurements and converts them into a standardized number that is easier to compare or interpret.

Here, the ratio is a normalized measure of cost performance. It permits comparison across projects of very different sizes.

Interpretation:

• Greater than 1 = under budget for completed work.

• Equal to 1 = on budget for completed work.

• Less than 1 = over budget for completed work.

Example — Izzy’s Ice Cream:

• EV (Earned Value) = $75.

• AC (Actual Cost) = $70.

CPI (Cost Performance Index) = $75 ÷ $70 ≈ 1.07.

Meaning: For every $1 of actual cost, Izzy’s accomplished approximately $1.07 of budgeted work.

A large project with EV (Earned Value) = $75 million and AC (Actual Cost) = $70 million has the same CPI (Cost Performance Index) ≈ 1.07. Multiplying both amounts by the same number leaves the ratio unchanged.

CV (Cost Variance) would be +$5 for the small example and +$5 million for the large example: same efficiency, different dollar differences.

Translate the decimal:

• CPI (Cost Performance Index) = 1.25 → $1.25 of budgeted work per $1 incurred; 125% cost efficiency.

• CPI (Cost Performance Index) = 1.00 → $1.00 of budgeted work per $1 incurred; 100% cost efficiency.

• CPI (Cost Performance Index) = 0.60 → $0.60 of budgeted work per $1 incurred; 60% cost efficiency.

“Earning” means completing budgeted work, not earning revenue or profit.

Avoid the percentage trap:

60% cost efficiency does not mean 40% over budget. Spending $100 on work budgeted at $60 is ($100 − $60) ÷ $60 ≈ 66.7% over the budgeted cost of that work.

Likewise, 125% cost efficiency means spending $0.80 per $1 of budgeted work: 20% less than its budgeted cost, not 25% less.

Memory hook: Cost Performance Index = budgeted work accomplished per $1 of actual cost.

SV (Schedule Variance)

SV (Schedule Variance) measures whether more or less budgeted work has been completed than planned by this point.

Formula:

SV (Schedule Variance) = EV (Earned Value) − PV (Planned Value)

Interpretation:

• Positive = ahead of plan in budgeted work accomplished.

• Zero = matching planned progress in budgeted value.

• Negative = behind plan in budgeted work accomplished.

Why dollars?

EVM (Earned Value Management) converts project work into its budgeted dollar value, allowing different activities to use the same measuring stick.

Example — Izzy’s Ice Cream:

The plan said the flooring, signage, and scooping-station setup should be finished. Together, those activities were budgeted at $60. The team finished them plus another task budgeted at $15.

• PV (Planned Value) = $60.

• EV (Earned Value) = $75.

SV (Schedule Variance) = $75 − $60 = +$15.

Meaning: Izzy’s is $15 worth of budgeted work ahead of where the schedule said it should be.

This does not mean $15 was saved or that the project is 15 days ahead. The dollars measure work progress.

CV (Cost Variance) compares completed work with actual cost; SV (Schedule Variance) compares completed work with planned work.

A favorable result does not, by itself, establish an earlier finish date; the critical path still matters.

Memory hook: Schedule Variance compares work done with work planned—expressed in budget dollars, not days.

SPI (Schedule Performance Index)

SPI (Schedule Performance Index) measures schedule efficiency: budgeted work actually completed compared with budgeted work scheduled to be complete by now.

Formula:

SPI (Schedule Performance Index) = EV (Earned Value) ÷ PV (Planned Value)

An index converts underlying measurements into a standardized number that is easier to compare or interpret. This ratio describes progress relative to the plan, regardless of the dollar scale.

Interpretation:

• Greater than 1 = ahead of planned progress in budgeted work.

• Equal to 1 = matching planned progress in budgeted work.

• Less than 1 = behind planned progress in budgeted work.

Example — Izzy’s Ice Cream:

• PV (Planned Value) = $60: work scheduled by today was budgeted at $60.

• EV (Earned Value) = $75: completed work was budgeted at $75.

SPI (Schedule Performance Index) = $75 ÷ $60 = 1.25.

Meaning: Izzy’s has accomplished 125% of the budgeted work it was supposed to have accomplished by this point.

Translate the decimal:

• SPI (Schedule Performance Index) = 1.25 → 125% of planned progress achieved.

• SPI (Schedule Performance Index) = 1.00 → 100% of planned progress achieved.

• SPI (Schedule Performance Index) = 0.60 → 60% of planned progress achieved.

SPI (Schedule Performance Index) × 100 = percentage of planned budgeted progress actually achieved.

This is not the percentage of the entire project completed. In the simplified $100 project, $75 of completed budgeted work is 75% of the whole project, while also being 125% of the $60 planned by today.

It does not tell us a number of days ahead or behind, and a favorable ratio alone does not guarantee an early finish; check the critical path.

Memory hook: Schedule Performance Index = what percentage of the planned work have we accomplished?

EAC (Estimate at Completion)

AC (Estimate at Completion) is the forecast total cost of the entire project when finished, including costs already incurred and the remaining costs.

It answers: Based on our current cost efficiency, what do we expect the whole project to cost when we are done?

Formula—when current cost efficiency is expected to continue:

EAC (Estimate at Completion) = BAC (Budget at Completion) ÷ CPI (Cost Performance Index)

This uses cost efficiency, not simply dollars spent per week.

Example — Izzy’s Ice Cream:

• BAC (Budget at Completion) = $500,000.

• CPI (Cost Performance Index) = 1.25.

The team is accomplishing $1.25 of budgeted work for every $1 of actual cost.

EAC (Estimate at Completion) = $500,000 ÷ 1.25 = $400,000.

Meaning: If the same cost efficiency continues, Izzy’s expects to complete the project for $400,000.

The approved budget has not automatically changed:

• BAC (Budget at Completion) = $500,000: the approved budget.

• EAC (Estimate at Completion) = $400,000: the current forecast.

There are other formulas for EAC (Estimate at Completion). Choose the formula that matches the stated assumptions about future performance; this is the version for continuing current cost efficiency.

Memory hook: Budget at Completion = what we budgeted. Estimate at Completion = what we now expect it to cost.

ETC (Estimate to Complete)

ETC (Estimate to Complete) = EAC (Estimate at Completion) − AC (Actual Cost)

Example — Izzy’s Ice Cream:

• EAC (Estimate at Completion) = $400,000: the forecast cost of the whole project.

• AC (Actual Cost) = $160,000: the cost incurred so far.

ETC (Estimate to Complete) = $400,000 − $160,000 = $240,000.

Meaning: Izzy’s expects to need another $240,000 to finish. EAC (Estimate at Completion) is the forecast total; ETC (Estimate to Complete) is the forecast remaining amount.

Memory hook: Estimate to Complete asks, “How much more?”

VAC (Variance at Completion)

VAC (Variance at Completion) compares the original approved budget with the forecast total cost.

Formula:

VAC (Variance at Completion) = BAC (Budget at Completion) − EAC (Estimate at Completion)

Interpretation:

• Positive = forecast to finish under budget.

• Zero = forecast to finish on budget.

• Negative = forecast to finish over budget.

Example — Izzy’s Ice Cream:

• BAC (Budget at Completion) = $500,000: the approved budget.

• EAC (Estimate at Completion) = $400,000: the forecast final cost.

VAC (Variance at Completion) = $500,000 − $400,000 = +$100,000.

Meaning: Izzy’s is forecast to finish $100,000 under its approved budget. That is a prediction, not money already saved or a change to the approved budget.

Memory hook: Variance at Completion asks, “How far from the original budget do we expect to finish?”

TCPI (To-Complete Performance Index)

TCPI (To-Complete Performance Index) is the cost efficiency needed on the remaining work to finish within the original approved budget.

Formula — when the target is BAC (Budget at Completion):

TCPI (To-Complete Performance Index) = [BAC (Budget at Completion) − EV (Earned Value)] ÷ [BAC (Budget at Completion) − AC (Actual Cost)]

The top is the budgeted value of work still to do. The bottom is the money left in the original budget.

Example — Izzy’s Ice Cream:

• BAC (Budget at Completion) = $100.

• EV (Earned Value) = $75: completed work budgeted at $75.

• AC (Actual Cost) = $70: cost incurred so far.

There is $25 of budgeted work left and $30 of the original budget left:

TCPI (To-Complete Performance Index) = ($100 − $75) ÷ ($100 − $70) = $25 ÷ $30 ≈ 0.83.

Meaning: For each $1 Izzy’s spends from here, it needs to complete about $0.83 of budgeted work to meet the $100 budget. It has some cost cushion.

Interpretation:

• Below 1: The remaining work can be completed at less than $1 of budgeted work per $1 spent and still meet the original budget.

• Equal to 1: The remaining work must be completed at $1 of budgeted work per $1 spent.

• Above 1: The remaining work must be completed at more than $1 of budgeted work per $1 spent.

TCPI (To-Complete Performance Index) describes required future cost efficiency, not how fast or hard the team must physically work. Compare it with the current CPI (Cost Performance Index) to judge whether the needed efficiency is an improvement over performance so far.

Memory hook: “How cost-efficient must we be from here forward to meet the budget?”