In this blog I’m going to discuss the two Performance Indexes in the Project Cost Management. These indexes are Schedule Performance Index (SPI) and Cost Performance Index (CPI).
Please note that this is the fourth blog post for Earned Value Management (EVM) concepts. If you’re coming here directly through a search result or a referral, then please go through my previous three posts before reading this post. Links are given below for your easy reference.
- Earned Value Management
- Elements of Earned Value Management, Planned Value, Earned Value and Actual Cost
- Variance in Project Cost Management— Schedule Variance (SV) and Cost Variance (CV)
Schedule Performance Index (SPI): The Schedule Performance Index tells us about the efficiency of time utilized on the project. It is a measure of progress achieved compared to the planned progress.
Schedule Performance Index = (Earned Value)/(Planned Value)
SPI = EV/PV
The Schedule Performance Index informs us how efficiently we are actually progressing compared to the planned progress.
Note:
- If SPI is greater than one, this means more work has been completed than the planned work.
- If SPI is less than one, this means less work is completed than the planned work.
- If SPI is equal to one, this means the work completed is equal to the planned work.
Cost Performance Index (CPI): The Cost Performance Index tells us about the efficiency of the cost utilized on the project. It is the measure of the value of the work completed compared to the actual cost spent on the project.
Cost Performance Index = (Earned Value)/(Actual Cost)
CPI = EV/AC
The Cost Performance Index informs us how much we are earning for each dollar spent on the project.
Note:
- If CPI is less than one, this means we are earning less than the spending.
- If CPI is greater than one, this means we are earning more than the spending.
- If CPI is equal to one, this means earning and spending is equal.
At this stage you may be thinking that if we can get all this information from the Schedule Variance and the Cost Variance, then why are these Schedule Performance and Cost Performance Indexes required?
There is a difference between variance and index. In variance we find the difference between the values, and in performance index we get the ratios.
In cost or schedule variance, the result comes in dollar form. If this number is negative then we say that the project is in bad shape, and if this number is positive, we say that the project is in good shape.
The problem with variances is that we cannot compare the health of different projects with one another.
Therefore, we use performance indexes to compare the health of the projects among themselves.
The Performance Index’s value lies between 0 to 1; therefore, only a glimpse of these ratios will be sufficient for us to get an idea about the health of the projects.
Size does not matter in calculating the indexes and it makes our job easier to compare the relative health of the project.
Example:
You have a project to be completed in 12 months and the total cost of the project is $100,000. Six months have passed and $60,000 is spent but on closer review you find that only 40% of the work is completed so far.
Find the Schedule Performance Index (SPI) and Cost Performance Index (CPI) for this project.
Given in question:
Actual Cost (AC) = $60,000
Planned Value (PV) = 50% of $100,000
= $50,000
Earned Value (EV) = 40% of $100,000
= $40,000
Now,
Schedule Performance Index (SPI) = EV / PV
= $40,000 / $50,000
= 0.8
Hence,
Schedule Performance Index is 0.8, and
Since the Schedule Performance Index is less than one, we are behind the planned schedule.
Cost Performance Index (CPI) = EV / AC
= $40,000 / $60,000
= 0.67
Hence,
Cost Performance Index is 0.67, and
Since the Cost Performance Index is less than one, this means we are earning $0.67 for every $1 spending.
Here everything related to Earned Value Management (EVM) finishes. In the next blog post we will discuss forecasting, including Estimate At Completion (EAC) and Estimate To Complete (ETC).
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Hi! If you have a CPI = 1 and a SPI = 0,2, would you then expect the project to be over-budget by the end? Let's say they should have finished by year end, but instead they decleare to finish about May next year.
Also, there will be no reduction in resources on the way.
It seems to me, there is a contradiction between having av SPI<1 and a CPI=1, as long as the project is still ongoing for some time, and amount of resources is not reduced…
Hello Sitara! Thanks for visiting my blog.
As you said if the CPI = 1 and SPI = 0.2, I would say that this condition is really bad or I should say that the project is in worst shape and something terribly wrong with the schedule. In this case the project manager will review the project schedule and the network diagram. There must be some mistake with it otherwise the condition you mentioned is rare.
Let us say that the schedule is OK, then the project manager has two options to complete the project, either by fast tracking or by crashing. If he can manage to complete the project by fast tracking then he would not be needing any extra money otherwise a fresh cost estimation will be required.
How would you explain a situation in which the CPI is greater than 1 but the SPI is less than 1?
If CPI is greater than one, it means that you’re under budget. If SPI is less than one, it means you’ re behind the schedule.
These parameters are simple telling you that; although, you are spending less money to complete the work but you are moving very slowly. You must speed up activities to cover up the schedule delay.
hello sir,can you please solve out a problem.i have given a project and details of the project are….
Your company is doing well and has a profit of about $25,000 that you need to invest. The money is currently in a savings account earning an interest of 5% per annum and is guaranteed for the next 5 years.
You want to make your profit work harder so you have looked at some investment opportunities available. They are
• To insulate the current company offices at a cost of $10,000 which will provide a fuel savings of $1,500 per year over the next 10 years.
• To pay the lump sum of $15,000 to the mortgage of $50,000 that has a loan term of 10 years at 7% interest per annum.
• To invest $15,000 into a new business, which has been estimated to return double the amount in 5 years’ time.
(a) Given the profit you have and assuming a discount rate of 5%, perform and document appropriate NPV calculations for all possible investment options you identified. You can work out your calculations using Microsoft Excel. Ensure you
[8 marks]
(b) From your calculations in (a), which investment would you take up and why?
[2 mark]
Question 2 (10 marks)
You are building a new office for your company. After some discussion with your builder, you identified some of the key tasks, the duration and the costs to complete the build. As you are a project manager you have decided to monitor the progress of their build using Earned Value Management (EVN). Answer the following questions using the following information
ID Task Name Cost ($) Start Date Duration
1 Lay foundations 40,000 April 1, 2013 2 weeks
2 Build frame 27,000 April 2013 4 weeks
3 Install pipes and electrical 20,000 May 2013 6 weeks
4 Make house water-tight 50,000 July 2013 8 weeks
5 Install internal walls and bathroom 25,000 September 2013 12 weeks
6 Install cabinetries 10,000 December 2013 4 weeks
7 Paint house 6,000 January 2014 2 weeks
8 Install light fixtures and appliances 3,000 January 2014 2 weeks
NOTE: Assume that no task is scheduled to run concurrently, e.g., Task 2 starts after Task 1 completes, Task 3 starts only when Task 2 completes, and so on. Also, assume that each month is made up of exactly four weeks.
(a) What is the planned value of the entire project?
[1 mark]
(b) The project manager has managed to keep cost to what was originally budgeted above. At this point, the project has completed Task 4. Up to this point,
i. What is the planned value of the project?
ii. What is the actual cost (AC) of the project? Briefly explain how you derive the actual cost.
iii. What is the rate of performance (RP) for each task? Using the RPs obtained, calculate the earned value (EV), schedule variance (SV), Cost Performance Index (CPI), and Schedule Performance Index (SPI) of the project.
[1 + 1 + 1 marks]
(c) Unfortunately, two trades resigned after Task 5 was completed and this caused the remaining tasks to exceed its original cost and schedule by 25%, 50%, 50% respectively.At the end the project,
i. What are the CPI and SPI?
ii. How is the performance with respect to cost and time?
iii. If the cost and schedule of the remaining tasks did not slip, how would the project perform (in terms of cost and time)?
[2 + 2 + 2 marks]
Hi Fahad,
this is a question from an assignment, so please ignore it and perhaps delete the question/posting.
Rashmita, I suggest you do some study as this is on the exam.
Regards
Jason
when calculating the CPI and SPI values, do we have to multiply it by 100% to get a percentage value?
No, you do not need to multiply it by any number.
Thanks a lot
In this blog u said that for every rupee v r earning .67 but, if cpi<1 doesnt thar mean we are running over budjet and we dont have enough money ?
It means we are over budget and if no corrective action is taken then funds may finish soon.
hi
can u say, what are they is good or excelent?
from cpi or spi?
if ur answer no exellent ru have a approach for this ?
Hello Majid,
I did not get your question correctly, can you just explain it again.
I have spi and cpi
1-then my teacher say why[spi and cpi ]is bad ?(or why cpi , spi bad indicator ?)
2-and what approach for Alternative [cpi , spi]?
Thanks
SPI and CPI are just an indicator that in which direction your project is leading. CPI and SPI are good or bad, it depends in condition of your project.
Hi
can you help me at this Exercises for cod source
Assumed: I have a 8 task and 50 day
my teacher say student must Design gant chart With c# and 3input text file ?
your Sincerely . Majid
Sorry Majid, I’ve no idea about it.