There are two important points to be noted from this definition:
- If you’re under budget — in this case you’ve to complete the project within the approved budget (BAC).
- If you’re over budget—in this case, you will update the cost baseline and get it approved. Your new budget will be EAC and now you’ll try to complete the project within this new approved budget (EAC).
Let’s see what does the PMBOK Guide say about the TCPI:
“The To-Complete Performance Index (TCPI) is the calculated projection of cost performance that must be achieved on the remaining work to meet a specified management goal, such as the BAC of the EAC.”
From the above definition it is very clear that if you are under budget then TCPI will be calculated based on the original budget (BAC). However, if you’re over budget then first you will estimate the new budget and get it approved. Afterwards you will calculate the TCPI with this new approved budget; i.e. EAC.
Formula for To-Complete Performance Index (TCPI),
TCPI = (Work Remaining)/(Budget Remaining)
This formula can be interpreted in two ways:
If you’re under budget:
- TCPI = (BAC–EV)/(BAC–AC)
If you’re over Budget:
- TCPI = (BAC–EV)/(EAC–AC)
- If the To-Complete Performance Index (TCPI) is less than one, you’re in a comfortable position.
- If the To-Complete Performance Index (TCPI) is greater than one, you’ve to perform with better cost performance than the work that has been completed.
- And finally, if the TCPI is equal to one, then you have to continue with the same performance of the completed project work.
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 examination you find that only 40% of the work is completed so far.
Find the To-Complete Performance Index (TCPI) for this project.
Given in question:
Budget At Completion = $100,000
Actual Cost (AC) = $60,000
Planned Value (PV) = 50% of $100,000
Earned Value (EV) = 40% of $100,000
Cost Performance Index (CPI) = EV / AC
= $40,000 / $60,000
Cost Performance Index (CPI) = 0.67
Estimate At Completion (EAC) = BAC/CPI
Estimate At Completion (EAC) = $149,253.73
From the calculation, we can see that since the CPI is less than one, you’re over budget. Therefore, to calculate the TCPI, you have to use the formula based on EAC.
TCPI = (BAC–EV)/(EAC–AC)
TCPI = 0.67
This means that you can continue with a Cost Performance Index of 0.67 to complete the project within new approved budget.
Here, I’m finishing this series of seven articles on Earned Value Analysis, Forecasting and To-Complete Performance Index.
I tried my best to make these concepts and calculations easy for you; however, if you still have some doubt, you can contact me.
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