To-Complete Performance Index (TCPI) in Project Cost Management

To-Complete Performance Index (TCPI)

The To Complete Performance Index (TCPI) is a relatively new term coined by the PMI to assist project managers in analyzing and forecasting future cost performance of the project.

Since this concept of TCPI is new and there is not much research available on this topic on the Internet, it often confuses many people. However I have passed the exam and now have a better idea on the topic, so I’m writing this blog post to express my understanding on it.

First I will explain this concept to you technically, afterwards I will go for a real world example so that you can visualize it, and then last we will see a mathematical question to hit the last nail in the coffin.

Okay, let’s get started.

As per the PMBOK Guide, Fifth Edition:

“TCPI is the calculated cost performance index that is achieved on the remaining work to meet the specified management goal, such as the BAC or the EAC.”

In other words, the To Complete Performance Index (TCPI) is the estimate of the future cost performance that you may need to complete the project within the approved budget. This budget may be your initial approved budget (BAC), or a new approved budget; i.e. Estimate at Completion (EAC).

You can calculate the TCPI by dividing Remaining Work by the Remaining Funds; i.e.

TCPI = (Remaining Work)/(Remaining Funds)

Remaining work can be calculated by subtracting Earned Value (EV) from the total budget (BAC); i.e. (BAC–EV).

However, there are two cases to determine the Remaining Funds on hand.

Initially, your emphasis will be on completing the work with the initial budget (BAC).

However, if you see that you cannot complete your remaining work with this budget, you will calculate how much more money you will require to complete the project. Once you get this figure, you will ask management to approve the new budget (EAC).

So there are two cases, and the To Complete Performance Index (TCPI) formula will be different for each case.

Let’s see the TCPI formula in both cases.

Case-I: If you’re under budget:

In this case, remaining funds will be calculated by subtracting “Actual Cost (AC) incurred to date” from the “initial budget”; i.e. (BAC–AC).

Here, the TCPI formula will be:

TCPI = (BAC–EV)/(BAC–AC)

Case-II: If you’re over budget:

You will update the cost baseline, and raise the change request and get it approved. In this case, remaining funds will be calculated by subtracting Actual Cost (AC) incurred to date from this new approved budget (EAC); i.e.  (EAC–AC).

Here, the TCPI will you show the required cost performance to complete the project with the new approved budget.

TCPI = (BAC–EV)/(EAC–AC)

Keep in mind that if you have calculated the EAC using Earned Value Management formula (EAC=BAC/CPI), the TCPI will be equal to the CPI at the moment when you calculate the TCPI the first time.

This is because while calculating EAC you have already assumed that the future cost performance of the project will be the same as the past cost performance of the project.

Here is where the technical details of the To Complete Performance Index (TCPI) completes, now let’s see it in a real world example.

Suppose you have taken a contract to paint 10,000 square feet of area in 10 days. This means you have to paint 1,000 square feet of area per day to complete the project on time.

However, when you review your progress after 5 days, you find that only 3,000 square feet of area is painted.

Now you have 5 days left and 7,000 square feet of area is yet to be painted. You calculate and deduce that if you want to complete your task within 10 days, you will have to paint 1,400 square feet of area per day.

This will be your future performance to complete the task on time, and this future performance is known as the To Complete Performance Index (TCPI).

Please note that Cost Performance Index (CPI) is your past performance and TCPI is your future performance which you must meet to complete the project within the approved budget.

You may also consider what will happen if you perform better; i.e. you painted 7,000 square feet of area in 5 days.

In this case, you can paint 600 square feet of area per day to complete the task. In other words, you are comfortable to complete the task.

(The above example may not be a technically perfect example for the TCPI; however, I believe that it will help you understand the concept easily.)

A mathematical example of TCPI

You have a project to be completed in 12 months and the total cost of the project is $100,000 USD. Six months have passed and $60,000 USD has been 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.

Solution:

Given in question:

Budget at Completion (BAC) = $100,000 USD

Actual Cost (AC) = $60,000 USD

Planned Value (PV) = 50% of $100,000
= $50,000 USD

Earned Value (EV) = 40% of $100,000
= $40,000 USD

Cost Performance Index (CPI) = EV / AC
= $40,000 / $60,000
= 0.67

Hence,

Cost Performance Index (CPI) = 0.67

Now,

Estimate at Completion (EAC) = BAC/CPI
= $100,000/0.67
= $149,253.73 USD

Hence,

Estimate at Completion (EAC) = $149,253.73 USD

From the calculation, we can see that since the CPI is less than one, you’re over budget. Therefore, to calculate the To Complete Performance Index (TCPI), you will use the formula based on EAC.

TCPI = (BAC–EV)/(EAC–AC)
= (100,000–40,000)/(149,253.73–60,000)
=60,000/89,253.73
=0.67

TCPI = 0.67

This means that you can continue with a Cost Performance Index of 0.67 to complete the project.

Before I conclude this blog post, let’s revise some key points regarding the To Complete Performance Index (TCPI):

  • Cost Performance Index (CPI) is the past performance of the project; on the other hand TCPI is the future performance of the project.
  • If you are under budget, you will calculate the TCPI based on the BAC.
  • If you are over budget, you will calculate the TCPI based on the EAC.
  • If the To Complete Performance Index in less than one, you are in a comfortable position.
  • If the To Complete Performance Index is greater than one, you have to perform with better cost performance than the past cost performance.
  • And finally, if the To Complete Performance Index is equal to one, you can continue with the same cost performance.

Here I’m completing 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 through the comment section.

image credit => FreeDigitalPhotos.net

Comments

  1. Mayer says

    Your example looks incorrect. You are 6 months into the project, half way through the 12 month target. You have EV of $40,000 (less than half of PV, which means you are behind schedule), and AC of $60,000 (more than half of PV, which means you are over budget). The TCPI must necessarily be greater than 1, because you need to before better than projected to make up for being behind schedule.

    • Fahad Usmani says

      Point-1: You have EV of $40,000 (less than half of PV, which means you are behind schedule) — Correct

      Point-2: AC of $60,000 (more than half of PV, which means you are over budget) — Correct

      Now, since we are over budget and cannot complete the project within the given budget; therefore, project manager will calculate the new budget that will be EAC and get it approved.

      Now you have to complete the project within this "new budget." And TCPI is calculated for this new approved budget (i.e. EAC). In the given example it is $149,253.73

      • xman says

        The project manager can’t just not go out and get the budget changed on some number. As per PMI practices, he will need to calculate the TCPI, which will now be higher than 1 (1.5 to be exact), and see what options he can use to bring the project back on track to meet the budget. He can use management reserves if not already used up at this time if the deviation is due to some unknown risk materializing, or he could use contingency reserves if available for the known risk that has materialized and has caused the deviation, or he could take corrective actions. He could also look for advise from resources, and senior management or OPA to find out what can be done to bring project back on track, meaning TCPI of 1.5. Finally he could also discuss with sponsor if there is a possibility of modifying the scope or change schedule. It depends on which part of scope triangle is movable for the sponsor : cost, schedule, or scope. Only if he get’s a confirmation that cost is the movable end, and can be revised, will he go back to the drawing board, and start re-estimating, and calculate the new cost baseline, and cost budget.

        He can only request to revise the budget, if all of the above options have been exhausted, and even in that case, the budget would be revised, not by TCPI, but using the most appropriate estimation criteria to calculate the revised budget of the project. This would exclude the sunk cost, and use different estimating models for the remaining period of the project. In your example, if he get’s the new budget approved (which is wrong anyway) and then starts using 0.67 as the CPI for the remainder of the project, he will still be over budget, and off track from day 1.

  2. kabeer says

    First of all thanks for the great article. Its very easy to understand. but i have a small doubt

    you have said
    If To-Complete Performance Index (TCPI) is less than one, then you’re in comfortable position.
    Here in the above case we have a TCPI less than one (0.67) and we are forced to increase the budget from 1,00,000 to 1,49,253. It is not comfortable position as u have said.

    Anyway thanks once again.

    • Fahad Usmani says

      TCPI 0.67 is calculated based on new approved budget (EAC) i.e. $149,253. This TCPI is not calculated based on old budget (BAC).

  3. Sagar says

    In the above example, even after we have increased our budget we are still not in a comfortable position with TCPI at 0.67…
    I guess in this example it was a coincidence that CPI and TCPI are same and hence the confusion..

  4. Arturo says

    TCPI is an index that tells you which should be your future average CPI index of project performance regarding cost, based on actual CPI of the already project phased performed, if you wants to achive successfully the project total budget objetive.
    Of course, if your actual CPI1 if you want to achive the same baseline BAC budgeting objetive, wich is the same to say that your average remaining EV has to be greater, than the remaining PV as first reference, and finally than the remaining costs you will use (expenditures) to perform the reamining project activities up to completion, to meat budget goal.
    From this point of view the situation of “uncomfortability” is due that the cost performance within your project is unsatisfactory by now and you are oblied to take corrective and/or preventive actions to motivate the project team/staff/stakeholders in increasing majorly work productivity and/or effectiveness in on-going and from-now-on activities.
    But, always from the PM(Project Manager) point of view, it is more unconfortable, to ask for the approval, from the executive Projects Director, of the ETC (BAC/CPI as Fahad Usmani calculation) budget like the new project total budget objetive.
    Of course if you are able to conquest this without been head-cutted, your new TCPI should be <1 (and equal in value with actual CPI cause of ETC calculation formula choosed), and now the situation will be more "comfortable" (less uncomfortable would be righter) cause manteining, for example, your remainingEV=remainig baselinePV you have a margin to manage your project team/staff/stakeholders with minor productivity/effectiveness improvements.

    • Arturo says

      I repeat the comment cause there was a misunderstanding sentence due to the difficulty in approaching TCPI concept. What I’m obviously trying is, departing from the intelligent Usmani’s exposition, readding yours smart comments/dubts and adding humbly my reasonings, to cause further discussions that allow all of us to better EVM knowledge by corroborating different points of view.

      TCPI is an index that tells you which should be your future average CPI index of project performance regarding cost, based on actual CPI of the already project phases performed, if you wants to achive successfully the project total budget objetive.
      Of course, if your actual CPI1 wich means that your future average CPI has to be >1 if you want to achive the same baseline BAC budgeting objetive, wich is the same to say that your average remaining EV has to be greater, than the remaining PV as first reference, and finally than the remaining costs (expenditures) you will use to perform the reamining project activities up to completion, to meat budget goal.
      From this point of view the situation of “uncomfortability” is due that the cost performance within your project is unsatisfactory by now and you, as PM(Project Manager) are oblied to take corrective and/or preventive actions to motivate the project team/staff/stakeholders in increasing majorly work productivity and/or effectiveness in on-going and from-now-on activities.
      But, always from the PM point of view, it is more unconfortable to ask for the approval, from the executive Projects Director, of the ETC (BAC/CPI selon Fahad Usmani calculation) budget as the new project total budget objetive.
      Of course if you are able to conquest this without been head-cutted, your new TCPI should be <1 (and equal in value with actual CPI cause of ETC calculation formula choosed; personally I prefer ETC=[BAC-CV]/CPI formula to avoid this type of confusing coincidences), and now the situation will be more "comfortable" (less uncomfortable would be righter) cause manteining, for example, your remainingEV=remainig baselinePV you have a margin to manage your project team/staff/stakeholders with minor productivity/effectiveness improvements.

      Read more: http://pmstudycircle.com/2012/05/to-complete-performance-index-tcpi-in-project-cost-management/#ixzz2Jg7Fb3OR
      Follow us: @PMStudycircle on Twitter

      • Fahad Usmani says

        Thank you Arturo for providing such detail explanation about the TCPI. In fact, TCPI is relatively new concept coined by PMI therefore many people find it bit confusing.

        I think your this explanation will help them to better understand the topic.

        • Arturo says

          Thank you so much Usmani for your comment; it’s great for me if you think I have done my bit to help.

          Usmani, something happend when replaying comments that, again, certain phrases have lost words and they became confusing:

          Example:
          “Of course, if your actual CPI1 wich means that your future CPI has to be >1 if …”

          it’s wrongly updated in web’s design regarding the action of someones reply; the correct phrase, as original writing and as you have read it firstly, is:

          “Of course, if your actual CPI 1 by sure, wich means that your future CPI has to be >1 if …”

          In any case I would like to express my thankfullness for your explanations. I’m approching by now your interesting blogs regarding Risk Management.

          • Fahad Usmani says

            Hello Arturo,

            I think that it might be a software bug. Hope by next update this issue will be addressed.

            Thanks for your visit.

  5. Sikandar Jameel says

    In this example, the project manager realized his CPI was poor. He then convinced management to increase the project budget because of the poor CPI performance based on the original BAC. Now, he can continue with the poor CPI performance based on the original BAC since he got the increased budget. If we were to calculate the TCPI based on the new budget baseline, it would be 1, i.e. (EAC-AC)/ETC.

  6. Chloe says

    I’m doing a practice test for PMP, and I’m having a difficult time understanding the formula used in the answer sheet.
    ——————————
    The question:
    For your project, find the to-complete performance index (TCPI) based on the given data:
    BAC: 700,000
    CV: 25,000
    EV: 200,000
    Estimate to Complete has now been revised to 425,000
    ——————————

    My answer: Based on your explanation above, this project should be “under budget”, thus it is correct to use the formula of TCPI=(BAC-EV)/(BAC-AC)

    But the answer sheet uses this formula instead: TCPI=(BAC-EV)/(EAC-AC)

    Can you help me explain why?

    • Fahad Usmani says

      Hello Chloe,

      “Estimate to Complete has been revised to 425,000″, it means you budget has been changed.

      Therefore, now you have to calculate the TCPI based on new approved budget, and that is “EAC”.

      Remember one thing, if your initial budget (BAC) remains unchanged, then you can use the first formula otherwise go for the formula based on EAC.

  7. Phillips says

    Can you explain the concept of Estimate At Completion (EAC) and why we have BAC/CPI formula?
    Thank you

  8. Yashar says

    Why do we have to put BAC in the numerator and EAC in the denominator in the case when we are over the budget? Would not it make sense to have EAC in both places if we want to compare “apples to apples”?

    • Fahad Usmani says

      Both are representing the budget. EAC is nothing but a new approved budget.
      Both are still apples!
      :)

  9. Avinesh says

    Hi Fahad,
    Thanks for the great explanation.
    I just have one doubt. Let us take and example in which after going half way through the project progress we have BAC=10000, EV=4000, PV=5000, AC=6000. Can you please tell me what should be the rate of work done achieved by a project team so that there is no cost deviation. Thanks in advance.
    Regards, Avinesh

  10. Avinesh says

    Hi Fahad,
    Thanks for the great explanation. I just have one doubt.
    Let us take and example in which after going half way through the project progress we have the following figures
    BAC=10000, EV=4000, PV=5000, AC=6000.
    What should be the rate of work done so that the project completes in time and there is NO COST overrun. Practically project managers will be hit by this situation. They have to do the work mostly under tight budgets and getting approvals is very difficult.
    Thanks in advance.
    Regards, Avinesh

    Read more: http://pmstudycircle.com/2012/05/to-complete-performance-index-tcpi-in-project-cost-management/#ixzz2SngDid6w
    Follow us: @PMStudycircle on Twitter

    • Fahad Usmani says

      Hello Avinesh,

      Since there is no cost overrun, you can calculate the TCPI by using following formula:

      TCPI = (BAC–EV)/(BAC–AC)

  11. michael says

    Hi Fahad,

    Thanks for the great explanation.

    please i need your support to explain “probability distribution PMPBOK 4TH page 297″

    i am trying to understand what is the difference between discrete and continues distribution also what is uniform distribution ….. actually i cant understand anything from this page

    thanks to support me to understand it

    BR//
    michael

  12. M. Al-Zuhluf says

    I have two points, if I may ask:

    from the definition of the TCPI it mean “how should I perform for the remaining work (BAC-EV) with the remaining planned Budget (BAC-AC)” – correct

    from this, if I had bad performance before (original CPI 1, if not possible to perform like that then we request to change BAC to EAC, so in your example the original CPI<1 and using the definition the TCPI will be 1.5, if this correct then this make sense, but the problem if I use the same formula when I'm under budget then it will lead to TCPI < 1, which by your explanation is good and it is, but also mean you should spend more and earn less which is a problem, so I think we should make a new EAC and to be less than the original BAC by going back to track so that EAC=BAC-CV or EAC=BAC/CPI, because it means we can save more.

    if we use the formula " TCPI=(BAC-EV)/(EAC-AC) " then the TCPI=CPI "original", always because the EAC=BAC/CPI, so why not to say TCPI=CPI.

    sorry for talking "writing" so much

  13. Fahad Usmani says

    If you are under budget then there is no need to change the formula unless there is a huge margin which will indicate that there was some error in your cost calculations. If it is so, you can go for a new cost estimate…

    • M. Al-Zuhluf says

      what about the rest, and the definition, if I will not change the formula then I must spend more and earn less to match the BAC, and what for the over-Budget condition?

        • M. Al-Zuhluf says

          OK, and I would calculate the new budget based on the EAC formula, which brings us back to the CPI=TCPI point every time I will use the suggested formula, so I mean the TCPI formulas it self is the problem, when I’m under budget I should use another formula for EAC such as “EAC=BAC-CV” which would mean reducing my budget by going back to the planned track and TCPI=1, or even reduce it using “EAC=BAC/CPI” which means TCPI=CPI and keep what you are doing by saving more money, and if we don’t calculate a new budget and we use the original BAC this means we have to spend more and waste what we have saved till now.

          so it is all confusing in the under-budget situation only, what about over budget too.

          • Fahad Usmani says

            TCPI gives you an indication how you’re performing. It helps you investigate further to find the future course of action.

  14. Jerry says

    This is one of the annoyances I have with the PMBOK book, there are far too many assumptions which are often unexplained. I have yet to find a passage that says the EAC is the new approved budget. This discussion thread is VERY helpful to understand the concepts of TCPI. So thank you Fahad for laying it out so clearly. Coincidentally, I used the same numbers in a manual exercise to understand the different methods of calculating EAC before hitting Google and finding your discussion.

    Assuming the new number is the approved budget, it does make sense that an index less than 1.0 is going to be easier to complete however in practice if you are running well over budget, the assumption of an “automatic” approval is not a good one. In 20 years of project management, I have never seen a project running 50% over budget, getting approval to double the budget and coast to the finish line.

    • Fahad Usmani says

      Hello Jerry,

      There are a few inconsistencies in the PMBOK and in some places it lacks clarity. Hope to see improvement the new version of the guide.

  15. Jenn says

    Quick question.. How do you calculate and assess your cpi and tcpi if the work package is an LOE?

  16. Vaibhav Wagh says

    Dear Fahad,

    The above article on To Complete Performance Indicator(TCPI) was really good. Thanks for the detailed explanation on the same.

    Can you please write similar article for To Complete Schedule Performance Indicator (TSPI), Final Cost & Final Planned Duration too.

    All i got is ==>

    1. TSPI = (Total Budgeted Cost – Earned Value (EV)) / (Total Budgeted Cost – Planned Value (PV))
    2. Final Cost = BAC/CPI
    3. Final Planned Duration = Estimated Hours/SPI

    Thanks & Best Regards,

    Vaibhav Wagh

    • Fahad Usmani says

      Hello Vaibhav,

      From where did you get this “To Complete Schedule Performance Indicator (TSPI)” term?

      • Vaibhav Wagh says

        Hi Fahad,

        Actually i searched for Earned Value Management(EVM) on google where i found many articles. I combined all terms of different different articles & i found that the term “TSPI-To Complete Schedule Performance Indicator” is not present in many articles(i think it is not there is PMBOK too). Also the article in which i found this term TSPI there they have “TCPI= To Complete COST Performance Indicator”.

        As per them CPI indicates Cost Performance which is EV/AC & TCPI is ratio of (BAC-EV)/(BAC-AC) or (BAC-EV)/(EAC-AC) hence it is also relating with actual cost hence it is To Complete Cost Performance Indicator

        &

        SPI indicates Schedule Performance which is EV/PV & TCPI is ratio of (BAC-EV)/(BAC-PV) or (BAC-EV)/(EAC-PV) hence it is also relating with Planned Value hence it is To Complete Schedule Performance Indicator.

        Now where did i get it (Just search TCPI & TSPI on google you will find it)

        • Vaibhav Wagh says

          Just correctin that Para

          SPI indicates Schedule Performance which is EV/PV & TSPI is ratio of (BAC-EV)/(BAC-PV) or (BAC-EV)/(EAC-PV) hence it is also relating with Planned Value hence it is To Complete Schedule Performance Indicator.

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