Cost Performance Index (CPI)

The Cost Performance Index (CPI) is a measure of cost efficiency in a project, expressed as the ratio of Earned Value (EV) to Actual Cost (AC). It indicates how effectively the project is using its budgeted resources.

CPI Formula

[ CPI = \frac{EV}{AC} ] Where:

• EV (Earned Value): The budgeted cost of completed work.
• AC (Actual Cost): The actual expenditure for completed work.

Interpreting CPI

CPI Value	Meaning
CPI > 1.0	The project is under budget (cost-efficient).
CPI = 1.0	The project is on budget (cost efficiency is as expected).
CPI < 1.0	The project is over budget (cost overruns are occurring).

Example Scenarios

Software Development

A software project has an EV of $200,000\ast \ast andan\ast \ast ACof$180,000:

$$CPI=\frac{200,000}{180,000}=1.11$$

Interpretation: The project is under budget and utilizing resources efficiently.

Construction Project

A construction project has an EV of $500,000\ast \ast andan\ast \ast ACof$550,000:

$$CPI=\frac{500,000}{550,000}=0.91$$

Interpretation: The project is over budget, requiring cost control measures.

Manufacturing

A production line has an EV of $1,000,000\ast \ast andan\ast \ast ACof$1,000,000:

$$CPI=\frac{1,000,000}{1,000,000}=1.0$$

Interpretation: The project is operating exactly as budgeted.

Why CPI Matters

• Helps Track Cost Efficiency – Provides real-time insight into project spending.
• Enables Forecasting – Used to predict future budget needs.
• Supports Decision-Making – Helps determine whether corrective actions are needed.
• Enhances Cost Control – Prevents budget overruns through early detection.

See also: Schedule Performance Index (SPI), Earned Value Management (EVM), Cost Baseline, Variance Analysis.