Cost Performance Index: The Key to Budget Control

PMBOK v8 Definition

The Cost Performance Index (CPI) is a measure of the cost efficiency of budgeted resources expressed as the ratio of earned value to actual cost. CPI = EV / AC. A CPI of exactly 1.0 means the project is exactly on planned cost; that the work actually done so far is exactly the same as the cost so far. Values greater than 1.0 indicate under planned cost, while values less than 1.0 indicate over planned cost.

Why It Matters for the Exam

CPI is one of the most frequently tested Earned Value Management (EVM) metrics on the PMI exam. It appears in calculation questions, interpretation questions, and scenario-based questions where you must determine whether a project is over or under budget. Understanding CPI at the "exactly planned" threshold (1.0) is critical because exam questions often test whether you know what different CPI values mean for project health.

Key Points to Remember (for the exam)

Formula: CPI = EV / AC (Earned Value divided by Actual Cost)
Exactly 1.0: Project is exactly on planned cost – work done equals cost incurred
Greater than 1.0: Under planned cost (favorable) – getting more value per dollar spent
Less than 1.0: Over planned cost (unfavorable) – spending more than planned for work accomplished
Interpretation Rule: CPI measures cost efficiency of budgeted resources – higher is better
Common Confusion: CPI ≠ SPI – CPI measures cost efficiency, SPI measures schedule efficiency
Exam Trick: A CPI of 1.0 does NOT mean the project has spent its entire budget – it means the relationship between work done and cost incurred is exactly as planned

Typical PMI Exam Example

A project has an Earned Value (EV) of $50,000 and an Actual Cost (AC) of $50,000. What is the CPI and what does it indicate? Answer: CPI = $50,000 / $50,000 = 1.0. This means the project is exactly on planned cost – the work accomplished is exactly equal to the cost spent so far.

PMI Exam Traps

Trap: Thinking CPI > 1.0 means the project is under budget overall
Reality: CPI > 1.0 means cost efficiency is favorable at this point in time, not necessarily that total project cost will be under budget
Trap: Confusing CPI with Cost Variance (CV)
Reality: CPI is a ratio (EV/AC), while CV is a difference (EV – AC). Both measure cost performance but in different units
Trap: Assuming CPI = 1.0 means no cost variance
Reality: CPI = 1.0 means EV = AC, which does equal zero cost variance, but this is a point-in-time measurement, not a prediction of final cost
Trap: Misinterpreting "exactly on planned cost" as "on budget"
Reality: "On planned cost" refers to the relationship between work done and cost incurred, not necessarily that spending matches the original budget plan

Important PMI Connections

Related Concept	Relationship Type	Exam Attention Point
Cost Variance (CV)	Complementary metric	CV = EV – AC; CPI = EV/AC – both measure cost performance but CV is absolute (dollars), CPI is relative (ratio)
Schedule Performance Index (SPI)	Parallel EVM metric	SPI = EV/PV measures schedule efficiency; CPI measures cost efficiency – both use the same interpretation scale (1.0 = exactly planned)
Estimate at Completion (EAC)	Predicts final cost using CPI	EAC = BAC/CPI when future performance is expected to match past CPI – a CPI of 1.0 means EAC = BAC
To-Complete Performance Index (TCPI)	Future efficiency required	TCPI = (BAC – EV)/(BAC – AC) – if CPI = 1.0, TCPI also equals 1.0, meaning same efficiency needed to complete on plan

Quick Review Questions

A project has EV = $75,000 and AC = $60,000. What is the CPI and what does it indicate about cost performance?
If a project's CPI is exactly 1.0 at the data date, what does this tell you about the relationship between work accomplished and money spent?
A project manager reports CPI = 0.85. Is the project under or over planned cost? What action should be considered?
How does CPI differ from Cost Variance (CV) in terms of what each metric measures?
If CPI = 1.0 and SPI = 1.0 simultaneously, what does this indicate about overall project performance?

PMBOK v8 Reference

Section 5.2 – Earned Value Analysis (Table 5-1)