Project Management guide · Cost and resources
Cost Performance Index (CPI): Formula and Interpretation
The cost performance index (CPI) measures cost efficiency: how much value of work is being earned for each unit of money spent. It is calculated as CPI = EV / AC, so a CPI below 1 means the project is over budget for the work done.
Key takeaways
- CPI = EV / AC; below 1 is over budget, above 1 is under budget.
- EAC = BAC / CPI is the standard cost forecast.
- Track cumulative and period CPI trends.
- Read CPI together with SPI for the full picture.
Formula and interpretation
CPI = EV / AC
| CPI | Meaning | Example |
|---|---|---|
| Above 1 | Under budget: more work earned than money spent | 1.10 = $1.10 of work per $1 spent |
| 1 | Exactly on budget | |
| Below 1 | Over budget: less work earned than money spent | 0.82 = 82 cents of work per $1 spent |
Worked example
EV = $70,000 and AC = $85,000.
- CPI = 70,000 / 85,000 = 0.82.
- Forecast EAC = BAC / CPI = 200,000 / 0.8235 = $242,857.
- Compare with the schedule performance index SPI = EV / PV = 70,000 / 80,000 = 0.875.
Cumulative vs period CPI
| Month | EV (period) | AC (period) | Period CPI | Cumulative CPI |
|---|---|---|---|---|
| 1 | $8,000 | $10,000 | 0.80 | 0.80 |
| 2 | $14,000 | $17,000 | 0.82 | 22,000 / 27,000 = 0.81 |
| 3 | $23,000 | $28,000 | 0.82 | 45,000 / 55,000 = 0.82 |
| 4 | $25,000 | $30,000 | 0.83 | 70,000 / 85,000 = 0.82 |
Cumulative CPI shows overall efficiency and is used for forecasts. Period CPI shows whether recent efficiency is improving. Here both are steady around 0.82, so the overrun is systematic rather than a one-off.
CPI and SPI together
| SPI above 1 | SPI below 1 | |
|---|---|---|
| CPI above 1 | Ahead of schedule, under budget | Behind schedule, under budget |
| CPI below 1 | Ahead of schedule, over budget | Behind schedule, over budget |
Tips
- Look at the trend over several periods, not one reading.
- Investigate CPI well above 1 as well as below; it may signal padded estimates or skipped work.
- Report CPI with a plain-language explanation.
- Use the TCPI to judge whether recovery is realistic.
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Frequently asked questions
What is the cost performance index?
A measure of cost efficiency in earned value management: CPI = EV / AC.
What does a CPI of 1 mean?
The project is exactly on budget for the work done.
What does a CPI below 1 mean?
The project is spending more than planned for the work completed, so it is over budget.
What does a CPI above 1 mean?
The project is getting more work done per dollar than planned, so it is under budget.
How is CPI used to forecast cost?
The typical forecast is EAC = BAC / CPI. With BAC $200,000 and CPI 0.8235, EAC is about $242,857.
What is the difference between CPI and SPI?
CPI = EV / AC measures cost efficiency. SPI = EV / PV measures schedule efficiency.
What is a good CPI?
A CPI close to 1 is good. Organisations often set thresholds, such as investigating values below 0.95 or above 1.10.
What is the difference between CPI and CV?
CV = EV - AC is the variance in money; CPI = EV / AC is a ratio, making it easier to compare projects.
Is cumulative or period CPI better?
Use cumulative CPI for forecasting and period CPI to spot recent changes in efficiency.
What is TCPI?
The to-complete performance index: the CPI needed on remaining work to finish at a target budget.
Can CPI recover late in a project?
It becomes harder as the project progresses because more of the cost is already spent, so act early.