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Cost Performance Index (CPI)

An indicator of how efficiently the project is using its budgeted resources, calculated as earned value divided by actual cost (EV/AC).

Key Points

  • Formula: CPI = EV / AC.
  • Interpretation: CPI > 1 means under budget; CPI < 1 means over budget; CPI = 1 means on budget.
  • Forecasting: A common estimate at completion is EAC = BAC / CPI when future performance is expected to mirror current trends.
  • Relationship to cost variance: CV = EV - AC; CV > 0 aligns with CPI > 1, and CV < 0 aligns with CPI < 1.

Example

Midway through a project, EV is 400,000 and AC is 500,000. CPI = 400,000 / 500,000 = 0.80, meaning the team delivers 0.80 units of value for each 1.00 unit of cost, indicating a cost overrun. If BAC is 1,200,000 and performance continues, EAC is approximately 1,200,000 / 0.80 = 1,500,000.

PMP Example Question

During a status review, a project reports EV = 250,000 and AC = 200,000. What is the CPI and what does it indicate?

  1. 0.80 - The project is over budget.
  2. 1.25 - The project is under budget.
  3. 1.25 - The project is over budget.
  4. 0.80 - The project is under budget.

Correct Answer: B - CPI of 1.25 indicates the project is under budget

Explanation: CPI = EV / AC = 250,000 / 200,000 = 1.25; a value greater than 1 means the project is achieving more value per unit of cost than planned.

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