Project Management Professional (PMP)® Examination Content OutlineProcessHard
A project manager is managing a project with a budget of US$500,000 and a planned duration of 10 months. At the end of month 5, the project has spent US$280,000. The Earned Value (EV) calculation shows that the value of work completed is US$250,000. What is the Cost Performance Index (CPI) for this project, and what does it indicate?
- ACPI = 1.12, indicating the project is over budget.
- BCPI = 0.89, indicating the project is under budget.
- CCPI = 0.89, indicating the project is over budget.
- DCPI = 1.12, indicating the project is under budget.
Show answer & explanationAnswer & explanation
Correct answer: C. CPI = 0.89, indicating the project is over budget.
The Cost Performance Index (CPI) is calculated as Earned Value (EV) divided by Actual Cost (AC). In this case, EV = US$250,000 and AC = US$280,000. So, CPI = 250,000 / 280,000 = 0.89. A CPI less than 1.0 indicates that the project is over budget, meaning it is getting less value for the money spent.
Why the other options are wrong
- A. The calculation is incorrect, and the interpretation of CPI > 1.0 is incorrect for 'over budget'.
- B. The calculation is correct, but the interpretation of CPI < 1.0 as 'under budget' is incorrect.
- D. The calculation is incorrect, and the interpretation of CPI > 1.0 is incorrect for 'under budget'.
Cost Performance Index (CPI)
A measure of the cost efficiency of budgeted resources expressed as the ratio of earned value to actual cost.
- Formula: CPI = EV / AC (Earned Value / Actual Cost).
- CPI > 1.0 indicates under budget (good).
- CPI < 1.0 indicates over budget (bad).
- CPI = 1.0 indicates exactly on budget.
Memory trick: EVM tracks project value for money, spotting budget and schedule health.