Project Management Professional (PMP)® Examination Content OutlineProcessHard
A project manager is overseeing a complex engineering project. The project is currently 75% complete, and the actual cost incurred to date is US$1,500,000. The project budget at completion is US$1,800,000. The Earned Value (EV) for the work completed is US$1,350,000. What is the Cost Performance Index (CPI) for this project, and what does it indicate?
- ACPI = 1.11; The project is under budget.
- BCPI = 0.90; The project is over budget.
- CCPI = 0.90; The project is under budget.
- DCPI = 1.11; The project is over budget.
Show answer & explanationAnswer & explanation
Correct answer: B. CPI = 0.90; The project is over budget.
The Cost Performance Index (CPI) is calculated as EV / AC. In this case, CPI = US$1,350,000 / US$1,500,000 = 0.90. A CPI less than 1.0 indicates that the project is over budget, as less value is being earned per unit of cost.
Why the other options are wrong
- A. The CPI calculation is incorrect (it would be AC/EV), and the interpretation is also incorrect.
- C. The CPI calculation is correct, but the interpretation of being under budget is incorrect. A CPI < 1.0 means over budget.
- D. The CPI calculation is incorrect (it would be AC/EV), though the interpretation of being over budget would be correct for that incorrect calculation.
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: Project is under budget.
- CPI < 1.0: Project is over budget.
- CPI = 1.0: Project is on budget.
Memory trick: CPI is Earned over Actual, comparing value to cost is factual.