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1. Small Business > 2. Managing Employees > 3. Project Management

What Do Project Management CPI Numbers Mean?
by Aurelio Locsin, Demand Media

Successful project management requires careful analysis.

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      How to Transfer Photos From a Galaxy S3 to a Computer Differences Between Change Management and Project Management within IT Project Plan Vs. Project Management Framework What Can Project Management Organization Do for an Individual? How Large of an SD Card Can the Samsung Galaxy S3 Handle? Ten Reasons Why the Human Resources Department Is Important Project management enables companies, managers and employees to divide a temporary activity into measurable objectives. Through the use of analytical techniques and software, it eventually leads to a unique product, service or result. Project management allows for better allocation of materials, employees and time, and more objective measurements of success, such as through the use of CPI, SPI and EVA.
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CPI
The cost performance index is a ratio that measures the financial effectiveness of a project by dividing the budgeted cost of work performed by the actual cost of work performed. If the result is more than 1, as in 1.25, then the project is under budget, which is the best result. A CPI of 1 means the project is on budget, which is also a good result. A CPI of less than 1 means the project is over budget. This represents a risk in that the project may run out of money before it is completed.

CPI Example
For example, assume a project has a budgeted cost of $10,000 but actually cost only $8,000. Dividing $10,000 by $8,000 produces a CPI of 1.25, which means the project is 25 percent under budget. Related Reading: Project Management Metrics for IT Projects

SPI
The CPI is only one aspect of determining the progress of a project. The other is the schedule performance index, or SPI. This is also a ratio that divides the budgeted cost of work performed by the budgeted cost of work scheduled.

SPI Example
For example, assume a project has two people working full time, and that each person costs the company $1,250 a week. A project is one week behind at the time of the calculation. One week times two people at $1,250 a week equals $2,500, which represents the amount by which the schedule is behind. If the budgeted cost of worked scheduled at that time is $6,000, you subtract the $2,500 from that cost to come up with the budgeted cost of work performed at $3,500. Dividing $3,500 by $6,000 produces an SPI of 0.53. As with the CPI, SPI values under 1 are not good because they mean the project is behind schedule. A value of 1 means the project is on schedule, and a value more than 1 means the project is ahead of schedule.

EVA
Earned value analysis, or EVA, looks at the relationship between the CPI and SPI, including such factors as the schedule and cost variances, to judge how a project is doing. It often involves graphing CPI and SPI over the life of a project. In a nutshell, the closer these numbers are to 1, the more likely it is that a project will be completed on time and on budget. While keeping one or both values over 1 is a worthwhile goal, it may indicate original assumptions were unrealistically rosy. The worst situation is to have one or both numbers under 1 over an extended period of time. The lower those numbers are under 1 and the longer the time, the less likely it is that the project can recover from such the deficit. It may also mean that not enough money and time were originally scheduled.

CPI & SPI Ratios
By David Stewart, eHow Contributor     

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Schedule Performance Index (SPI) and Cost Performance Index (CPI) ratios are critical tools in project management. The budget and the schedule are two important considerations in any project, and since projects that overrun budgets and time frames are not viable for organizations, they don't augur well for your reputation if you're a project manager. SPI and CPI ratios are tools that help you constantly evaluate projects to keep them on track in key areas.

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Calculations for the CPI & SPI



How to Calculate Earned Value

1. SPI Ratio
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The SPI ratio measures the success of project management to complete work on schedule. It is defined as the ratio of the Budgeted Cost of Work Performed (BCWP) to the Budgeted Cost of Work Scheduled (BCWS). Simple math dictates that this ratio will be greater than one if the numerator is higher than the denominator. In other words, an SPI ratio greater than 1 indicates that budgeted cost of work performed is higher than the budgeted cost of work scheduled. In simple terms, the work performed is more than the work that was scheduled, making the project ahead of schedule. The converse is true in that an SPI ratio less than 1 indicates that the project is lagging and needs to catch up. A project with an SPI ratio of 1 means everything is proceeding precisely as per schedule.

CPI Ratio
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Every project has an allocated budget. The CPI ratio aims to determine how the project is doing terms of spending the allocated budget. It is expressed as a ratio of the Budgeted Cost of Work Performed (BCWP) to the Actual Cost of Work Performed (ACWP). If the BCWP is equal to the ACWP, the ratio is one, indicating that the project is following its budget effectively. A CPI ratio lower than 1 means the budgeted costs are lower than the actual

costs. This indicates that the project is overspending. In a case where the CPI ratio is higher than 1, it means that the project is actually saving money.
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Features of SPI and CPI Ratios
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SPI and CPI ratios help managers evaluate the project at any point and make changes. For instance, if the SPI is tending towards 1 and higher, it indicates that the current time and plan is now more favorable for the project than the time and plan were when the project was initiated. The management may want to study the changed scenario and re-evaluate the project goals and objectives in the light of the new environment. CPI ratio provides a uniform platform on which to compare projects irrespective of their size. If a company has multiple projects going on simultaneously, and would like an update on the status of the various projects, the CPI ratio is one of the best tools available to provide that information.

The Critical Ratio (CR)
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The CPI and SPI ratios are used in conjunction to determine the critical ratio of the project. The critical ratio is an important indicator of project health because it considers both the SPI and the CPI. In other words, CR considers both the budget as well as the schedule of the project, and is therefore an indicator of the overall status of the project. A critical ratio of greater than 1 is good and indicates that the project is proceeding well on track.

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