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7 - PROJECT COST MANAGEMENT

The SV and CV values can be converted to efficiency indicators to reflect the cost and schedule
performance of any project for comparison against all other projects or within a portfolio of projects. The
variances are useful for determining project status.
• Schedule performance index. The schedule performance index (SPI) is a measure of schedule efficiency
expressed as the ratio of earned value to planned value. It measures how efficiently the project team is
using its time. It is sometimes used in conjunction with the cost performance index (CPI) to forecast the
final project completion estimates. An SPI value less than 1.0 indicates less work was completed than
was planned. An SPI greater than 1.0 indicates that more work was completed than was planned. Since
the SPI measures all project work, the performance on the critical path also needs to be analyzed to
determine whether the project will finish ahead of or behind its planned finish date. The SPI is equal to
the ratio of the EV to the PV. Equation: SPI = EV/PV 7

• cost performance index. The cost performance index (CPI) is a measure of the cost efficiency of budgeted
resources, expressed as a ratio of earned value to actual cost. It is considered the most critical EVM
metric and measures the cost efficiency for the work completed. A CPI value of less than 1.0 indicates a
cost overrun for work completed. A CPI value greater than 1.0 indicates a cost underrun of performance
to date. The CPI is equal to the ratio of the EV to the AC. The indices are useful for determining project
status and providing a basis for estimating project cost and schedule outcome. Equation: CPI = EV/AC

The three parameters of planned value, earned value, and actual cost can be monitored and reported on both
a period-by-period basis (typically weekly or monthly) and on a cumulative basis. Figure 7-12 uses S-curves to
display EV data for a project that is performing over budget and behind the schedule.

Project Budget
EAC
Management Reserve
BAC
ETC

Planned
Cumulative Cost Actual
Value (PV)

Cost (AC)
Earned
Value (PV)

Data Date
Time

Figure 7-12. Earned Value, Planned Value, and Actual costs

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