Schedule & Cost Performance Index, with Formulae ...

The schedule performance index, too, belongs to the variance analysis techniques. It measures the progress of a project compared to the planned schedule. The ... SkiptocontentHomeProjectManagementEarnedValueManagementSchedule&CostPerformanceIndex,withFormulae&Examples(SPI/CPI)Animportantpartofprojectmanagementconcernstheforecastingandmanagementofcost.Infact,thisisoftenoneofthemostprominenttopicsinprojectstatusreportsanddiscussionswithprojectsponsorsandstakeholders,giventheimportanceofbudgetconstraints.SchedulePerformanceIndex(SPI)andCostPerformanceIndex(CPI)areusefulandcomparativelysimpletechniquestohelpmanageaproject.Inthisarticle,wewillintroduceanddefinebothmeasures,includingtheirrespectiveformulas.Ifyouliketocalculatetheindicators,useourCPI&SPIcalculator.IfyouarepreparingforyourPMPexam,beawarethatyouwilllikelybeaskedquestionsaboutCPIandSPI,theircalculationandinterpretation.Therefore,youwillfindourexamplesparticularlyusefulforyourexampreparation.ContentsFundamentalsofProjectCostMeasurementsPlannedValue(PV)EarnedValue(EV)ActualCost(AC)VarianceAnalysisforCostandScheduleWhatIstheCostVariance(CV)?FormulaforCostVarianceCalculationWhatIstheScheduleVariance(SV)?FormulaforScheduleVarianceCalculationWhatIstheCostPerformanceIndex(CPI)?HowIstheCostPerformanceIndexCalculated?HowIstheCPIInterpreted?WhatIstheSchedulePerformanceIndex(SPI)?HowIstheSchedulePerformanceIndexCalculated?HowtoInterprettheSPI?ExamplesCalculationandUseofCV,SV,CPIandSPIExample1:ASimpleCalculationofCostandSchedule PerformanceIndexesSituationCostandScheduleVariancesCostandSchedulePerformanceIndexesExample2:CaseStudyofaProjectinaTurnaround SituationSituationCostandScheduleVariancesandIndexesTakeawayPointsFundamentalsofProjectCostMeasurementsProjectCostManagementisakeyelementoftheProjectManagementmethodologydefinedbytheProjectManagementInstitute.ThemeasuresdiscussedinthisarticlesaresetoutintheEarnedValueAnalysis(EVA)technique,introducedintheProjectManagementBodyofKnowledge(source:PMBOK®,6thed.,ch.7.4.2.2DataAnalysis,p.261)Theinputparametersareplannedvalue, earnedvalueandactualcost.Theseindicatorsareoftencalculatedinmonetary units(e.g.USD)orwork-timeunits(e.g.man-days).PlannedValue(PV)Thetermplannedvaluereferstothebudget (beforemanagementreserve)thathasbeenallocatedtoaprojectorapartofa project,e.g.aphaseoranactivity.Itisusuallydeterminedbyestimating activitiesorelementsoftheWorkBreakdownStructure.EarnedValue(EV)Earnedvaluemeasuresthematerializedprogressofaproject.Itrelatestothepartofthebudgetallocatedtoworkthathasbeenperformedandcompleted.Bydefinition,itcannotexceedtheplannedvalue,i.e.additionallyperformedworkthathasnotbeenauthorizedandplannedintheplannedvaluecannotbeaccountedforintheearnedvaluecalculation.ActualCost(AC)Actualcostistheamountofcostthathas beenrealizedfortheauthorizedworkperformed(hence,costforadditional workthathasnotbeenconsideredforthebudgetcannotbeincluded).For accurateandmeaningfulresults,itisimportanttodefineasinglecostbase forthebudgetandtheactualcost(e.g.whetherdirectcostorfullcostare used).VarianceAnalysisforCostandScheduleWhatIstheCostVariance(CV)?Thecostvarianceispartofthevarianceanalysistechniques.Itcomparestheactualcostswiththeearnedvalue.Itcanalsobeusedtocalculateaforecastofthedevelopmentofcostandfuturebudgetimplicationsofaproject.FormulaforCostVarianceCalculationThecostvarianceiscalculatedasthe differencebetweenearnedvalueandactualcost:CV=EV–ACAnegativeamountindicatesthatthecostincurredtoachievetheamountofworkperformedwashigherthanplanned/budgeted.WhatIsCostVariance(CV)?Definition,Formula,Example,CalculatorWhatIstheScheduleVariance(SV)?Theschedulevariancefollowsthesame principle,however,itcomparestheearnedvaluewiththeplannedvalue.Itis alsoaninputfortheprojectionofthefuturescheduleperformanceinrelation totheplannedworkandbudgetofaproject.FormulaforScheduleVarianceCalculationTheschedulevarianceisthedifference betweenearnedvalueandplannedvalue:SV=EV–PVIftheSVisnegative,theprojectis behindschedule,e.g.theactuallyearnedvalueatagivenpointintimeor cumulatedoveraperiodislowerthantheplannedvalueattherespective point.ExamplesofCostVarianceandScheduleVarianceinaDiagram.WhatIstheCostPerformanceIndex(CPI)?Thecostperformanceindexisacomponent ofthevarianceanalysistechniqueswhichare,accordingtoPMImethodology, partofthe“controlcost”processofaproject.TheCPIisusedtocompare costsandearnedvalueatapointoftimeorcumulatedoverseveralperiodsof aproject.HowIstheCostPerformanceIndexCalculated?Asthecostvariancecalculation,thecost performanceindexrequirestheinputparametersEarnedvalue(EV)Actualcost(AC)Thecostperformanceindexiscalculated usingthefollowingformula:CPI=EV/ACHowIstheCPIInterpreted?TheCPIisadifferentwayofpresenting thecostvariance.Beingcalculatedasaratioratherthananabsolute variance,itsresultindicatestherelativescaleofdeviationswhichhelps assestheircriticality.TheCPIisalsousedtoprojectcostincurrencefor thefutureperiodsofaproject,e.g.inthecontextofre-estimationof budgets.Itsresultsindicate:IfCPI=1,thecostand performanceareinlinewiththeplanIfCPI<1,theprojecthasacost overruncomparedtotheplanIfCPI>1,theprojecthasincurred lesscostthanplannedExampleofaCostandScheduleVarianceAnalysisDiagram.WhatIstheSchedulePerformanceIndex(SPI)?Thescheduleperformanceindex,too,belongstothevarianceanalysistechniques.Itmeasurestheprogressofaprojectcomparedtotheplannedschedule.TheSPIcanbecalculatedforaparticularperiodbutalsocumulativeforallanumberofperiodsofaprojectortheentireproject.HowIstheSchedulePerformanceIndexCalculated?Thescheduleperformanceindexis calculatedwiththesameinputvaluesastheschedulevariance,namely:Earnedvalue(EV)Plannedvalue(PV)Thescheduleperformanceindexformulais:SPI=EV/PVHowtoInterprettheSPI?Oneof theadvantagesoftheSPIisthehandypresentationoftheprogresscomparedto theplanaswellasitsuseforprojectionsofthefutureprogress.Its valuerangesareinterpretedasfollows:IftheSPI=1,theprojectison scheduleIftheSPI<1,theprojectis behindschedule(inotherwords:theEVislowerthanthePV)IftheSPI>1,theprojectis aheadofscheduleAlthoughCPIandSPIfollowasimilar concept,theirresultscanbefundamentallydifferentforthesameproject (phase):Aprojectmightbeaheadofschedule(i.e.EVexceedsPV,henceSPI >1)but,atthesametime,haveacostoverrun(i.e.AChigherthanEV, henceCPI<1).ExamplesCalculationandUseofCV,SV,CPIandSPIThefollowingfigurecontainssomeexplanationsontheexamplediagramshownabove.Itshowsthecumulativeplannedvalue,earnedvalueandactualcost(thebluebars),thescheduleandcostvariance(thegreybars)andthedevelopmentofthecostperformanceindexandscheduleperformanceindexovertime.Allnumbersarecumulative, e.g.theinputmeasures(PV,EV,AC)arethesumoftheamountsaccumulatedoverthecurrentandpreviousperiods.ExampleofaCostandScheduleVarianceAnalysisDiagramwithAdditionalExplanation.Example1:ASimpleCalculationofCostandSchedule PerformanceIndexesLet’sstartwithasimpleexamplefirst.SituationThebooksandrecordsofyourPMOshowthe followingnumbers: CumulativePlannedValue200EarnedValue190ActualCost220CostandScheduleVariancesBoththecostandtheschedulevarianceare negative,i.e.thecostandtheplannedvaluearehigherthantheactually earnedvalue.CostandSchedulePerformanceIndexesThisexampleillustratesthebeautyofthe indexes: theabsolutenumbersofthe costvariancedonotimmediatelyshowimpactofvariancesinrelationtothe plan.Thecostperformanceindexandscheduleperformanceindex,ontheother hand,indicatetheintensityofthedeviation.Thecostperformanceindexvalue of0.86inthisexamplemayrequirecorrectiveactionsinmostcircumstances.A scheduleperformanceindexvalueof0.95maybeacceptableortoleratedinsome projects(e.g.ifbuffersor‘nice-to-have’workwereplanned)orphases(e.g.early stages)andmightnotrequireimmediateaction.Example2:CaseStudyofaProjectinaTurnaround SituationLet’slookatanexampleofhowthese metricsareusedinpractice:Aprojecthasbeengoingonfor3months. Theprojectmanagerfeelsthatithasnotstartedtoowellashenotesless earnedvaluethanplannedathighercostthanexpected.However,shethinks thattheperformanceimprovedsignificantlyandwantstoshareapositive outlookwiththestakeholders.Howcansheprovethisperception,using theearnedvalueanalysistechnique?SituationTheproject’srecordsofbudget,planand costshowthefollowingnumbers(perperiod,notcumulated): Month1Month2Month3CumulativePlannedValue100130200430EarnedValue60120220400ActualCost90150200440Theprojectisplannedforadurationof1 yearwithatotalbudgetof2,500.CostandScheduleVariancesandIndexesTherearetwosetsofvariancesthatare sensibletocalculatehere:thecumulativevarianceswhicharenegative,and thoseforeachmonth.Let’sstartwiththecumulativevariance. TheformulasareCV=EV–ACandSV=  EV–PV,henceCV=400–440=-40SV=400–430=-30Allinall,thesenumbersdonotlooktoo encouraging,giventhenegativevariancesandindexvaluessignificantlybelow 1.However,thepicturechangeswhenweswitch fromacumulativetoamonth-by-monthview:Asyousee,thevarianceschangedfromSV (m1)=-40andCV(m1)=-30inthefirstmonthtoSV(m3)=+20andCV(m3)=+20 inthethirdmonth,withbothSPIandCPIabove1.Thenumbersinmonth3lookquitepositive thoughasthecostoverrunhasbeenstoppedandtheearnedvalueiseven exceedingtheplannedvalueinthatmonth.Thesenumbersdoactuallysupport theprojectmanager’sview(assumingthepositivedevelopmentofEVandACare sustainable).TakeawayPointsThecostvariance(CV)andschedulevariance(SV)indicatethedeviationfromtheprojectplanandbudgetinabsolutenumbers,usuallycurrencyunitsortime-effortunitssuchasman-days.Thecostperformanceindexandscheduleperformanceindexsetthesevaluesinrelationtotheprojectplanandindicatetherelativeimpact.IfCPIorSPIareconsistentlyandsignificantlyhigherorlowerthan1,itmayindicatethatare-planningoftheprojectmightbeappropriate.CalculatorforCost/SchedulePerformanceIndex(CPI/SPI)&VariancesThereishoweversomecriticismtothese indicators:ItcanbearguedthatthegenericCV/SV/CPI/SPItechniquesvalue performance(earnedvalue)basedoninputparameters(consumedbudgetorman-days) ratherthanreflectingthebusinessvalue.Forinstance,ifonedeliverableis budgetedat100mdandgeneratesabenefitof1000USDforanorganization whileanother100-mddeliverableproducesonly800USDbusinessvaluebothwill neverthelessbeconsideredwithaPlannedValue(andEarnedValueupon completion)of100md.Therefore,therearesomemodifiedapproachesinuse whichmaybalancethesedeficienciesbutincreasecomplexity.Allinall,thegenericCV,SV,CPIandSPIarewell-establishedmeasuresastheyareillustrativeandmeaningfulwhile,atthesametime,comparativelyeasytocalculateandunderstand.Theyarealsousedfortheforecastingofestimatesatcompletion(EAC).Lastbutnotleast,thesemeasuresareapartofthePMImethodology,aglobalstandardofprojectmanagement,andalsoincludedincertificationexamssuchasPMPorPMI-ACP.Postnavigation←PreviousPostNextPost→CategoriesSearchfor:RecentPostsHowtoCreateaProjectScheduleBaseline(6IllustratedSteps)ProjectScheduleBaseline:Definition|Purpose|ExamplePerformanceMeasurementBaseline:Definition|Example|6-StepGuideScopeBaseline:Definition|Example|4-StepGuide|UsesCost-BenefitAnalysisChecklistforProjectManagers(FreeDownload)StakeholderEngagementAssessmentMatrix:Uses&ExampleAgileReleasePlanninginHybridandAgileProjectsDefinitiveEstimatevs.ROM/RoughOrderofMagnitude(+Calculator)ProjectScheduleNetworkDiagram:Definition|Uses|ExamplePDM–PrecedenceDiagrammingMethod[FS,FF,SS,SF](+Example)WhatAreLeadsandLagsinProjectManagement?HowProjectManagementSoftwareImprovesProductivityEstimatingActivityDurations:Definition,Methods,PracticalUsesBottom-UpEstimating–Definition,Example,Pros&ConsPerformancePrismforPerformance&StakeholderManagement