Certopolis

Project Management Professional (PMP)

Earned value management: CPI, SPI and EAC for the PMP

Earned value compares the budgeted value of work done (EV) with the work planned (PV) and what it cost (AC). Cost variance is EV minus AC and schedule variance is EV minus PV; CPI is EV divided by AC and SPI is EV divided by PV, and a value below 1.0 is unfavourable.

The three numbers and what they give you

GAO's guide uses the older names: budgeted cost for work scheduled (BCWS) is planned value, budgeted cost for work performed (BCWP) is earned value, and actual cost of work performed (ACWP) is actual cost. The guide states that these are the same quantities under different names.

Cost variance = EV − AC. A positive number means the work done cost less than its budget. Schedule variance = EV − PV. A positive number means more work was done than planned. A report with a negative schedule variance and a positive cost variance therefore means behind plan and under budget.

CPI = EV / AC measures cost efficiency on the work completed. SPI = EV / PV measures work accomplished against work planned. If $900,000 of planned work has been earned against $1,000,000 planned, SPI is 0.9: less work was done than planned. Schedule variance is in money, not days, and GAO says it should be checked for whether the delay is on the critical path.

Forecasting the final cost

GAO gives the general form EAC = AC + (BAC − EV) / efficiency index. The index can be the cumulative CPI, a 3-month or 6-month average, the SPI, or a weighted mix of CPI and SPI. Variance at completion is the difference between the budget at completion and the EAC, and shows the expected final overrun or underrun.

GAO calls it a best practice to calculate a range of EACs rather than one, and to compare that range with available funding. Research it cites found that once a program is about 20 percent complete, the cumulative CPI varies by less than 10 percent and usually gets worse, so an EAC built on the cumulative CPI tends to be a best case. SPI should carry more weight early and less later, because it returns to 1.0 when the work is complete.

TCPI is the cost efficiency the remaining work must achieve to hit a target such as the BAC or EAC. GAO's rule of thumb: if the TCPI is more than 5 percentage points above the CPI, the EAC is too optimistic. A TCPI of 1.2 against a cumulative CPI of 0.9 is not credible.

Analyse in order

GAO sets the steps in sequence: validate the data, find the variances, probe schedule variances against the critical path, then project future performance, then plan action. A favourable index can come from an error in the EVM system, so the cause is understood before any forecast changes.

Where the exam catches people

  • Believing schedule variance is measured in days: in EVM it is expressed in money, the value of work not done as planned.
  • Believing a negative schedule variance means the finish date will slip: it may not if the late work is off the critical path.
  • Believing a CPI well above 1.0 can go straight into a lower EAC: favourable indexes can come from data errors, so validate first.
  • Believing the cumulative-CPI EAC is the cautious forecast: GAO says it tends to give a best-case EAC, because CPI rarely improves after about 20 percent complete.
  • Believing one EAC is enough for a funding decision: GAO's best practice is a range of EACs compared with available funding.

Written from PMI's documentation

Try 3 questions on this

Pick an answer to see why each option is right or wrong.

  1. On a predictive project using earned value management, the sponsor asks how efficiently the work completed so far has used its budget. Which of the following should the project manager report?

    Right. In the game that’s Renown for your Process building.

    Not that one: D is right. In the game your Process building would lose a little Renown, and this question would come back later.

    Show the full explanation and doc quotes

    A question about cost efficiency so far calls for the cost performance index.

    Written from www.gao.gov/assets/d20195G.pdf

  2. A predictive project's monthly earned value report shows a negative schedule variance and a positive cost variance. The sponsor asks the project manager what these readings mean. Which of the following should the project manager report?

    Right. In the game that’s Renown for your Process building.

    Not that one: B is right. In the game your Process building would lose a little Renown, and this question would come back later.

    Show the full explanation and doc quotes

    Negative variances mean performing less work than planned or overrunning cost; positive ones mean more work than planned or underrunning cost. So the project has done less work than planned, and the work done cost less than budgeted.

    Written from www.gao.gov/assets/d20195G.pdf

  3. Halfway through a predictive project, the cumulative cost performance index has stayed well below 1.0. The team lead expects improvement and wants the estimate at completion to assume budgeted rates from now on. Which of the following should the project manager do?

    Right. In the game that’s Renown for your Process building.

    Not that one: C is right. In the game your Process building would lose a little Renown, and this question would come back later.

    Show the full explanation and doc quotes

    A forecast assuming a return to budgeted rates is therefore unrealistic; even an estimate built on the cumulative CPI tends to be a best case.

    Written from www.gao.gov/assets/d20195G.pdf