Cost Performance Index (CPI)
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. If a project's CPI is less than 1.0, it means the project is over budget. Conversely, a CPI of greater than 1.0 indicates the project is under budget. The CPI is a crucial measure because it shows the project manager and stakeholders how much value the project is delivering for the money that’s being spent on it, allowing them to make crucial future budgeting decisions.
Guide: Understanding and Answering Questions on Cost Performance Index (CPI)
The Cost Performance Index (CPI) is a crucial concept in Earned Value Management which is widely used in project management and cost engineering to gauge the cost efficiency of a project. It is a measure of the value of work accomplished compared to the actual cost or progress made.
Importance of CPI:
The CPI is known for its ability to predict project performance. It helps stakeholders ascertain whether the project is progressing in a cost-effective manner. A CPI less than 1 indicates a cost overrun, while a CPI greater than 1 signifies cost efficiency.
What is CPI and How it Works:
The formula to calculate CPI is
Answering CPI Questions in Exams:
Here are some techniques to effectively answer questions on the CPI:
1. Highlight the important elements like Earned Value, Actual Cost, and the formula.
2. Always verify whether the cost is overrun or underspent by looking at the CPI value - it's less than 1 for cost overrun, more than 1 for underspent.
3. Incorporate actual numbers in your answers to explain computation process.
4. When asked for a predictive analysis, discuss the project's cost condition by utilizing the CPI value.
5. If you're asked to make a real-world connection, explain how CPI can help businesses make informed budgeting decisions.
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