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Cost Performance Index

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The Cost Performance Index (CPI) is a key performance indicator in project management that measures cost efficiency by evaluating the value of completed work compared to the actual project expenses. CPI helps to determine how well the project is going in terms of budget efficiency. It is calculated…

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PMP - Cost Performance Index Example Questions

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Question 1

You are managing an engineering project where you had an Earned Value (EV) of $500,000 and an Actual Cost (AC) of $480,000. What is the project's Cost Performance Index (CPI)?

Correct Answer: 1.04

The Cost Performance Index (CPI) is calculated by dividing the Earned Value (EV) by the Actual Cost (AC). In this case, the EV is $500,000 and the AC is $480,000. When you divide 500,000 by 480,000, the result is approximately 1.04. This indicates a positive cost efficiency on the project, as a CPI of greater than 1 indicates that the project is under budget. The other answer options are incorrect because they do not yield the correct mathematical result of this formula: '0.96', '1.5', and '0.75' are all results of incorrect calculations.

Question 2

In a renewable energy project, your team has successfully accomplished work worth $750,000 with an actual cost (AC) of $650,000. What is the Cost Performance Index (CPI) for the project?

Correct Answer: 1.154

The Cost Performance Index (CPI) is calculated by dividing the earned value (EV) by the actual cost (AC). In this case, the earned value would be the work accomplished which is worth $750,000 and the actual cost is $650,000. When you divide 750,000 by 650,000 you get approximately 1.154. This means that for every dollar invested in the project, there is a return of approximately $1.15. Answer 1.065, 1.255, and 1.324 are incorrect because they do not match the result of the calculation.

Question 3

The actual cost (AC) of your project is $85,000, and the earned value (EV) is $100,000. If the cost performance index (CPI) is greater than 1, what can you conclude about the project?

Correct Answer: The project is under budget.

The Cost Performance Index (CPI) is a measure of the financial effectiveness and efficiency of a project. It is calculated by dividing the earned value (EV) by the actual cost (AC). In this question, the earned value ($100,000) is greater than the actual cost ($85,000), which means you are getting more value out of the project than what you're spending. The CPI in this case would be greater than 1, showing that the project is currently under budget. The other answer options are incorrect because they inaccurately interpret the meaning of the CPI being greater than 1. 'The project is over budget.' and 'The project is behind schedule.' are incorrect as the CPI being greater than 1 indicates that the project is under budget, not over, and it doesn’t give any information about the schedule. 'The project is ahead of schedule.' is also incorrect because CPI only measures cost efficiency not schedule efficiency.

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