A Tale of Cost Performance Index and Schedule Performance Index (CPI and SPI)

February 10, 2008 | Author: PM Hut | Filed under: Cost Estimating, Cost Management

A Tale of Cost Performance Index and Schedule Performance Index (CPI and SPI)
By Jason Becker

Cost Performance Index (CPI) and Schedule Performance Index (SPI) are the yardsticks by which we measure how well our project is tracking against cost and schedule, right? Although, we use these two very important popular measurements as the yardstick of success we sometimes do so without realizing that they are still open to interpretation.

Let’s start with “the definitions”:

Cost Performance Index

Simply put, this is the number that tells us that for every dollar we spend on a project, how much value are we getting back out of the project in progress or deliverables. The number derived in CPI should be a number that it somewhere in the neighborhood of 1.0 +/-. Plus or minus because a 1.0 would normally be interpreted as getting exactly one dollar of progress or deliverable for every dollar spent to achieve the objectives. 1.25 would be interpreted as getting $1.25 of value for every $1 spent and .75 would mean that you’re only getting $.75 progress for every $1.00 you’re spending.

What Does it Mean?

So, if you’re tracking .75 CPI you should be looking for ways to get more progress out of each dollar budgeted and you should be staying up at night knowing that your project is bleeding cash. Maybe even working on your resume.

Conversely, it would follow that if you’re tracking 1.25 CPI that you should feel good that you’re getting $1.25 in progress for every $1.00 you spend. WHAT A DEAL! You’re probably in line for a bonus.

The Fallacy

I hate to fling the wet-blanket on your project party, but there is a fallacy to be discovered here.

I, for one, get VERY uneasy when I see a project performing far above calculations when it comes to CPI. Further, I don’t dispair too deeply when I see the CPI calculations performing below target either.
Why? Aren’t Project Managers supposed to get excited about this stuff? If not us, then who?

Here’s the fallacy: The chances are good that if your CPI indicates that you are consistently getting more than $1 value for every $1 you spend then it probably means that your baseline estimates and budgets are flawed. Think about it, if you consistently come in under budget, then wouldn’t it make more sense that you’re overestimating rather than achieving the amazing on a daily basis?

On the other side of that equation, just because you’re CPI consistently indicates that you’re only getting $.75 progress for every $1 spent, it doesn’t necessarily mean that your project team is a consistent failure. It may simply indicate that your estimates and baseline budget were/are flawed to the downside or underestimated.
Again, there could be many reasons that your CPI could cause you to make erroneous conclusions about your project. The bottom line is that you need to look beyond the numbers and begin to determine the why.

In Closing

SPI is calculated and interpreted in a similar fashion and has the same potential for misinterpretation, so I won’t get into an identical diatribe abuout SPI.

When looking at either CPI or SPI, a good PM will always try to determine the underlying causal relationships that bring us these calculations and make good project decisions based on the real factors at work. This will lead us to better project decisions and give us a greater horizon for guiding a project through rough water.

Dont get me wrong, CPI and SPI are extremely valuable. Just make sure that the story they’re telling you is true and that you aren’t buying into a false sense of accomplishment or dispair.

See also PMO and Project Management Dictionary by John Filicetti

Jason Becker, PMP, CPM, has 14 years of experience in designing, developing, and deploying Enterprise-Level software products for the Banking, Manufacturing, Real Estate, and Information Technology industries. He is an expert in Project Management surrounding Software Products Development with an emphasis on disciplined delivery techniques and visionary software development methodologies. He is an experienced leader with skills in IT PMO setup and management and strategic IT projects alignment. Jason’s website can be found at http://axisitconsulting.com/ and he can be contacted at jason.becker@axisitconsulting.com.

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1 person has left a comment

CPI and SPI are only Peformance Indicators which are shared with Senior Management. There are othe factors like quality of delvierables, risk assessment which are also project performance indicators.

Atul jadhav wrote on March 13, 2008 - 8:56 am | Visit Link

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