![\"Cost](\"https:\/\/plaky.com\/learn\/wp-content\/uploads\/2024\/12\/Cost-performance-index-cover.png\")
<\/figure>\n<\/div>\n\n\n- \n
- The cost performance index (CPI) monitors the project\u2019s budget by comparing the planned and actual costs.<\/li>\n\n\n\n
- The formula for CPI includes earned value (EV) and actual cost (AC).<\/li>\n\n\n\n
- If the value of CPI is less than 1, the project is over budget.<\/li>\n\n\n\n
- Calculating CPI throughout the project\u2019s development lets project managers spot cost overrides on time.<\/li>\n<\/ul>\n\n\n\n
What is the cost performance index (CPI)?<\/h2>\n\n\n\n
The cost performance index (CPI) measures the project\u2019s financial performance and the cost efficiency of budgeted resources.<\/strong><\/p>\n\n\n\n
As a cost-efficiency measure, CPI shows how effectively the project sticks to its budget.<\/p>\n\n\n\n
The cost performance index helps us identify if our project expenses are as planned or whether we are performing over or under budget.<\/p>\n\n\n\n
\n\ud83d\udca1 Plaky Pro Tip<\/strong><\/p>\n\n\n\n
CPI is just one of the many metrics used in earned value management (EVM). To learn more about other important project indicators, read this guide:<\/p>\n\n\n\n
- \n
- Earned Value Management: An Overview With Formulas<\/a><\/li>\n<\/ul>\n<\/div><\/div>\n\n\n\n
\n
\n\nFree project management software<\/h2>\n
Streamline your business \u2014 improve planning, align teams, finish tasks with Plaky.<\/p>\n\n
\n Sign up<\/a>\n\n Learn more<\/a>\n <\/div>\n <\/div>\n\n\n\n \n ![\"Illustration\"](\"https:\/\/plaky.com\/learn\/wp-content\/themes\/cake-learn\/src\/images\/plaky\/banners\/landing-1.png\")
\n <\/picture>\n <\/div>\n<\/div>\n <\/p>\n\n\n\nHow to calculate CPI <\/h2>\n\n\n\n
The formula to calculate the cost performance index is:<\/p>\n\n\n\n
CPI = EV \/ AC<\/p>\n\n\n\n
CPI in project management is the ratio between earned value (EV) and actual cost (AC).<\/p>\n\n\n\n
The earned value metric represents the completed work and is also called the budgeted cost of work performed (BCWP). You can calculate it using the following formula:<\/p>\n\n\n\n
EV = % work completed x total budget<\/p>\n\n\n\n
The actual cost metric shows how much money you have spent on project work to a certain point in time.<\/p>\n\n\n\n
The value of CPI tells you whether the project is under or overperforming financially:<\/p>\n\n\n\n
- \n
- CPI > 1 \u2014 The project is under budget.<\/li>\n\n\n\n
- CPI = 1 \u2014 The project is on budget.<\/li>\n\n\n\n
- CPI < 1 \u2014 The project is over budget.<\/li>\n<\/ul>\n\n\n\n
For example, a CPI of 0.5 indicates you have spent twice the sum you should have at the time of the calculation.<\/p>\n\n\n\n
Conversely, a CPI of 2 means you have spent only half the sum you should have at this point.<\/p>\n\n\n\n
\n\ud83d\udca1 Plaky Pro Tip<\/strong><\/p>\n\n\n\n
CPI is similar to cost variance (CV), as they both calculate the difference between the expected and actual project costs. To learn more about CV through examples, read this guide:<\/p>\n\n\n\n
- \n
- What Is Cost Variance (CV)? Formula + Examples<\/a><\/li>\n<\/ul>\n<\/div><\/div>\n\n\n\n
Keep an eye on project costs with Plaky<\/a><\/p>\n\n\n\n
CPI vs EAC<\/h3>\n\n\n\n
While CPI is a useful enough metric in its own right, it\u2019s also used as a variable for calculating other metrics. For example, we can use CPI to calculate the estimate at completion<\/a> (EAC) for our project.<\/p>\n\n\n\n
This formula is used to calculate EAC when the project is performing as planned:<\/p>\n\n\n\n
EAC = BAC \/ CPI<\/p>\n\n\n\n
EAC is the forecast of the project budget<\/a> at its completion calculated while the project is still in progress.<\/p>\n\n\n\n
When the CPI value indicates that we are overspending, calculating the EAC should reveal the total amount of money we\u2019ll spend on our project.<\/p>\n\n\n\n
Cost performance index (CPI) examples<\/h2>\n\n\n\n
Whether you are managing a small project team<\/a>, leading a game development project<\/a>, or planning a nonprofit event<\/a>, you should always track cost efficiency.<\/p>\n\n\n\n
We\u2019ll go through examples of the following scenarios:<\/p>\n\n\n\n
- \n
- CPI is less than 1,<\/li>\n\n\n\n
- CPI equals 1, and<\/li>\n\n\n\n
- CPI is over 1.<\/li>\n<\/ul>\n\n\n\n
Example #1: CPI is less than 1<\/h3>\n\n\n\n
Suppose your team is working on a product launch<\/a>.<\/p>\n\n\n\n
The project budget is $100,000, and 50% of the planned work has been completed.<\/p>\n\n\n\n
Your team has already spent $70,000 on project activities, and you want to check whether the costs align with the initial plan.<\/p>\n\n\n\n
First, you need to determine the earned value:<\/p>\n\n\n\n
\n\nEV = % work completed x budget<\/p>\n\n\n\n
EV = 50% x $100,000 = $50,000<\/p>\n<\/div><\/div>\n<\/div><\/div>\n\n\n\n
Then, to calculate the cost performance index, divide the earned value by the actual cost.<\/p>\n\n\n\n
\n\nCPI = EV \/ AC<\/p>\n\n\n\n
CPI = $50,000 \/ $70,000<\/p>\n\n\n\n
CPI = 0.71<\/p>\n<\/div><\/div>\n<\/div><\/div>\n\n\n\n
The CPI value is 0.71, which means your project team<\/a> is overspending.<\/p>\n\n\n\n
Example #2: CPI of 1<\/h3>\n\n\n\n
Now, let\u2019s say that you’re leading a project team that’s making a new video game.<\/p>\n\n\n\n
The project budget is $150,000, and 50% of the planned work has already been completed.<\/p>\n\n\n\n
Your project team has already spent $75,000 on project activities<\/a> (actual costs). To calculate the earned value, you can use this formula: <\/p>\n\n\n\n
\n\nEV = % work completed x budget<\/p>\n\n\n\n
EV = 50% x $150,000 = $75,000<\/p>\n<\/div><\/div>\n<\/div><\/div>\n\n\n\n
The cost performance index is the ratio of earned value to actual cost:<\/p>\n\n\n\n
\nCPI = EV \/ AC<\/p>\n\n\n\n
CPI = $75,000 \/ $75,000<\/p>\n\n\n\n
CPI = 1<\/p>\n<\/div><\/div>\n\n\n\n
The CPI value of 1 means project costs are as planned.<\/p>\n\n\n\n
Example #3: CPI is over 1<\/h3>\n\n\n\n
Finally, imagine your company is in charge of corporate event planning<\/a> for one of your clients.<\/p>\n\n\n\n
The project budget is $150,000, and the project team has done 40% of the planned work, spending $45,000 on project activities so far.<\/p>\n\n\n\n
To determine the CPI, we first need to calculate the earned value and the actual cost.<\/p>\n\n\n\n
\nEV = % work completed x budget<\/p>\n\n\n\n
EV = 40% x $150,000 = $60,000<\/p>\n<\/div><\/div>\n\n\n\n
We already know that the actual cost is $45,000, which is how much the project team has spent. So, we can now apply the CPI formula:<\/p>\n\n\n\n
\nCPI = EV \/ AC<\/p>\n\n\n\n
CPI = $60,000 \/ $45,000<\/p>\n\n\n\n
CPI = 1.3<\/p>\n<\/div><\/div>\n\n\n\n
As you can see, the CPI is greater than 1 \u2014 meaning we are doing better than expected budget-wise.<\/p>\n\n\n\n
\n\ud83d\udca1 Plaky Pro Tip<\/strong><\/p>\n\n\n\n
For more on project accounting in general, including ways in which it\u2019s different from regular business accounting, read this guide:<\/p>\n\n\n\n
- \n
- What Is Project Accounting?<\/a><\/li>\n<\/ul>\n<\/div><\/div>\n\n\n\n
\n
\n\nFree project management software<\/h2>\n
Streamline your business \u2014 improve planning, align teams, finish tasks with Plaky.<\/p>\n\n
\n Sign up<\/a>\n\n Learn more<\/a>\n <\/div>\n <\/div>\n\n\n\n \n ![\"Illustration\"](\"https:\/\/plaky.com\/learn\/wp-content\/themes\/cake-learn\/src\/images\/plaky\/banners\/landing-2.png\")
\n <\/picture>\n <\/div>\n<\/div>\n <\/p>\n\n\n\nThe benefits of calculating CPI<\/h2>\n\n\n\n
The benefits of the cost performance analysis are significant for:<\/p>\n\n\n\n
- \n
- Budget monitoring<\/strong> \u2014 Calculating CPI and other important project KPIs<\/a> regularly helps project managers monitor budget spending and check whether everything is developing as planned.<\/li>\n\n\n\n
- Cost control<\/strong> \u2014 Keeping track of the project\u2019s cost-effectiveness means ensuring all expenses are under control and no activity costs more than necessary.<\/li>\n\n\n\n
- Improved resource management<\/strong> \u2014 Continuously observing costs lets project managers learn which resources are the most expensive and find ways to reduce costs.<\/li>\n\n\n\n
- Timely action<\/strong> \u2014 Checking whether the project is on budget during its development gives you the opportunity to take corrective action on time and prevent project failure.<\/li>\n\n\n\n
- Better stakeholder management<\/strong> \u2014 Keeping stakeholders in the loop is much easier when you perform regular checks and can inform them when additional funds are needed before the project goes into the red.<\/li>\n<\/ul>\n\n\n\n
\ud83d\udcd6 Curious about other performance indicators like CPI that can tell you how your project is doing? Visit our Project Management Glossary of Terms<\/a> and explore the different earned value management and project management concepts in more detail.<\/p>\n\n\n\n
Monitor cost performance with Plaky<\/h2>\n\n\n\n
Specialized project management software like Plaky<\/a> provides a simple and intuitive way to keep your projects on track and monitor important project KPIs.<\/p>\n\n\n\n
After all, having a project checklist<\/a> and all budget-related information in one place is a much more user-friendly alternative to any spreadsheet.<\/p>\n\n\n\n
\n
\n\nFree project management software<\/h2>\n
Take control of your team's workload and achieve better project results with Plaky.<\/p>\n\n
\n Sign up<\/a>\n\n Learn more<\/a>\n <\/div>\n <\/div>\n\n\n\n \n ![\"Illustration\"](\"https:\/\/plaky.com\/learn\/wp-content\/themes\/cake-learn\/src\/images\/plaky\/banners\/landing-4.png\")
\n <\/picture>\n <\/div>\n<\/div>\n <\/p>\n\n\n\nWith Plaky, you can:<\/p>\n\n\n\n
- \n
- Manage your projects on individual boards<\/a>, allowing each subteam to streamline its workflow,<\/li>\n\n\n\n
- Choose the board view<\/a> that best fits your processes so that you can spot bottlenecks right away,<\/li>\n\n\n\n
- Keep a close eye on all key project parameters with custom fields<\/a> (and manage potential cost overruns<\/a> on time),<\/li>\n\n\n\n
- Save precious time by automating calculations with the summary row<\/a>, and<\/li>\n\n\n\n
- Avoid delays and misunderstandings by notifying<\/a> the right people in real time about important project updates.<\/li>\n<\/ul>\n\n\n\n
\n\ud83d\udca1 Plaky Pro Tip<\/strong><\/p>\n\n\n\n
To find out more about everything that Plaky offers, check out the following page:<\/p>\n\n\n\n
- \n
- Plaky features<\/a><\/li>\n<\/ul>\n<\/div><\/div>\n\n\n\n
- Choose the board view<\/a> that best fits your processes so that you can spot bottlenecks right away,<\/li>\n\n\n\n
- Cost control<\/strong> \u2014 Keeping track of the project\u2019s cost-effectiveness means ensuring all expenses are under control and no activity costs more than necessary.<\/li>\n\n\n\n
- Budget monitoring<\/strong> \u2014 Calculating CPI and other important project KPIs<\/a> regularly helps project managers monitor budget spending and check whether everything is developing as planned.<\/li>\n\n\n\n
- What Is Project Accounting?<\/a><\/li>\n<\/ul>\n<\/div><\/div>\n\n\n\n
- What Is Cost Variance (CV)? Formula + Examples<\/a><\/li>\n<\/ul>\n<\/div><\/div>\n\n\n\n
- Earned Value Management: An Overview With Formulas<\/a><\/li>\n<\/ul>\n<\/div><\/div>\n\n\n\n
![\"Illustration\"](\"https:\/\/plaky.com\/learn\/wp-content\/themes\/cake-learn\/src\/images\/plaky\/banners\/landing-1@2x.png)
\n <\/picture>\n <\/div>\n<\/div>\n <\/p>\n\n\n\n![\"Illustration\"](\"https:\/\/plaky.com\/learn\/wp-content\/themes\/cake-learn\/src\/images\/plaky\/banners\/landing-2@2x.png)
\n <\/picture>\n <\/div>\n<\/div>\n <\/p>\n\n\n\n![\"Illustration\"](\"https:\/\/plaky.com\/learn\/wp-content\/themes\/cake-learn\/src\/images\/plaky\/banners\/landing-4@2x.png)
\n <\/picture>\n <\/div>\n<\/div>\n <\/p>\n\n\n\n![\"Cost](\"https:\/\/plaky.com\/learn\/wp-content\/uploads\/2022\/10\/Cost-performance-index-CPI-board-in-Plaky-1.png\")