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  • Question

    Could you please explain the calculation and how the result is used?


    Answer

    The indices associated with Cost and Schedule in Earned Value Management are 1. The Cost Performance Index (CPI) and 2. The Schedule Performance Index (SPI).  The CPI and SPI are a key indicators used to analyze cost and schedule performance data reported by defense contractors.

    Cost Performance Index is a measure of cost efficiency on a project. It is the ratio of earned value to actual expenditures. 
    Schedule Performance Index is a measure of schedule efficiency on a project. It is the ratio of earned value to planned value. 
     
    In the DoD, earned Value is called
    Budgeted Cost for Work Performed (BCWP) and actual expenditures are called Actual Cost of Work Performed (ACWP). Planned Value is called Budgeted Cost of Work Scheduled (BCWS).
    The CPI is computed by dividing the BCWP by the corresponding ACWP.

    The cost performance index or CPI is a measure of how well the project is doing in terms of spending the project budget. It is a comparison of the actual expenditures to the work that was accomplished. The index is a value that allows projects of different sizes to be compared.

    A CPI of 1.05 means that for every dollar spent, a dollar and five cents worth of work was earned or completed; likewise a CPI of 0.90 means that for every dollar spent only 90 cents worth of work was earned or completed.  CPIs greater than 1.0 are favorable; CPIs between zero and 1.0 are unfavorable.


    The Schedule Performance Index (SPI) is an EVM performance factor representing schedule efficiency.  The SPI is computed by dividing the Earned Value (BCWP) by the planned value which is called Budgeted Cost for Work Scheduled (BCWS).





    SPIs greater than 1.0 are favorable; SPIs between zero and 1.0 are unfavorable.  An SPI of 1.05 means that for every dollar of work scheduled for completion a dollar and five cents worth of work was completed; likewise an SPI of 0.90 means that for every dollar of work scheduled for completion, only 90 cents worth of work was actually completed. 
    The SPI metric is more valuable at the beginning of the contract. Unfavorable SPIs are a good forecast of future unfavorable cost metrics and indicate the potential for a schedule slip.  By definition, the SPI at the end of the contract is 1.0 because all of the planned work is completed. The SPI is independent of the critical path schedule. So an unfavorable SPI metric does not necessary mean a schedule slip. A schedule slip can only be determined by evaluating the network critical path.

    CPIs and SPIs are used as performance factors to forecast the final completion cost or Estimate at Complete (EAC) of the project.  For EAC formulas, please consult the DAU gold Card at the following URL:

    https://acc.dau.mil/CommunityBrowser.aspx?id=19577

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