Earned Value and Cost Performance Index, Concept and Implementation

Managers are busy people who prefer accurate but relevant and insightful high level information to long detailed reports.  Long detailed reports are required to support the high level information if questions arise.  Graphs and summary reports are the starting point.

Two high level measures of project performance are Earned Value (EV)  defined as cost incurred divided by earned budget and the other Cost Performance Index (CPI) defined as ratio of EV divided by incurred cost.  Earned budget is percent complete times the budget, incurred cost is the cost of goods received to date plus labor costs to-date.

Formulas:
Earned Value (EV) percent complete *budget
Cost Performance Index (CPI) percent complete *budget
Incurred Cost

CPI is the most useful to management as an item with a CPI value of zero or more than one indicates good or acceptable performance and less than one poorer performance.  It’s an instantaneous appraisal.  Usually there is a range that triggers action for example a CPI of .95 might indicate an item that should be watched but a CPI of .80 might be an item of immediate concern requiring action by management.

CPI can be calculate for individual items or an entire project.

EV is a number rather than a ratio as is CPI.  This is a dollar value and useful in visualizing the impact of an item for example to items could have the same CPI but their EV’s could be quite different.  EV is useful in comparing the magnitude of the earned amount versus the magnitude of the incurred amount.

The key to EV and CPI is the percent complete however incurred cost often has an accrual factor which can introduce some error.  Percent complete, for active items, is estimated or usually measured weekly or monthly depending on when reports are required.  Percent complete may or may not be estimated or measured by the person responsible for performance.  An independent confirmation is preferred and if the measurement is for payment two parties are normally involved.