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Impress Your PMP Friends By Understanding SPI and CPI

Variance ChartsAre you studying for the PMP exam and struggling with the concept of Schedule Performance Index (SPI) and Cost Performance Index (CPI)? Are you just bored and want to impress your friends with your knowledge of SPI and CPI?  Well, I’m going to try to make it easy for you.

To the left you’ll see two charts.  Both are displaying variances on a monthly basis.  The first chart is displaying variances in thousands of dollars, both in schedule and cost.  The second chart is displaying the variances as they relate to a performance index.

Definitions and Formulas

  • Earned Value (EV) – The estimated value of the work actually accomplished
  • Actual Cost (AC) – The actual cost incurred from the work accomplished
  • Planned Value (PV) – The estimated value of the work planned to be done

    [Chart 1 – Variance (In Dollars)]

  • Scheduled Variance (SV)=EV – PV
    a NEGATIVE schedule variance is behind schedule and
    a POSITIVE schedule variance is ahead of schedule
  • Cost Variance (CV)=EV – AC
    a NEGATIVE cost variance is over budget and
    a POSITIVE cost variance is under budget

    [Chart 2 – Variance]

  • Schedule Performance Index (SPI)=EV ÷ PV
    You are progressing at __% of the rate originally planned
  • Cost Performance Index (CPI)=EV ÷ AC
    You are getting $_____ worth of work out of every $1 spent

Practical Application

So, where does that leave us?  Your goal is to have a $0 (zero dollar) cost and schedule variance, resulting in a SPI and CPI of 1.0.  That would mean you estimated correctly, leading into your project.  Going into the PMP exam, you should know these formulas and how to calculate all of the above.  Here are a 2 simple questions you should be able to answer:

1.  Is a 1.3 CPI a good thing or a bad thing?  Why?

This is a good thing!  A 1.3 CPI translates to you getting 1.3 dollars of results for every dollar you put into the project.

2.  Is a 0.90 SPI a good thing or a bad thing?  Why?

This is a bad thing!  A 0.90 SPI translates to your project progressing at 90 percent of the rate originally planned.

Here is the moment of truth. What kind of question is going to be on the PMP exam?

Example Question: Based on the charts listed above, what would you be more concerned with, schedule or cost, if you were taking over this project from another project manager?

Answer: The answer is cost.  As of August, CPI is closest to 1.

About Derek Huether

I'm a Transformation Consultant at LeadingAgile. I have a goal to take the hand waving out of Agile, Kanban, & Scrum. I’m a strange combination of a little OCD, a little ADHD, a lot of grit, and a lot of drive. I come from a traditional PM background but I don't give points for stuff done behind the scenes. The only thing that counts is what you get done and delivered. Author of Zombie Project Management (available on Amazon)

2 Responses to “Impress Your PMP Friends By Understanding SPI and CPI”

  1. Subhan
    January 9, 2011 at 11:40 am

    these simple explaninations are prety easy to understand, i m great confusion regarding SPI and CPI questions, see if you can help.

    My question is how to determine by looking at CPI and SPI that project is terminated, if u say SPI not equal to 1 means its terminated then in the mid of the project too SPI can be less than 1, how can we say project is terminated by just looking at CPI and SPI?

    say, if question says SPI = 0.8 and CPI = 1

    we will say progress is ongoing behind schedule and on budget (following cost baseline) or we will say project is terminated and on budget???? If terminated how to determine that.. please hep too much confused..


    • Anonymous
      January 10, 2011 at 2:38 pm

      Subhan, SPI and CPI are merely indicators of schedule and cost performance against the baseline. If you know the contract states the contract holder may terminate the agreement, if SPI or CPI exceed a certain negative variance, I guess you could say you’d know the project was terminated if a status report indicates the vendor exceeded cost or schedule thresholds.

      If I misunderstood and you’re asking how I would know the project had successfully concluded, based on CPI and SPI, I would say I would not. If you have your scope defined, with schedule and cost baselined, you’re merely communicating what is ACTUALLY taking place compared to what you ESTIMATED would take place (during the reporting period).

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