Yad Senapathy, PMP December 16, 2022
Whether you're working as a project management professional or studying for your project management professional exam, it is important for you to understand the two key metrics that are often used in project management; Cost Performance Index (CPI) and Schedule Performance Index (SPI).
While both metrics sound similar, they are calculated differently and provide different insights into the progress and performance of a project. This is why it is essential to understand the difference between them in order to analyze any project.
Table of Contents
CPI, or Cost Performance Index, is a measure of calculating the cost efficiency of any project. It is the ratio between the budgeted cost and the actual cost of the project. CPI is used to find out whether the project will be completed within the budget or not. In order to calculate CPI, you need to divide the Actual Cost of a project by the Earned Value. The formula for calculating the CPI is
Assume that you're a project manager and you're working on a project that has a budget of $100,000. After 6 months, the budget spent on the project is $60,000 and only 40% of the work is completed.
Actual Cost = $60,000
Earned Value = 40% of $100,000 = $40,000
The CPI of the project would be (40,000/ 60,000 = 0.66).
This ratio of less than 1 indicates that the project is over budget. If the CPI is greater than 1, it indicates that the project is under budget. While CPI = 1 means the project is within the budget.
SPI, or Schedule Performance Index, is a metric for measuring the efficiency of the project concerning the time or schedule of the project. Basically, it is used to figure out whether the project will be completed ahead, behind or on schedule.
It is calculated by dividing the planned value of the project by the earned value. The formula for SPI is
Let's say your project has a planned value of $100,000 and an earned value of $80,000. According to this example, the SPI of the project will be 0.8.
SPI = 80,000 /100,000 = 0.8
This ratio indicates that the project is behind schedule as the SPI of the project is less than 1. If SPI is greater than 1, the project will be ahead of the schedule. While an SPI equal to 1 indicates that the project will be completed within the planned time.
One key difference between CPI and SPI is the way that they are calculated. CPI is calculated using the actual cost of a project and the earned value, while SPI is calculated using the planned value of the project and the earned value.
Another key difference between CPI and SPI is the way they are used. CPI is often used as a benchmark for cost management which allows project managers to identify areas where cost savings can be made.
On the other hand, SPI is used as a predictor of future performance, as it provides a way to forecast how the project is likely to progress based on its current schedule. To sum it up, CPI and SPI are the two key metrics that measure different aspects of a project's progress and performance. However, they are equally important for any project manager as they help them to track the progress of the project and help in making informed decisions about their projects.
Yad is not just the leader of the Project Management Training Institute (PMTI). He helped to write significant portions of the project management standards worldwide. He is helping PMI right now in reviewing, directing, and leading the development of the 7th edition of the PMBOK® Guide to incorporate the most monumental changes to project management standards in 35 years. He shares his wisdom with readers via the PMTI blog.