Project Budget at Risk? Understand CPI to Stay on Track

One of the biggest challenges in project management is staying on budget while delivering expected results. This is where the Cost Performance Index (CPI) comes in—a key metric that tells you whether you're spending efficiently or facing cost overruns.

Table of Contents

• What is CPI?

• Why CPI Matters

• How to Improve a Low CPI

• Take Action

What is CPI?

CPI is a measure of cost efficiency in a project and is calculated using the formula:

CPI = Earned Value (EV) / Actual Cost (AC)

• CPI = 1.0 → You’re perfectly on budget. Every dollar spent delivers a dollar’s worth of work.

• CPI > 1.0 → Your project is running efficiently. You’re getting more value than what you’ve spent.

• CPI < 1.0 → You’re overspending. More money is being used than the value created.

Why CPI Matters

Imagine your project has a CPI of 0.5. This means that for every dollar spent, only $0.50 worth of work is completed. Essentially, half of your budget is not translating into value, indicating inefficiencies, poor planning, or unexpected cost escalations.

For example, if your project was supposed to deliver $100,000 worth of work but has already spent $200,000, your CPI would be:

CPI = 100,000 / 200,000 = 0.5

This is a red flag, signalling the need to reassess spending, control costs, and adjust strategies before the situation worsens.

How to Improve a Low CPI

• Identify cost drivers: Pinpoint areas where spending is exceeding expectations.

• Reevaluate resource allocation: Ensure your team and materials are being used efficiently.

• Adjust scope if necessary: Avoid unnecessary work that doesn’t contribute to project value.

• Enhance cost tracking: Regularly monitor CPI to catch budget issues early.

Take Action

Are you tracking your project’s CPI? If not, now is the time to start. Keeping an eye on cost efficiency ensures that your projects remain viable and profitable.

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See you next Saturday!