CPI and SPI – The Analytics of the PM World
Will my project come in under budget? Will we deliver on time? These are two questions every project manager asks when they wake up in the morning, a few times over the day and before they go to sleep at night. Two measures in the PM toolbox can help with that, but it’s important to know how and when to use these measures and how best to let them represent the health of your project.
CPI, or Cost Performance Index, is an earned value measure of how your project is doing in terms or staying within your budget while delivering on your promised scope. Basically, CPI says that for every dollar that is actually spent on your project, are you seeing a dollar worth of progress. Meaning that if you have $500 of actuals on your project but you have achieved $600 worth of work, then you have a CPI of 1.2 ($600/$500). If you spend that same $500 on your project but have only achieved $400 of work then your CPI is 0.8 ($400/$500). So a CPI over 1.0 means you are likely to come in under budget whereas a CPI of under 1.0 means you are facing a budget overage. If your CPI is 1.2, then for every dollar you’ve spent so far on your project, you’ve gained $1.20 of value. This is usually an indication of a higher (or padded) estimate to do the work than is needed, or some efficiencies have been realized and the project team is more effective than planned.
SPI, or Schedule Performance Index, is another earned value metric that is applied to projects to study their progress to date and value earned to determine if the due date of the project is going to be met or not, given the scope does not change. SPI looks at the value that your project should have realized at a certain point in time (called “Planned Value”) and compares that with your progress (“Actual Value”). For example, if your project has progressed and your Planned Value should be $1,000 however your Actual Value is $1,100 then your SPI is at 1.1 (1100/1000) meaning that for every hour your project team has spent so far, 1.1 hours of value have been earned. Contrary to that if your Planned Value is $1,000 and your Actual Value is $800, then your SPI is 0.8 (every hour you spend, you’re only seeing 0.8 hours of value).
These are both very widely accepted measures in the project community but how should a project manager interpret these numbers? Should they be blindly accepted and regarded as the cold truth? In some cases, yes. In other situations though it’s up to the project manager to use these figures as an input to determining overall project health. Perhaps there’s been a significant issue encountered during development of a feature that now resolve will help speed up development of the rest of the project. You could be looking at CPI and SPI figures that paint a much gloomier picture of your project than where it may be at. These are based purely on progress to date and don’t take into account the less mechanical side of project management. While they do take into account the effort remaining (which theoretically should be corrected if such a situation existed) there are often times where project managers are hesitant to say (especially after extinguishing a big issue) that they will trim their remaining work estimates as a result of their learnings.
There is a lot of value to be had from using earned value analysis and these two metrics in particular however it’s important to caution project managers from living and dying with these numbers as the tell-all to the overall health of a project.
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