What is Cost Performance Index (CPI)?
The Cost Performance Index (CPI) is the most important single metric in Earned Value Management. It measures cost efficiency — specifically, how much planned value is being produced for every dollar actually spent. A CPI below 1.0 means the project is spending more money than the work is worth. A CPI above 1.0 means work is being completed more cheaply than planned. Project managers, sponsors, and auditors use CPI as their primary early-warning signal for cost overruns.
CPI Formula
The CPI formula uses two EVM inputs: Earned Value (EV) and Actual Cost (AC).
Where:
- EV (Earned Value) = % complete × BAC — the budgeted value of work actually performed
- AC (Actual Cost) = the real money spent to date on that work
Note that CPI is a dimensionless ratio, not a dollar amount. A CPI of 0.85 means: for every $1.00 spent, only $0.85 of planned work value was delivered.
What Does CPI Mean?
| CPI Value | Meaning | Recommended Action |
|---|---|---|
| Above 1.0 | Under budget — cost efficient | Monitor; verify scope is complete |
| Exactly 1.0 | Perfectly on budget | Continue as planned |
| 0.90–0.99 | Slight cost overrun | Investigate causes; apply corrective action |
| Below 0.90 | Significant cost overrun | Immediate management escalation required |
CPI Worked Example
A software development project has a BAC of $500,000. After five months of execution:
- The project is 40% complete — EV = 0.40 × $500,000 = $200,000
- Actual costs to date = $230,000
Interpretation: For every $1.00 spent, only $0.87 of planned work was completed. The project is over budget by 13%. Using CPI to forecast the final cost:
The project is currently tracking to finish $74,713 over the original budget — a 14.9% overrun. This forecast is available as early as month five, giving the team time to intervene.
CPI vs SPI — What's the Difference?
CPI and SPI are the two primary EVM performance indices. They measure different dimensions of project health:
| Index | Formula | Measures | Ideal Value |
|---|---|---|---|
| CPI | EV ÷ AC | Cost efficiency | ≥ 1.0 |
| SPI | EV ÷ PV | Schedule efficiency | ≥ 1.0 |
A project with both CPI and SPI above 1.0 is the ideal — delivering work faster and cheaper than planned. A project with SPI < 1.0 but CPI > 1.0 is behind schedule but under budget. The combinations matter: CPI is the more reliable predictor of final cost; SPI converges to 1.0 at project end regardless of actual delays.
The CPI Stability Research Finding
Multiple PMI research studies have established a critical finding about CPI behaviour: once CPI drops below 0.90 after the project has passed the 20% completion point, it almost never recovers to 1.0 by project end. This makes early CPI measurement critical for project governance. A CPI of 0.85 measured at 25% completion is a strong statistical predictor of a significant final overrun — not a temporary blip.
This finding has a practical implication: waiting until a project is 50% or 75% complete to address a CPI below 0.90 is, statistically, too late to recover the budget. Corrective action must begin early.
How CPI Feeds Into EAC
The most widely used EAC formula directly uses CPI as its basis:
This formula assumes the cost efficiency experienced so far will persist for the remainder of the project — a reasonable assumption given the CPI stability research. Here is how different CPI values translate into EAC for a hypothetical $1,000,000 project:
| CPI | EAC (BAC ÷ CPI) | Overrun / Saving |
|---|---|---|
| 1.10 | $909,091 | −$90,909 (saving) |
| 1.00 | $1,000,000 | $0 |
| 0.95 | $1,052,632 | +$52,632 |
| 0.90 | $1,111,111 | +$111,111 |
| 0.85 | $1,176,471 | +$176,471 |
| 0.80 | $1,250,000 | +$250,000 |
What is a Good CPI?
- CPI = 1.0 — Perfect cost efficiency. Planned spend equals actual spend for work completed.
- CPI 0.90–1.10 — Generally acceptable range. Manageable variance; monitor closely.
- CPI below 0.90 — Significant issue requiring immediate management attention and root-cause analysis.
- CPI above 1.10 — Potentially under-scoped or scope was reduced. Verify that no work has been omitted from the earned value measurement.