Which of the following is true for Cost Performance Index (CPI)?
Which of the following is true for Cost Performance Index (CPI)?
The Cost Performance Index (CPI) is a widely used metric in project management to assess the cost efficiency of a project. It is calculated using the formula CPI = Earned Value (EV) / Actual Cost (AC). If the CPI is greater than 1, it indicates that the project is performing better than expected from a cost perspective, meaning the project is under budget. Conversely, a CPI less than 1 indicates poor cost performance, and a CPI of 1 indicates that the project is exactly on budget. Therefore, the statement that 'If the CPI > 1, it indicates better than expected performance of project' is correct.
Formula for Cost performance Indicator (CPI) = Earned Value (EV) / Actual Cost (AC) For example, if a project has a earned value (EV) of £20,000 but actual costs (AC) were £12,000:., then CPI = EV / AC = 20,000 / 12,000 = 1.66 The cost performance index (CPI) is a measure of the financial effectiveness and efficiency of a project. It represents the amount of completed work for every unit of cost spent. If the ratio has a value higher than 1 then it indicates the project is performing well against the budget. A CPI of 1 means that the project is performing on budget. A CPI of less than 1 means that the project is over budget.
The answer is B The cost performance index (CPI) is a measure of the conformance of the actual work completed (measured by its earned value) to the actual cost incurred: CPI = EV / AC.