Earned Value Reporting – To Complete Schedule Performance Index

In this article on Earned Value Reporting we’ll look at something similar to the To Complete Cost Performance Index – the To Complete Schedule Performance Index, or TCSPI. The To Complete Schedule Performance Index tells us the required schedule performance index that will be needed to meet the schedule.

The book “The Project Management Question and Answer Book” by Michael Newell and Marina Grashina is the source for much of this overview.

What is the to complete schedule performance index?

The to complete schedule performance index, or TCSPI, is similar to the TCCPI except that it calculates a required schedule performance index that will be necessary to meet the project schedule. This measure is rarely used. It is included here for completeness. It has the same problems as the TCCPI and is even more abstract and difficult for people to understand.

The calculation for the TCSPI is done by dividing the work remaining by the remaining schedule.

TCSPI = (BAC – BCWP) / (BAC – BCWS)

It can be seen that as a project’s schedule performance index moves below one, the TCSPI will increase and become greater than one. Although called an “index”, this is not really accurate since all indexes indicate something bad when they fall below one and this index indicates something bad when it is greater than one.

There is a mathematical difficulty with this term as well. If a project is over budget toward the end, it is possible for the BAC and the BCWS to be equal. This produces a division by zero and a point of discontinuity.

Under normal conditions it results in a value that indicates the required performance that the project must have from now until the end of the project.

Example:

Suppose a project is somewhere near 50 percent complete:

BCWS = $100,000

BCWP = $95,000

ACWP = $97,000

BAC = $200,000

SV = BCWP – BCWS

SV = -$5,000

What is the TCSPI?

TCSPI = (BAC – BCWP) / (BAC – BCWS)

TCSPI = (200,000 – 95,000) / (200,000 – 100,000)

TCSPI = 1.05

Notice that if the schedule variance remains the same as the end of the project approaches, the TCSPI increases rapidly. Suppose we have the following when the project is approximately 95 percent complete:

BCWS = $195,000

BCWP = $190,000

ACWP = $192,000

BAC = $200,000

SV = BCWP – BCWS

SV = -$5,000

What is the TCSPI?

TCSPI = (BAC – BCWP) / (BAC – BCWS)

TCSPI = (200,000 – 190,000) / (200,000 – 195,000)

TCSPI = 2.00

As we approach the end of the project, the schedule variance has not changed, but the TCSPI has changed from 1.05 to 2.00. This means that the work that must be accomplished from now to the end of the project must take place at a rate that is twice as fast as was originally planned.

Earned Value Reporting – To Complete Cost Performance Index

In this article on Earned Value Reporting we’ll examine the To Complete Cost Performance Index. In a nutshell, the To Complete Cost Performance Index tells us the cost performance that is required to complete a given project for it’s original budget based on how it is performing right now.

The book “The Project Management Question and Answer Book” by Michael Newell and Marina Grashina is the source for much of this overview.

What is the to complete cost performance index?

The to complete cost performance index, TCCPI, tells us the required cost performance that is necessary to complete the project for the original budget based on the performance of the project as of today.

The to complete cost performance index is a seldom-used indicator, and there are some difficulties in its use. The TCCPI is calculated by dividing the work remaining by the money remaining in the budget to do it. The remaining work in a project is simply the difference between the work already accomplished, the BCWP, and the total work of the project, the BAC. You will recall that when the project is completed, the BCWP must exactly equal the BAC. Mathematically it is impossible for this not to happen since the BAC is equal to the sum of the BCWP and is also equal to the sum of the BCWS. The remaining budget for the project is simply the difference between the total budget for the project, again the BAC, and the amount of money that has been spent to date, the ACWP.

TCCPI = (BAC – BCWP) / (BAC – ACWP)

It can be seen that as a project’s cost performance index moves below one, the TCCPI will increase and become greater than 1. Although called an “index”, this is not really accurate since all indexes indicate something bad when they fall below one and this index indicates something bad when it is greater than one.

The TCCPI gives us a rough estimate of the performance that is required for the remaining portion of the project in order for the project to be completed for the original budget. A TCCPI of 1.33 indicates that the project team must perform with a CPI of 1.33 from now until the project is completed in order for the project to be completed at the original budget.

There is a mathematical difficulty with this term as well. If a project is over budget toward the end of the project, it is possible for the BAC and the ACWP to be equal. This produces a division by zero and a point of discontinuity.

Under normal conditions it results in a value that indicates the required performance that the project must have from now until the end of the project.

Example:

Suppose a project is somewhere near 50 percent complete:

BCWS = $100,000

BCWP = $95,000

ACWP = $97,000

BAC = $200,000

CV = BCWP – ACWP

CV = -$2,000

What is the TCCPI?

TCCPI = (BAC – BCWP) / (BAC – ACWP)

TCCPI = (200,000 – 95,000) / (200,000 – 97,000)

TCCPI = 1.02

In this example the project would be required to do all of the remaining work at a 2 percent higher cost performance than was originally planned. This may be particularly difficult since the cost performance index to date is only 98 percent. We will be asking the project team to improve their cost performance by some 4 percent.

Notice that if the cost variance remains the same as the end of the project approaches, the TCCPI increases rapidly. Suppose we have the following when the project is approximately 95 percent complete:

BCWS = $195,000

BCWP = $190,000

ACWP = $192,000

BAC = $200,000

CV = BCWP – ACWP

CV = -$2,000

What is the TCCPI?

TCCPI = (BAC – BCWP) / (BAC – ACWP)

TCCPI = (200,000 – 190,000) / (200,000 – 192,000)

TCCPI = 1..25

As we approach the end of the project, the cost variance has not changed, but the TCCPI has changed from 1.02 to 1.25. This is an indicator that the cost variance will be much more difficult to recover now than it was earlier in the project.

Earned Value Reporting – Other Ways of Calculating EAC

In this article on Earned Value Reporting we’ll at other ways of calculating Estimate at Completion. Again, the Estimate at Completion tells us the forecast value of the project when the project has been completed.

The book “The Project Management Question and Answer Book” by Michael Newell and Marina Grashina is the source for much of this discussion.

Other ways of calculating EAC

Taking the actual cost of work performed and adding it to the remaining work to be done can describe a somewhat more optimistic view of the EAC. This says that the project’s estimate at completion will be the sum of the remaining work to be done at the originally estimated budgets for that work plus the actual accumulated cost of the work already completed. The actual cost of the work already completed is nothing more than the ACWP, and the cost of the remaining work to be done, based on original estimates, is just the difference between the budget at completion and the work that is already completed.

EAC = ACWP + (BAC – BCWP)

Of course, the most optimistic calculation of the EAC is the one that is usually imposed on project managers. It says that in spite of the problems that have occurred on this project to date, the project is not only going to complete all the remaining tasks according to the original plans and estimates but is going to recover the budget overruns already spent. The calculation of EAC is quite simple.

EAC = BAC

While it may seem pessimistic to calculate the EAC by dividing the BAC by the CPI, it turns out that there have been a number of studies that have been done in this area.

Quentin Fleming states: “The cumulative CPI is a particularly reliable index to watch because it has been proven to be an accurate and reliable forecasting device. The cumulative CPI has been shown to be stable from as early as 15 to 20 percent in the project’s percentage complete point”.

From David Christensen: “Researchers found that the cumulative CPI does not change by more than ten percent once a contract is twenty percent complete; in most cases, the cumulative CPI only worsens as a contract proceeds to completion”.

What this is telling us is that the project managers who report that although bad things have happened early in the project, they expect to recover and finish the project within the originally planned budget are not very realistic. Unless they have good reason to defend this position, it should be accepted very reluctantly. The more probable outcome of the project is that the CPI will remain the same or get worse as the project progresses.

It is even rational to think this way. If a project cannot follow the project plan early in the project when the tasks planned were relatively close to the time the planning was done, then how likely is it that the tasks that were planned further in the future will have been estimated more accurately?

Earned Value Reporting – Cost Performance Index

We’ll continue our discussion of Earned Value Reporting by looking at Cost Performance Index in this article. The Cost Performance Index refers to how the project is performing based on the actual spending of the project budget.

Much of the following information came from Newell and Grashina’s book entitled “The Project Management Question and Answer Book.”

What is the cost performance index?

The cost performance index or CPI is a measure of how well the project is doing in terms of spending the project budget. It is a comparison of the actual expenditures to the work that was accomplished. The index is a value that allows projects of different sizes to be compared.

The cost performance index is like the cost variance discussed previously with one important difference. When we calculated the cost variance, the result was a figure in dollars. If the dollars were a negative number, the variance was considered bad, and if the dollars were positive, the variance was considered good. The problem with this method is that it is difficult to compare projects of different sizes to one another. It would be better to have a measure that gave the health of the project regardless of its size. For this purpose we will use indexes.

Instead of subtracting the actual cost of work performed from the budgeted cost of work performed as we did when we calculated the cost variance, we will divide the same two numbers.

CPI = BCWP / ACWP

CPI = EC / AC

We can see that if the project is following its plan, the amount of work accomplished and the amount of money spent to accomplish it are the same, and the resulting value will be one. So, an index of one means that the project is following its project plan.

If the actual cost is greater than what is being accomplished, the denominator in the fraction will be larger than the numerator, and the resulting value will be less than one. This is generally considered to be a bad condition. If the actual cost is less than what is being accomplished, the resulting number will be greater than one and this is considered to be good. Of course any deviation from the project plan is bad even if the deviation is considered favorable. We should investigate to determine why this condition exists.

Example:

Two projects have their cost performance index calculated. Both projects are 10 percent over budget at the time of the calculation. Project One has a budget of $1,000,000, and Project Two has a budget of $10,000. These budget figures are the amounts that should have been spent as of today’s date. We will assume that the project is on schedule at this point in time. What is the cost performance index for each?

Project One is over budget by 10 percent of its budget or $100,000.

Project Two is also over budget by 10 percent of its budget or $1,000.

CPI = BCWP / ACWP

The BCWP is $1,000,000 for Project One.

The ACWP is $1,100,000 for Project One ($1,000,000 + $100,000).

The BCWP is $10,000 for Project Two.

The ACWP is $11,000 for Project Two ($10,000 + $1,000).

CV = BCWP – ACWP

The cost variance for Project One is $1,000,000 ? $1,100,000 or ? $100,000. The cost variance for Project Two is $10,000 ? $11,000 or $1,000 The CPI for Project One is $1,000,000 / $1,100,000 or 0.909. The CPI for Project Two is $10,000 / $11,000 or 0.909.

Notice that the size of the project does not make any difference in the calculation of the index. Projects that are each behind 10 percent have the same value for their cost performance index. This makes assessing the health or sickness of projects of different sizes much easier.