To Complete Performance Index and Efficiency Forecasts
Consider the following scenario.
You are managing a project. The project is running over-budget for some reason(s). Your Sponsor comes and tells you to do whatever you can to complete the Project within Budget. How will you do it?
Now we have a different question “to what extent should we increase the cost efficiency?”. The answer can be determined by calculating To Complete Performance Index (TCPI).
I have written a series of articles on Earned Value Management and related concepts. This post is written in continuation to:
It would be helpful to read above 3 articles to understand the basic concepts of EVM before reading this article. Let us quickly review some of the EVM terms:
Budget At Completion (BAC) – Approved budget at the start of a project.
Earned Value (EV) – EV is the monetary value of the completed work by the Control Date.
Actual Cost (AC) – AC is actual project expenditure (for the completed work) by the Control Date.
Cost Performance Index (CPI) – CPI is defined as ratio of EV and AC (EV / AC). It is Project’s cost efficiency on the Control Date.
Let us analyze CPI further. On the Control Date, Project CPI could be one of the following:
What is To Complete Performance Index?
To Complete Performance Index (TCPI) is future projected cost efficiency of the project. TCPI is estimated by analyzing project’s past performance. There is a difference between CPI and TCPI.
Let us use our example from Basics of Earned Value Management. The CPI was 0.97 in our example. Refer to EAC Formula IV. If the project team finishes the remaining work with a cost efficiency of 0.97 then EAC would be 80000/0.97. Clearly EAC would be more than our original budget of 80000 units. The project team would not be able to complete the project within original budget (BAC) if it continues to perform at historic cost efficiency (CPI).
If the project team wants to complete the project within original budget (BAC) then the future cost efficiency (TCPI) should be greater than 1.
Generic “To Complete Performance Index” Equation
Going by the definition of TCPI and applying pure mathematical logic, we can write TCPI equation as.
TCPI = (monetary value of remaining work)/(remaining funds)
Numerator of the above equation
monetary value of remaining work = monetary value of total work – monetary value of completed work
monetary value of remaining work = BAC – EV (refer to Basics of Earned Value Analysis or Earned Value Management System Explained in Easy Language)
Denominator of the above equation
remaining funds = total budget – actual expenditure
remaining funds = total budget – AC (refer to Basics of Earned Value Analysis or Earned Value Management System Explained in Easy Language)
So our TCPI equation reduces to
TCPI = (BAC – EV) / (total budget – AC)
Formula I – TCPI for completing project within Original Budget (BAC)
Replacing total budget with BAC, TCPI equation reduces to
TCPIB = (BAC – EV) / (BAC – AC)
Formula II – TCPI for completing project within Revised Budget (EAC)
Replacing total budget with EAC, TCPI equation reduces to
TCPIE = (BAC – EV) / (EAC – AC)
A note to PMP Aspirants
There are number of formulas in EVM. I have covered basic formulas along with their practical utility in other articles. You need to understand the utility of these formulas to answer PMP question. A mere memorization of the formulas would not be helpful – you may not be able to apply the correct formula in a given question.
All the best…