I have written this post to explain an important Earned Value Analysis concept viz. To Complete Performance Index (TCPI). In this post, you will find the definitions, formulas, calculation, and example of TCPI. You will also find about different TCPI formulas viz. BAC & EAC formulas, utility of TCPI in Project Management, difference between Cost Performance Index (CPI) and TCPI. This is a great resource for aspirants preparing for PMP certification exam.
I have written a series of articles on Earned Value Management. This post is written in continuation to the following posts:
- The Beginners Guide To Earned Value
- The Ultimate Guide To ETC Formulas & Calculations
- 5 EAC Formulas for Project Budget Forecasting
I would recommend you to read the above articles before continuing further. They will give you a deeper understanding of Cost Management and Earned Value Management (EVM).
To Complete Performance Index Definitions
It is a measure of the cost performance that is required to be achieved with the remaining resources in order to meet a specified management goal, expressed as the ratio of the cost to finish the outstanding work to the remaining budget.
Future projected cost efficiency to complete the project within original or revised budget.
You can also refer to Max Wideman dictionary to check other standard definitions.
A Project Scenario
Let us understand the above definitions using a simple project scenario.
You are managing a project. After calculating the cost efficiency (CPI) of the project, you found that project is over-budget – meaning Actual Cost (AC) is more than the Earned Value (EV). You believe that the remaining project work cannot be completed within the remaining project funds. But your Sponsor tells you to to complete the Project within defined Budget.
So, how will you do it?
The obvious answer would be to reduce the cost of remaining work. By reducing the cost of remaining work, you can complete the remaining work at an increased cost efficiency.
The increased (future) cost efficiency is represented as To Complete Performance Index (TCPI).
Difference Between CPI And TCPI
Both CPI and TCPI provide a measure of Project’s cost efficiency. However there are basic differences between these two figures.
Cost Performance Index (CPI) is defined as ratio of EV and AC (EV / AC). It is project’s current cost efficiency on the Control Date.
On the Control Date, Project CPI could be one of the following:
- CPI < 1 – it means that value earned is less than the money spent – project is over budget.
- CPI = 1 – it means that value earned is equal to the money spent – project is going as per the budget.
- CPI > 1 – it means that value earned is more than the money spent – project is under budget.
CPI is a measure of current cost efficiency of the project. If CPI ≥ 1, then the project is (most probably) doing well. On the other hand, if CPI < 1 then the project is likely to be in trouble. In the latter case, the project team needs to take a corrective action(s) to bring the future costs in-line with the budget. This can be done by increasing the future cost efficiency.
As discussed earlier, this estimated future cost efficiency is called To Complete Performance Index.
The main differences between CPI & TCPI, can thus, can be enumerated as:
- CPI represents project’s current cost efficiency, whereas TCPI estimates project’s future cost efficiency.
- CPI is actual efficiency of the completed project work, whereas TCPI is estimated forecast of efficiency of the remaining project work.
- There is only 1 CPI Formula, while there are 2 different TCPI Formulas.
Let us use our example from Basics of Earned Value Management.
EV = 35000
AC = 36000
CPI = 0.97
BAC = 80,000
Refer to EAC Formula IV – EAC = BAC/CPI
If the project team continues to work at the current cost efficiency (0.97) then
EAC = 80000/0.97
EAC = 82,474.23
Clearly EAC> BAC. The project team would not be able to complete the project within original budget (BAC), if it continues to perform at the current cost efficiency (CPI).
If the project team wants to complete the project within original budget (BAC), then the future cost efficiency should be greater than 1.
TCPI Formula And Calculation
Going by the above definitions and applying pure mathematical logic, we can write a generic TCPI equation as:
TCPI = (monetary value of remaining work)/(remaining funds)
Note: Refer to Basics of Earned Value Analysis or Earned Value Management System Explained in Easy Language, to understand the terms used for deriving the Generic Equation.
Numerator Of Generic Equation
monetary value of remaining work = monetary value of total work – monetary value of completed work
we can rewrite numerator as:
monetary value of remaining work = BAC – EV
Denominator Of Generic Equation
remaining funds = total budget – actual expenditure
remaining funds = total project budget – AC
Final Generic Equation
TCPI = (BAC – EV) / (total project budget – AC)
Let us now determine total project budget.
TCPI BAC Formula
If the project has to be completed within original budget (BAC), then we can replace total project budget with BAC. The Generic Equation reduces to:
TCPIB = (BAC – EV) / (BAC – AC)
TCPIB = (80000 – 35000) / (80000 – 36000)
TCPIB = 1.02
TCPI EAC Formula
If the project has to be completed within revised budget (EAC), then we can replace total budget in the Generic Equation with EAC. The equation reduces to:
TCPIE = (BAC – EV) / (EAC – AC)
Calculation if Sponsor imposes a revised budget (EAC) of 78000
TCPIE = (80000 – 35000) / (78000 – 36000)
TCPIE = 1.07
There are number of other formulas in EVM. You can read Earned Value Management Formulas for a quick snapshot of all of them. You need to understand the these to answer PMP questions correctly. A mere memorization of the formulas would not help – you may not be able to apply the correct one. It is better understand the concept and then apply the formula(s) as required.
Over To You
What is your take on To Complete Performance Index? Do you have any follow-up questions? You can write them as a comment below and I will respond.
PMP Exam Formulas
I have also compiled a PMP Formulas Cheat Sheet. It will help you in your exam prep. You can read more about it and directly download it free by joining PMP prep linkedin group. It is the best and most comprehensive cheat sheet based on the PMBOK Guide 6th edition.
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