Earned Value : CPI.doc

7/28/2019 Earned Value : CPI.doc

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The following note is a summary of a paper by Vijay Kanabar , Roger Warburton,

and Steve Leybourne presented at the Project Management Institutes World

Congress. For details, see:

Kanabar, V. Leybourne, S. Warburton, R. D. H., (2009). Practical Calculation of

Delays and Cost Overruns, Proceedings of the Project Management Institute (PMI)World Congress, Orlando, FL, October.

Some comments on the new TCPI

Roger D. H. Warburton, PhD., PMP, Vijay Kanabar, PhD., PMP

The new PMBOK adds a simple formula that could change

the world of project tracking and control. Once our

customers start calculating TCPI, we wont be able to fudge

the cost anymore!

The new PMBOK includes a topic with the unattractive name of the To-Complete

Performance Index (TCPI):

(1)

What is the point of this formula?

We already have the Cost Performance Index (CPI) and the Schedule Performance

Index (SPI), so what else do we need?

Weve all been there. Youre a few months into a project and the first few

deliverables have been submitted. You diligently calculate the CPI = 0.9, implying a

cost overrun. Your customer asks you about your plans to deal with the problem.

No problem, well make it up, you say.

Unfortunately, once our customers start computing the TCPI, that response is not

going to work anymore. Let us show you why.

TCPI Example

Suppose you are writing a book, and you propose to deliver 10 chapters (the scope).

You negotiate the cost and schedule with the editor (the customer). You promise

one chapter per week for 10 weeks, at a cost of $100 per chapter (Planned Value).

The Budget is $1,000.

Warburton & Kanabar, 2009 Page 1


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You dutifully deliver the first 3 chapters on time but you have to put in some over

time to complete the work. Table 1 shows the status of the project at the end of

month 3.

Month 1 2 3Planned Value $10

0$100

$100

Earned Value $100

$100

$100

Actual Cost $110

$110

$110

Cumulative Earned Value(EV)

$100

$200

$300

Cumulative Actual Cost(AC)

$110

$220

$330

CPI = EV/AC 0.90 0.90 0.90

Table 1. The status of the book project after month 3.

We calculate the CPI = 0.90. Ok, so we are running a little over in costs, but we

just shrug it off well make it up.

Hints of Trouble Ahead: The TCPI Calculation

Now lets add the TCPI calculation. The work remaining is BAC EV = $1,000 - $300

= $700. The funds remaining are BAC AC = $1,000 $330, so the TCPI is:

(2)

To finish on time, we will have to work at a rate 4% greater than we originally

proposed. So far, we are working at an 90% rate (CPI = 0.90), so we need to get our

production rate up to 1.04 -- a 14% improvement .

No big deal, well make it up.

3 Months Later

We write and deliver 3 more chapters at the same rate:

Month 1 2 3 4 5 6Planned Value $10

0$10

0$10

0$10

0$10

0$10

0Earned Value $10

0$10

0$10

0$10

0$10

0$10

0Actual Cost $11 $11 $11 $11 $11 $11



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0 0 0 0 0 0Cumulative EarnedValue (EV)

$100

$200

$300

$400

$500

$600

Cumulative Actual Cost(AC)

$110

$220

$330

$440

$550

$660

CPI = EV/AC 0.9

0

0.9

0

0.9

0

0.9

0

0.9

0

0.9

0

Table 2. The status of the book project after month 6.

Lets now perform the TCPI calculation. The work remaining is: BAC EV = $1,000 -

$600. The funds remaining are: BAC AC = $1,000 $6600, so the TCPI is:

(3)

To complete the project within budget, we will now have to work at a rate 18%

greater than we said we would. In fact, since our production rate is actually only89% of planned, we need a 28% improvement to raise our production rate from

our current 90% to the necessary 118%!

At this point, it is getting extremely difficult to tell the editor, No big deal, well

make it up. If our editor also computes the TCPI, she will have every reason to be

concerned.

The TCPI does not lie!

The story does not end here--it gets even more interesting. Figure 1 plots the TCPI if

our book production continues at the same rate. Only a quarter of the way through

month 7, the TCPI is at 2.0. We will have to double our productivity to make the

budget!



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Figure 1: The TCPI is the efficiency required to complete

the project on time.

In month 8 the TCPI goes to infinity!

At that point, no matter how hard we try, well never make it up.

Admit it. Youre over budget!

A much better approach is just to admit early on that your project is over budget.The old PMBOK teaches us how to do this. The Estimate at completion (EAC) is:

(6)

At our current efficiency of 90% (CPI = 0.89), we should admit that the final cost of

the book will be around $1,100.

Oh Oh. The customer knows!

One of Albert Einsteins often quoted saying was insanity is doing the same thingover and over and expecting a different result. As project managers, we are often

guilty of this kind of insanity when we keep measuring our productivity at 89%, and

still tell our customers that all will be well.

PM: Weve run into some problems and our CPI = 0.90 but we believe that

we can still deliver within budget.



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Customer: Oh Yeah? Ive computed your TCPI = 1.2. How are you going to get

30% increase in productivity?

See what I mean? If our customers start computing the TCPI, it is

going to change the worldno more cheating.


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