The Cost and Schedule Performance Indexes (CPI and SPI) are powerful metrics a project manager can use to monitor cost and schedule performance. CPI is calculated by dividing Earned Value by Actual Cost. CPI is an indicator of how efficiently project resources are performing relative to the project budget.
SPI is calculated by dividing Earned Value by Planned Value. SPI measures the performance of resources relative to the project schedule.
For example, a resource is allocated to a critical path task that is planned to take 160 hours over 4 weeks. After the first week, the resource has worked 40 hours but has only contributed 32 hours of earned value.
This results in a Cost Performance Indexes CPI and SPI of 0.8 or 80% and indicates that for each week the resource is allocated at 40 hours, task to which the resource is allocated will slip by one day and an additional days labour costs will be incurred. Therefore, if the resource is allocated on a task planned for 4 weeks and 160 hours, operating at a CPI and SPI of 80% the task will actually take 5 weeks and 200 hours to complete.
Does the project manager keep the under performing resource assigned to the task knowing that the delivery date will slip? One option available is to allocate the resource at 50 hours per week hoping that, with CPI and SPI at 80%, 40 hours of Earned Value will be realized each week and the project will remain on time. Of course, this leads to the risk that costs will increase and the project will go over budget.
A better option may be to find a resource with a comparable skill-set allocated to a task that is not on the critical path whose CPI and SPI are at 100% (or better). The resources could then be swapped and the project will maintain its target delivery date and remain on budget.
This example is a simplification for illustrative purposes and projects in the real-world have a greater number of complexities to manage. Nonetheless, it is evident that using Earned Value to track CPI and SPI at the task and resource-level can be a valuable tool.
In upcoming blogs we will provide tips on how both Earned Value and CPI can be used to improve the quality of metrics communicated to project stakeholders and team members.
