FEATURED PAPER

Why Should CPI = 1?

By Walt Lipke
PMIÒ Oklahoma City Chapter

USA

Abstract

The expectation when applying Earned Value Management is to control performance such that CPI = 1.00. This paper examines that premise. Two influences are identified: schedule and risk. Each is shown to have negative impact on CPI. Recognizing how the influence is exhibited, an alternative management approach is proposed.

Introduction

I have wondered from time to time if those who use Earned Value Management (EVM) [PMI, 2005] should rightfully expect the Cost Performance Index (CPI) to have a value near or equal to 1.00. Presently project managers (PM) applying EVM desire to guide cost performance such that CPI approaches 1.00. Likewise, those who receive and analyze periodic project status reports examine with a reference of CPI = 1.00. When the value is lower than the specified threshold (for example, CPIT = 0.85), an explanation and a planned action for performance improvement is expected as part of the status review. Briefly, this is the EVM system for project cost control. It is the accepted practice.

Nevertheless my question remains, “Is CPI = 1.00 a reasonable expectation?”

Commonly during project execution, when the CPI value has been below the specified threshold for an extended time and efforts to cause improvement have not been successful, the PM will request approval to re-baseline the project. By gaining approval from the customer for the re-baseline, the pressure to improve performance is relieved. At least momentarily, the subsequent periodic status reports become acceptable; the CPI threshold has the appearance of not being breached.

This practice diminishes the effectiveness of the EVM methodology for managing the current project and utilizing the measures for future project planning and evaluation of process improvement initiatives. If EVM practitioners could view CPI with an expectation other than 1.00, it may be possible to minimize revising project baselines, thereby preserving project performance history. Additionally, management decisions and corrective actions may improve, as well, with an increased understanding of performance expectations.

The objective of this paper is to examine the influences on CPI and propose an analysis/control alternative that improves project management with EVM. 

More…

To read entire paper (click here)

About the Author Walt Lipke Author Walt Lipke retired in 2005 as deputy chief of the Software Division at Tinker Air Force Base. He has over 35 years of experience in the development, maintenance, and management of software for automated testing of avionics. During his tenure, the division achieved several software process improvement milestones, including the coveted SEI/IEEE award for Software Process Achievement. Mr. Lipke has published several articles and presented at conferences, internationally, on the benefits of software process improvement and the application of earned value management and statistical methods to software projects. He is the creator of the technique Earned Schedule, which extracts schedule information from earned value data. Mr. Lipke is a graduate of the USA DoD course for Program Managers. He is a professional engineer with a master’s degree in physics, and is a member of the physics honor society, Sigma Pi Sigma (SPS). Lipke achieved distinguished academic honors with the selection to Phi Kappa Phi (FKF). During 2007 Mr. Lipke received the PMI Metrics Specific Interest Group Scholar Award. Also in 2007, he received the PMI Eric Jenett Award for Project Management Excellence for his leadership role and contribution to project management resulting from his creation of the Earned Schedule method. Mr. Lipke was recently selected for the 2010 Who’s Who in the World.  Mr. Lipke can be contacted at waltlipke@cox.net.