Posted by Larry Short
Earned Value Management (EVM) is the value of completed work expressed in terms of the approved budget assigned to that work for a schedule activity or work breakdown structure component. “One” represents a single entity, the unit of counting or measurement, but in Project Management “one” represents peace of mind…mostly.
Cost Performance Index (CPI) is the rate at which the project performance is meeting cost expectations during a given period of time; the formula for calculating it is CPI=EV ÷ AC.
(EV represents Earned Value, PV represents Planned Value, and AC represents Actual Cost)
< 1 means the cost of completing the work is higher than planned (bad)
= 1 means the cost of completing the work is right on plan (good)
> 1 means the cost of completing the work is less than planned (sometimes bad)
You might think that having a high CPI is good, but it may mean the plan was too conservative especially if the CPI is being measured against a poor baseline. Your project sponsor might be upset with you because an overly conservative baseline ties up funds that could be used for other purposes.
Zero is another important number. It was at the heart of the notorious Y2K problem that arose at the turn of the century because computer programmers around the world abbreviated a four-digit year to two digits in their electronic database designs. However, zero is the starting point for values on most scales including a project’s Critical Path.
Zero comes into play when talking about Schedule Variance as well. Schedule Variance is the difference between work actually done and planned to be done; and the formula for calculating it is SV=EV-PV. (PMBOK®, page 182)