Project managers rely on several statistical measures to determine how well a project is progressing, and whether it will be completed on time and under budget. Two of the more notable statistical measures are the cost performance index (or CPI ratio) and schedule performance index (or SPI ratio).
Project managers rely on several statistical measures to determine how well a project is progressing, and whether it's expected to be completed on time and under budget. Two of the more notable statistical measures are the cost performance index and schedule performance index ratios. The CPI ratio shows how well the project fits in with its projected budget. The SPI ratio measures how closely the project stays on its intended schedule.
Calculating CPI Ratio
The CPI ratio measures the efficient deployment of the resources used on the project. The ratio is calculated as the relationship between the budgeted cost of the work completed (BC) and the actual cost of the same work (AC).
In mathematical terms, CPI = BC / AC. If the CPI ratio is less than one, the actual cost is higher than the budgeted cost, thus the project is over budget. If the CPI equals one, the project is on budget. A CPI greater than one means that the project is under budget.
Calculating SPI Ratio
The SPI ratio also uses the budgeted cost of the work completed as a factor in its calculations. However, the SPI compares the budgeted cost of the work completed (BC) to the budgeted cost of work scheduled (SC).
In mathematical terms, SPI = BC/SC. If the SPI is less than one, the budgeted cost of work scheduled is higher than the budgeted cost of the work completed, thus the project is behind schedule. If the project has an SPI of one, the project is on schedule. An SPI higher than one means that the project is ahead of schedule.
Importance of Ratios
The CPI and SPI ratios allow project managers to adjust project expectations as the projects progress. For instance, if a project has an SPI ratio of 1.2, the project is 20 percent ahead of schedule. The project manager may choose to use the extra time to add new features to the project.
If a different project has a CPI ratio of 0.75, the project is running at 25 percent over budget. The project manager must find ways to cut costs and bring the project in closer to the budget.
Calculating the Critical Ratio
The Critical Ratio represents the overall performance of the project, both in terms of budget and schedule. Project managers find the Critical Ratio by multiplying the CPI and SPI.
In mathematical terms, CR = CPI * SPI. A project with a CR of less than one suffered from being either behind schedule, over budget, or both. A CR of exactly one means the project met the manager's scheduling and budget expectations. A CR of more than one means that the project was either ahead of schedule, under budget or both.
- Duncan Smith/Photodisc/Getty Images