CPI when current variances are atypical

Submitted by vijayavadrevu on Sun, 05/26/2013 - 17:39

 Please refer to the following diagram: 

You know that current variances are atypical, i.e., similar variances will not occur in future. What is the cost performance index (CPI) for the project?

  1. 0.96
  2. 1.04
  3. 1.00
  4. 1.20

Should we consider the formula, CPI = BAC / EAC or CPI = EV / AC? I have used the first  formula (as the variances are atypical)  and got CPI as 0.976 

Please clarify

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y0zh

Sun, 05/26/2013 - 18:24

Ev/ac, since there wont be variances in the future

vijayavadrevu

Sun, 05/26/2013 - 18:39

http://pmi.books24x7.com/assetviewer.aspx?bookid=45514&chunkid=397723927

As per this link, 

EAC = BAC / CPI   Use formula if current variances are thought to be typical in the future.

 

EAC = AC + BAC - EV       Use formula if current variances are thought to be atypical in the future 

 

hence confused and posted the question. can you / someone  give clarification as to which formula is to be used?

y0zh

Sun, 05/26/2013 - 21:00

Why are you looking for forecasting? The question is to give the actual CPI

vijayavadrevu

Mon, 05/27/2013 - 02:31

 "You know that current variances are atypical, i.e., similar variances will not occur in future."

I am getting confused looking at sentences like this

Thank You

sanskrit

Mon, 05/27/2013 - 17:32

Lets take simple example,

  • You have project for 4 month and it will cost you $4000 total. 
  • After two month you are supposed to be half done i.e 50 % Done, But you are only 45% Done and have spent 2250 USD

So based on Three informations above, You have 

  • Planned value of 4000*50/100= $ 2000
  • Earned Value of 4000*45/100 = $ 1800
  • Actual cost (given) = $ 2250
  • Cost Performance Index CPI = 1800/2250= 0.8

No Take Two scenerios

  1. Current variances are thought to be typical in the future i.e. CPI will continue for the rest of the project duration EAC = BAC / CPI
  2. Current variances are thought to be atypical in the future  i.e., similar variances will not occur in future EAC = AC + BAC - EV

Scenerio 1

What it means is your EAC has to be calculated assuming CPI will remain same i,e 0.8  for the rest of the project,

  • So the Estimate at completeion will be = Actual Cost + Project Cost to finish rest of the Work
  • Earned Values wise Remaining work is = BAC -EV 
  • So to finish work work assuming CPI will remain same it will cost you ( BAC -EV )/CPI
  • So Estimate at completeion will be = Actual Cost + Project Cost to finish rest of the Work which is AC + (BAC- EV )/CPI = AC + BAC/ CPI - EV/CPI  and you know that EV/CPI is AC, So substitute EV/CPI to AC you will get EAC = AC+ BAC/CPI =AC which is BAC/CPI

       

Scenerio 2

What it means is your EAC has to be calculated assuming CPI will be 1 for the remaining period of project

So using same logic as scenerio 1

 Estimate at completeion will be = Actual Cost + Project Cost to finish rest of the Work which is AC + (BAC- EV )/CPI  

i.e EAC = AC + (BAC-EV)/CPI Here as similar variances will not occur in future So CPI is 1

i.e EAC = AC + (BAC-EV)/1 = AC + BAC -EV

:)

vijayavadrevu

Mon, 05/27/2013 - 18:13

 Thank You so much @sanskrit

sanskrit

Mon, 05/27/2013 - 22:40

 Anytime.