What does a CPI below 1.0 mean?

It means the project is over budget: each dollar spent has produced less than a dollar of budgeted work. A CPI of 0.86, as on our example project, means that for every dollar spent only eighty-six cents of planned work was earned, so fourteen cents of each dollar went to overrun. The further below 1.0 the index sits, the worse the cost efficiency. A CPI of exactly 1.0 means spending matches earned work, and above 1.0 means the project is under budget, earning more than a dollar of work per dollar spent.

What is the difference between cost variance and CPI?

They are the same cost reading in two forms. Cost variance is the difference in dollars, earned value minus actual cost, so it tells you the size of the problem: our example is nine hundred thousand dollars over. The cost performance index is the ratio, earned value divided by actual cost, so it tells you the rate and lets you compare a small project to a large one on equal footing. Use cost variance when you need the dollar impact for a report, and CPI when you need to compare efficiency across packages or forecast the finish.

Can CPI recover later in a project?

It can drift, but cumulative CPI is famously stable: studies of large projects have found that once a project is past roughly the twenty-percent-complete mark, the cumulative CPI rarely improves and tends to hold or worsen through completion. The practical lesson is to treat an early poor CPI as a signal, not a blip. Waiting for it to fix itself usually means the overrun compounds. The index you can still move is the period CPI, by changing how the remaining work is run, which is what the to-complete performance index measures.

Construction Glossary · Earned Value

Cost Variance &CPI

The cost half of earned value: one number in dollars, one as a ratio, both answering whether the money is buying the work it should.

Definition

The cost performance index (CPI) is earned value divided by actual cost; it measures how much budgeted work each dollar of spend is buying. Cost variance (CV) is earned value minus actual cost, the same reading in dollars. A CPI below 1.0, or a negative CV, means the project is over budget.

Two forms of the same cost reading

Cost Variance (dollars)

CV = EV − AC
$5.4M − $6.3M = −$0.9M

The size of the cost problem, in money. Negative means over budget. Use it when a report needs the dollar impact.

Cost Performance Index (ratio)

CPI = EV ÷ AC
$5.4M ÷ $6.3M = 0.86

The rate of cost efficiency. Comparable across projects of any size, and the basis for forecasting the finish.

What CPI really measures

A CPI of 0.86 has a plain-English reading: for every dollar the project spent, it earned only eighty-six cents of budgeted work. The other fourteen cents bought nothing on the plan; it was overrun.

Multiply that fourteen-cent leak across every dollar still to be spent and you see why an early low CPI is so expensive. The index is a rate, so it keeps costing you on all the work that remains, which is exactly what the forecast at completion captures.

How to read the number

CPI > 1.0Under budget — more than a dollar of work earned per dollar spent.

CPI = 1.0On budget — spend and earned work are in step.

CPI < 1.0Over budget — each dollar is buying less than a dollar of work.

How POD tracks cost performance

POD computes CPI and cost variance from the earned value it derives and the actual cost booked against the project, recomputed every reporting period rather than at quarter-end. Because the index updates as pay applications and costs land, an early dip is visible while there is still work left to steer, not after the overrun is locked in.

The full EVM guide

Frequently asked questions

One index, every dollar left

CPI is only half the story; pair it with the schedule index to see the whole picture, then forecast the finish.

Schedule Variance & SPI Back to the Glossary