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What Does a Cost Performance Index (CPI) Greater Than 1 Mean for Your Project?
Understand how to interpret the Cost Performance Index (CPI) in project management. Learn why a CPI greater than 1 indicates your project is under budget and performing efficiently, and how to use this metric to evaluate cost performance.
Question
You are managing a predictive project, and during a project status review, you observe that the Cost Performance Index (CPI) is greater than 1. Based on this information, how should you interpret the project’s cost performance?
A. The project is over budget and needs corrective action.
B. The project is under budget and is performing well in terms of cost.
C. The project is at risk of exceeding the planned budget.
Answer
B. The project is under budget and is performing well in terms of cost.
Explanation
The Cost Performance Index (CPI) is a critical metric in Earned Value Management used to measure the cost efficiency of a project. It is calculated by dividing the Earned Value (EV) by the Actual Cost (AC). A CPI greater than 1.0 indicates that the project is under budget, meaning you are earning more value for the work completed than the actual amount spent. Conversely, a CPI equal to 1.0 means the project is exactly on budget, and a CPI less than 1.0 signifies that the project is over budget and may require corrective action.