TCPI vs. CPI
Understanding TCPI vs. CPI Variance. In Earned Value Management, a typical part of the monthly cycle is to perform an analysis on the realism of the Work Breakdown Structure (WBS) forecasts. A quick way of judging how realistic the forecast is to perform a TCPI to cumulative CPI analysis at the WBS level.
What Is TCPI?
So, what is TCPI? TCPI stands for To Complete Performance Index, and it identifies the projected cost efficiency on the remaining work. The calculation identifies the budgeted cost of work remaining vs. the projected cost of work remaining. Below is the calculation:
TCPI=(BAC-EV)/(EAC-AC)
The calculation will generate a number that looks just like CPI and SPI. TCPI by itself will also tell you exactly the same thing as CPI. Anything over 1.00 means that your projected cost efficiency on the remaining work means you are projecting to complete that work under budget, anything under 1.00 means the opposite, you will complete the remaining work over budget.
While this information might be informative, it doesn’t tell you anything about how realistic your EAC (Estimate At Complete) is. In order to do that you will need to compare the TCPI to Cumulative CPI.
In accordance with DCMA’s “Earned Value Management System (EVMS) Program Analysis Pamphlet (PAP)”, issued in October 2012, “A mathematical difference of 0.10 or greater is used as an early warning indication that the contractor’s forecasted completion cost could possibly be unrealistic, stale, or not updated recently.” It’s important to note that is +/- .10.
Examples
Here are some examples:
TCPI is 0.67 and CPI is 0.65. We’ve been trained to believe anything that is not close to 1.00 is bad and when only looking at CPI this would be the case. However, when performing TCPI vs. CPI analysis comparison to 1.00 is not what is relevant, the comparison to the CUM CPI is what is important. In this example .67 falls right in line with cumulative CPI of .65 suggesting that the EAC falls in line with the performance to date and suggests the EAC is realistic.
TCPI is 0.99 and CPI is 1.15. In this case the 0.99 TCPI suggest the EAC is pessimistic relative to what he cumulative CPI is with a variance of .16. Again in this case looking at TCPI alone would suggest everything is ok, however, once the comparison to CPI is done we see that action will need to be taken on this particular account.
In cases where the TCPI analysis identifies WBS elements that fall out of the range of realism there are a couple courses of action that will need to be taken. First, the CAM (Control Account Manager) will have to analyze the ETC and decide whether or not it truly reflects the remaining work.
In the case that it is, the CAM will have to provide justification for the variance during the monthly reporting cycle, most commonly in the IPMR format 5 (Variance Analysis), examples of scenarios for why you may be off will be discussed below. The case that it is not and an update to the EAC is required, the CAM can either:
- Update the ETC prior to monthly deliverable
- Use independent EACs to identify a new EAC number and report that, then update the ETC the following period
- Or explain in the format 5 that the EAC is off and an update will be generated for the next reporting cycle
While none of the above is a wrong approach, the first two are absolutely preferable. You definitely want to err on the side of giving the customer an idea of what the updated EAC will be.
Possible causes for TCPIs that are out of line with the CPI can be grouped into a few categories: Risk, Learning Curves, and trending. Below we discuss each category:
Risk: In case of an overly optimistic TCPI, a risk that has been fully realized and does not project to impact the remaining work could result in overly optimist TCPIs. This is because you anticipate to perform the remaining work closer to what was originally projected. If you have an overly pessimistic EAC it might suggest that you are anticipating a high probability risk to be realized in the future and you are now reflecting that in your forecast.
Learning Curves: Typically learning curves can be a cause of overly optimistic EAC’s
Trends: Recent positive or negative trends in CPI (3-6 month trends are common) could be a result of either of the two examples above, but could also reflect possibly mitigations that were put in place due to early poor performance or could be the result of unforeseen circumstances that cause negative trends. However, this could be legitimate explanation if recent performance was taken into account.
Another explanation but not necessarily one that you would report to the customer could be if it’s really early in the project and you’re not sure you buy the early performance as an indication of your future performance and are unwilling to reflect that as part of the EAC.
Summary
TCPI is a useful way to assess how realistic the forecast is. TCPI is an essential part of program office’s monthly earned value analysis and is also a way of communicating to your customer who your performance impacts you EAC.