Important Earned Value Indices
One of the most math-heavy parts of leading projects is earned value management. Fortunately, the right software tools will do the calculations for you, drawing together data points from various systems and preparing a summary report.
However, as a project manager, sponsor or client, you still need to know what that report is telling you. That’s why it’s important to understand the three most commonly-used indices in earned value.
In this article, we’ll explain the three EV indices you should know and what they are telling you about your project. But first, we need to start with explaining what an index is.
What is an index in project management?
Indices in earned value management are used to measure how closely the current project performance is aligning to the baseline. They are ratios that compare data points related to schedule and cost.
They are date-constrained, so they tell you about past performance within a certain timebox, up to the present time. If the project management data in the system is up-to-date, the index will reflect current performance. It does sometimes take a little while for project team members to get their actuals into whatever tool you are using, so bear that in mind if you are running reports on today’s date.
While indices are backwards-looking reporting tools, they do provide an indication about what future performance might be. They are a good starting point for tracking trends, and are usually used with other data such as narrative descriptions of project progress and critical path performance assessments.
There are three main indices used for project control purposes:
- Schedule performance index (SPI)
- Cost performance index (CPI)
- To complete performance index (TCPI).
Let’s take a brief look at each of those.
Schedule performance index
SPI tells you how much work has been done in comparison to the work that was planned. It helps stakeholders answer questions about how the project is doing in relation to hitting key dates and managing to milestones.
When you work out SPI, make sure to take two variants into consideration. Look at the SPI data for this month and also consider the overall project performance to date. This is a good way of spotting any early warning signs about schedule delay that have only just started to show.
The current month’s SPI gives you detailed, granular information about project progress for the past period in a way that allows you to dig down into the base data if you wish. The cumulative, whole project SPI calculation is more of a guide to how well the project is performing overall. From both of these, you can deduce useful information about whether the project is likely to continue at the same rate and therefore hit (or miss) it’s completion milestones.
Read more in our guide to schedule performance index.
Cost performance index
CPI is another simple calculation that pops out of your earned value reports. It’s a way of viewing how much value is generated for what is being spent. In other words, it helps stakeholders understand whether efficiency and effort are commensurate with the amount of money being invested in the project. If you aren’t getting a good (however you define ‘good’) return on the effort being spent, it might be time to consider how to improve the efficiency of the team. Otherwise you might end up burning through more money than is acceptable on the project.
Again, it’s useful to review CPI on both a current month and whole-project basis. That gives you a near-term view of the value of the investment made recently and also a way of assessing how the whole project is doing. We recommend keeping track of changes in CPI (and SPI) over time to make it easier to spot trends.
Read more in our guide to cost performance index.
To complete performance index
The third index you should know for earned value is TCPI. This is a forward-looking metric that shows you the relationship between the budget for the work still to be done compared to the forecasted work.
TCPI represents the project performance required in order to finish the work in line with the current budget forecast. It is a way of determining the level of cost performance the team has to deliver if they want to finish the project in line with the forecasted budget, with the remaining resources.
It’s quite a complex index to wrap your head around but it’s really useful as a health check measure. The TCPI helps you work out if, working at the current performance level or run rate, you have any chance of hitting your forecasted budget and time expectations with the current resources. Or to put it another way, TCPI has been the start of many interesting conversations with project customers who were worried about whether or not their project was going to get over the line on time and on budget!
Read more about how to calculate the TCPI formulas.
Learning how to interpret EV data is something that benefits all members of the project team, from people inputting data to the senior users and executive stakeholders. We have earned value training classes that fit every reason and every user profile. When the whole team is aligned behind EV ways of working, talking about these indices becomes easy. It’s simply part of how project progress is tracked and managed, and the numbers are more than just numbers: they are an integral part of the decision-making process for project control, enabling the team to make the right call at any time.