How to Calculate TCPI
How do you know if an estimate to complete a project is reasonable, based on how the team is performing today? Earned Value Management has a host of calculations available to you to help better understand project performance.
In this article we are looking at TCPI which can answer that question.
What is TCPI?
TCPI is To Complete Performance Index. It’s a ratio that represents the cost to finish the outstanding work if you want to bring the project in within the remaining budget. It’s a way of measuring the cost performance the team has to stick to if they want to hit the budget goals for the project with the remaining resources.
Think of it this way: you’re digging new flower beds in your garden. You’ve got 10 meters of ground to dig over and you planned to get it done in two hours this morning, in time for lunch. After stopping for mid-morning coffee after an hour, you realize you’ve only dug over three meters of ground. If you still want to finish the job by lunchtime, you’ve got to dig the remaining seven meters of flower beds in the remaining hour.
Now you’ve got a decision to make: is that reasonable or do you need more time or resources to finish the task?
TCPI is a bit like the project management equivalent of this scenario. Let’s look at how to calculate TCPI.
What you need to calculate TCPI
You can use Budget at Completion (BAC) or Estimate at Completion (EAC) as the cost target. Towards the beginning of the project, you’d use the BAC, but if it starts to look unlikely that the project will stick to the original budget, switch to using the forecasted EAC in your calculations.
You’ll also need to know the Earned Value (EV) for the project so you can drop that into the formula too.
Calculating TCPI using BAC
Formula: TCPI = (BAC – EV) / (BAC – AC)
The calculation works out the amount of work still to do divided by the amount of money left. The outcome of this formula will tell you the cost performance required if the project needs to finish in line with the BAC.
The answer is a ratio that represents the efficiency the team has to work to if they want to hit the current plan. If the answer is greater than 1.0, it’s going to be hard to finish the work because you’re expecting people to work at top efficiency. If the answer is less than 1.0, it should be easier to hit the target.
Calculating TCPI using EAC
Formula: TCPI = (BAC – EV) / (EAC – AC)
As you can see, this is basically the same math with BAC switched out for EAC. Use this version if you want to work out the cost performance required for completing the project in line with the EAC.
The same interpretation of the data applies too. Where the TCPI is calculated to be greater than 1.0, expect it to be a challenge to complete the work to the estimated budget with the existing resources. Where the answer is less than 1.0, you should be OK to bring the project in because the efficiency required should be within the capacity of the team.
What to do with the answer
TCPI gives you an idea of the performance required in order to complete the project in line with the current financial projections. Compare it to the cumulative Cost Performance Index (which represents your cost performance) and see if it’s reasonable. If the TCPI and the cumulative CPI are close together, your budget or estimate is reasonable. If there’s a difference of more than .5, it’s time to consider whether your plans are achievable.
So what do you do when it’s clear that you require high cost performance and efficiency and you aren’t sure the team can deliver what’s needed?
You’ve then got a judgment call to make: what changes do you need to make to the way the project is being delivered to ensure it can complete successfully? Perhaps you can reduce the cost of the outstanding work or add more resources.
There are many factors to take into account before you make any drastic changes to how the project is being managed. Take into account how long the project has got to run, what the risk level is, customer satisfaction and stakeholder engagement in the solution and the other earned value metrics that provide other indicators.
when you calculate TCPI, it helps you understand if it’s reasonable to expect the team to deliver to the forecasted budget (or estimate) given their current cost performance. With any luck, you’ll find that they can. However, isn’t it better to do a bit of math and check your thinking before approving a new budget estimate? Apply some logic, use your Earned Value toolkit to your advantage and you’ll have more chance of delivering within the financial parameters approved for the project.