The CPI Stability Myth

Undoubtedly the longest running ‘urban myth’ in circulation within the general project management community, arising from US Defence based research from the early 1990s, that the Cost Performance Index (CPI) always stabilizes at the 20% completion and the final outcome will be within 10% of this value and usually worse. This myth has been extended by some authors to all projects in all industries; and I would suggest that this is demonstrably false in at least some circumstances. If CPI stability was an incontrovertible ‘fact’ for all projects, there would be no need for active management of the project after 20% completion!

This is not a trivial issue, the erstwhile peaceful halls of the College of Performance Management (PMI-CPM) have been resounding to an on-going battle between the proponents of CPI stability and newer research suggesting CPI stability is not automatic for nearly 4 years.

Everyone agrees Earned Value is a very useful project management control tool mandated by many Government agencies in the USA, UK and Australia; however, the migration of the EV toolset from carefully controlled major defence projects into the general PM business community is definitely creating issues.

The DoD research established ‘CPI stability’ on a large number of military projects. Newer research by Henderson and Zwikael, and others has found CPI stability is not a ‘given’ and it rarely exists on smaller commercial projects.

Henderson and Zwikael’s research was part of the process to validate Earned Schedule (ES) as a valuable tool in the overall management of projects. In my view, the ES methodology provides a valuable adjunct to, and a useful sanity check of, the ‘critical path’ (CPM) schedule developed for a project, for very little effort - provided the project has implemented Earned Value Management (EVM).

Using the same data as EVM, ES ‘scales’ the remaining duration of the project based on the volume of work accomplished to date compared to the planned volume, as measured by SPI(t).  SPI(t) has the potential to predict future slippages that the CPM schedule may not be indicating.

CPM schedules have two major flaws inherent in the methodology:

  1. CPM assumes all future work will be accomplished as planned. There is no ‘scaling function’ for the performance of future work similar to the EVM calculations of EAC = BAC/CPI for cost.
  2. CPM schedules do not show critical path slippage if ‘float’ is being consumed. The ‘bow wave’ of delayed work eventually becomes critical (usually with disastrous consequences) but there may not be pre-warning.  (for more on scheduling see: http://www.mosaicprojects.com.au/Planning.html)

The research by Henderson and Zwikael has demonstrated that CPI and SPI(t) are closely correlated at a summary level across a range of commercial projects. This and other research suggests ES will provide a valuable management insight to help the successful delivery of projects, but whilst this debate needs to be finalised it will ultimately be determined in the marketplace.However, these findings prompted a very strong response from ‘old school’ proponents of the CPI stability myth.

Rather than arguing over research findings, I would suggest the next steps should be to start identifying what underlying factors cause stability in the CPI measure as evidenced by the DoD research, determine if the factors are desirable and then find ways to improve project management practice in other industries so that the desirable factors are encouraged.

My feeling is that when CPI stability is shown to be established, the ‘CPI Stability’ is a strong indicator of other important (but much harder to measure) factors such as stable management, stable requirements, an efficient management system, effective project culture, etc (many of which are likely to be present in major Defence projects as evidenced by the research undertaken by Christensen).  Conversely, where CPI is unstable, significant changes in the underlying project can be reasonably assumed to be occurring, either at the management level or at the requirements/scope level. These changes may be beneficial or detrimental but are undoubtedly a risk that warrants the attention of senior management.

If these feelings are correct, it would also be useful to develop an understanding of the usefulness of CPI instability as a risk indicator (ie, what level of instability indicates a ‘project at risk’).

‘Watch this space’ this debate still has a long way to go - even after 4 long years!

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