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CPI and SPI

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What are the function of CPI (Cost Performance Index)and SPI (Schedule Performance Index)? and when it use

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Naveed Tariq, PE,...
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Dear Rashid!

You have to be very clear when using this concept.

Earned value has no link with your accounts figures. These are Project Management Values "performace idicices". This is common confusiuon which affects people who start using these indices.

You have to keep Project Management & Accounts apart. These numbers are used to get sufficient clarity about project performance. As i mentioned earlier, detailed estimate by accountant will follow.

Regards
Rashid Iqbal
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Good one,

Plus minus 10%................, this is what we can maximum earn form a job; it is all what we got in profit margin.

I think I should be putting this idea to my CEO so that he can abandon our extensive job costing system and depend on Accounts to evaluate our jobs performance/efficiency. Amazing, if earned values could be obtained form Accounts then why we are using cost codes, time sheets and putting a lot of people to record manhours and equipment usage for each activity progressed. …………..With this system, on the very first day of every week, we know as what was performed with what efficiency.

This is what EV management is and is miles away form the ‘Accountants Ledger’.

Anyways, Happy New Year

Regards
Rashid Iqbal

Naveed Tariq, PE,...
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Dear Rashid!

Effective PM forecasting suffiecient accuracy to control the project.

Problem you mentioned is typical in construction industry. As per our research on Govt Projects we have figured out such costs which are associated with billing of dumped items is maximum 5-10% of the total project cost. As you know CPI and SPI are "Indicators", accuracy of -10% to +10% doesnot effect your results at portfolio level.

Next question which may popup in your mind may be that we needs exact figures. You have to change your mindset for this. You are obtaining these numbers for Project Management not Accounts Management. You use these indicators to improve the performance of your project, accountants will still be doing there work as per thier own SOPs to get the exact variances. These indicators gives you forecast before hand at point where you can save your project. Accountants exact figures will definatly be there at the end of project.

However at few projects where our clients required more accuracy, we used Project Chart of Accounts in Primavera to map our costing with that of accountant ledger. This gave better accuracy.

I hope this will solve your querry.

Regards

Rashid Iqbal
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Hi Naveed,

Thanks for the reply and a few questions more.

It is not only ‘indirects’ but there are so many ‘directs’ that need ’adjustments’ and this of course will require one hell lot of tricks with the data. I would really appreciate if you could explain your methodology in regards to these ‘directs’. A few examples of such ‘directs’ are as follows:

There is always a big gap between the ’material installed’ (by contractor) and ’material paid’ (to supplier). The supplier may be paid a month after or might have been paid two months earlier for the ’Material Installed’ i.e. it might have been laying in the store or in a stack yard. Similarly work done by a subcontractors or labor contractors is always different than what they have been actually paid till a certain date. (The difference usually ranges from two weeks to one month and in some cases even more). And moreover, any mob advance paid out to subs will be in accountant’s ledger though it can’t be considered as a part of ACWP.

Thanks,

Rashid Iqbal

Naveed Tariq, PE,...
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Dear Rashid!

This is the easiest part in EVMS calculations. Sum of all the cost as per your accountant ledger till data date will be taken as ACWP. However it is obvious that indirect expenses like electricity bills, maitainance cost shall not be considered.

Regards
Rashid Iqbal
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Hi Naveed,

I am really curious as how the accoutant ledger could be used to calculate the ACWP and would really apreciate if you can explain your methodology. Thanks.

Best Regards
Rashid Iqbal
Naveed Tariq, PE,...
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Dear All,

I would like to support Allex on this issue.

George you agree that SPI is good and it can be used. Problem left is with CPI, this is a typical problem for majority only due to ACWP. In some of our projects where obtaining exact data of ACWP is tough due to its wide distribution, as u mentioned formwork, man hours for its fixing etc. We adopted a different methodology, we obtained the total ACWP from the accountant ledgers. BCWP was with us from schedule and ACWP we acquired, so our problem was solved and we ended up with exact CPI. Bottomline of this approach is that you can check only for the total value. It is not possible to get the independant CPIs for each of your WBS item.

I have seen another confusion in fellow PPer. Dudes CPI and SPI as per definition are indicators :) they are not the exact monetory figures.

Another question by a friend was this that CPI and SPI can be faked in projects but it is good for programme. You are right this remained a big problem in past. Now advanced planners are looking toward CPI and SPI of critical activities. This solves this problem of faking numbers. And btw you can fake the number in a sngle month report you cant fake the trend. sooner or later if you are playing with numbers you will be caught by a sharp client/boss.

Best Regards
Alex,
there is a specifics in the defense programs that makes EV approaches to work in a satisfactory way.
Do you notice that you will never meet a word "project" in EVMS standard? Only "programs"! It makes sense. EV will work satisfactory only in huge programs and it does not matter where you will try to implement this methodology.
In smaller projects good SPI value shows that more work was done that was planned, but it may be achieved by changing the proper order of activity execution. EV approach does not check if the additional work was done on the critical activities or elsewhere. It motivates project managers to perform expensive activities first and SV may be positive in projects where critical activities were delayed and non-critical expensive activities were performed faster that was planned initially.
If you are interested in this topic then review my presentation at the 8th Australian Performance Management Symposium at http://www.spiderproject.ru/library/SDPM_Canberra2004.pdf where I discuss this issue in details and with examples.
I will appreciate if you will provide some feedback and we will be able to discuss these issues further. I am sure that EV is a useful technique that should be applied very carefully and should never be used for project managers motivation.
Best Regards,
Vladimir
Alex Wong
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Dear All

I only want to said there is part of the world that use CPI and SPI as part of their management, rather some indicated that they are useless. Like Non of the major project uses CPI, that sort of comments that actually got my attention.

Everything have pros and cons, we are here to discuss in a healthy way, at least that is what I think. I only tell you that in some part of the world CPI and SPI being use substaintailly. Especially in the Defense Industry, because EV "I read" is originated from there. Anyway if other want to said it is no good at all, or impossible to implement, then I am questioning why in some part of the world it run fine but not the other... Is there a different world we live in??

Happy Planning
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I must agree 100% with George.

Earned vale is cost control at 50% as Earned Value do not relates your budget to quantities. Earned Value data is of little value as a reference to estimating function.

Traditional Job Costing gives you the relation to quantities as well as the earned value data, usually at a weekly basis if your payroll period is weekly. Also if you accrue cost data with the Purchase Order modules you can get real time cost data, as well as Earned Value as a by-product. But who wants to duplicate this effort?

It is still true that Time is of the essence of the contract. CPM is of the essence of Time. Use it wisely, otherwise it will become a burden.

So this program was used for reporting only. All schedule and cost calculations were made in PM software.
Then I have no objections. It is possible and may be effective.
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Vladimir,

I think you have forgotten the import/export facility that allows the transfer of schedule information, which could be used in any other software. In some cases, direct access to the data bases could also be used in the program to get the schedule information.
CPI and especially SPI may be misleading showing that everything is fine in the troubled projects and vice versa. I hope that everybody who use them understands that Earned Value analysis produces interesting but not reliable results and may be used only as supportive tool.

I cannot imagine how to get necessary cost reports on project performance without project management software. Usually it is necessary to know cost distribution in time - by weeks, months, quarters and years. This distribution is defined by the project schedule. So any simple software that produces these reports should be able to calculate and recalculate project schedules.
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Alex,

We manage mega projects amounting more than 1 billion US $ involving power stations and desalination plants in almost every part ot the world but never used Primavera for project cost performance analysis. We developed a more simple in-house software to analyze project costs with better results that are understood and appreciated at all levels. I don’t dispute Primavera’s usefulness in time control (scheduling). We tried to use Primavera for cost control but abandoned it as it we found the results to be misleading and such results do not justify the means as the volume of work and the number of people required to produce simple cost reports are huge. I wonder who among your PMs use the cost reports you produced in Primavera, in decision making. I am pretty sure that in time, you will appreciate "reality".

Cheers,

George
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Alex,

Are you the same Alex Wong who graduated from James Ruse Agricultural High School in 2001?

Maiyuran A.
Alex Wong
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George

I am not sure that I am not living in the real world or you did not see other part of the world.

I use to run a 50,000 activity group of projects under P3 where the total annual sum of $ is approx A$800 million, and we use the concept of activity base costing and running a integration with our financial system. We have something like 20,000 work orders where we download costing monthly.

We use CPI and SPI to measure all projects performance. I dont see a problem why you cannot. In addition, how you explain in the cost & payment - it is only a matter of EV rule. You can setup to suit your company operation. Use man hrs, Volumn of works, No of drawings, No of level build... All these are options that you can use. I am not saying that is the only rule u can you, find a method to suit.

BTW if in your world no large infrastructure project is using CPI to measure performance, think again, The largest MAN made infrastructure is using CPI to monitoring progress. Unless that structure is not exist in your world.
David Waring
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The best example I saw of CPI & SPI calculation was on a construction contract - at team level. It was only an approximation - but then, it always is.
In the normal course of working, the team had to record manhours against cost codes - which were related to programme activities. Simply by multiplying those hours by the value per hour from the previous period gave the approximate Actual Cost - which was posted back onto the programme.
As a means of recording SPI and CPI for THAT TEAM it worked well - because they were only concerned with the labour cost. Plant was shared, materials were monitored against wastage, and overheads are a black art anyway - their only concern was labour.
I agree that applying it to the whole site proved impossible, in any reasonable time - but as a local measure, it was possible to implement it as a useful tool - as long as all concerned (including those in authority) recognised the limitations.
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Alex, what do payment and milestone have to do with earned value analysis? Have you checked the proper definition of "cost" and "payment" and how they are used in a project?

With regards to the example you have cited, it is not always true. There are sub-contractors who quote concrete in cubic meters but is including the formworks. We all know that in terms of manhours, installation of formworks has bigger weight than actual pouring of concrete, the latter being always the end activity. It means that you gain progress physically but actual cost is not yet recorded in the book of account as the concrete is not yet poured (therefore not yet billed by the subcontractor).

I agree that SPI is helpful but CPI is seldom used in a large construction project. I have yet to see a project schedule with 20,000 activities where the ACWP is inputted on a periodic basis. C’mon Alex, be realistic, don’t just live in a theoretical world with your hi-tech computer. Go out of your box and see the real world of a project and see how things are being done!

George

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Sorry I disagree

Actual work perform - measure of progress % & cost are very closely related, m3 of concret pull - the concret company will bill you monthly how much they delivery.
Milestone - is usually linked with payment.
If you setup your cost account correctly and method of measure correctly, I dont think you will have problem to measeure CPI SPI. Unless you project is only one line & no breakdown at all.
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Mr. Wong, I think you are wrong. The point of discussion is ACWP (Actual Cost of Work Performed) and not progress measurement nor BCWP (Budgeted Cost of Work Performed). Read the thread back and think again.
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1) For engineering it’s easy because actual manhours are usually recorded.

"Manhour can be a mean to measure not the only, but there are lots of other method to measure the progress. ie no of drawings, documents, milestones ..."

2) For construction, it would be very difficult as information from accounts or cost control people are usually late and to analyze and correlate each line of account to P3 activities would take so much time. Result: you will get ACWP when the project is completed, if you are lucky (he he hee).
"Not agreed, it will be even more easy to measure in construction, m3 of concret pull, no columns built, no of floor built. It is a matter of how you define your method of measure against progress, construction is always the easy one because you can see what been built"

3) For procurement, it is impossible! How would you account for the actual cost at a certain period of manufacturing by vendors supplied equipment? You can make theoretical extrapolations and whatever but are still not actual.
"Usually, for procurement we define % complete base on different phases, i.e. order place, manufacturing begin, delivery leave manufacturer, goods arrive the country, goods arrive on site. again it is simple"

In general you have to step back and think of a method to measure against your plan and plot the actual curve and see whether your project is on schedule or behind schedule where SPI and CPI can help indicate. Of course a 200 activity project you may find CPI and SPI is not necessary. If you are looking at 20,000 activity, it become a powerful tools to the project manager and senior management, not for the site worker because it means that they have to report what the achieve each day and someone is assessing they performance. Well, if you are the PM, what you perfer??

proj_planner
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1) For engineering it’s easy because actual manhours are usually recorded.

2) For construction, it would be very difficult as information from accounts or cost control people are usually late and to analyze and correlate each line of account to P3 activities would take so much time. Result: you will get ACWP when the project is completed, if you are lucky (he he hee).

3) For procurement, it is impossible! How would you account for the actual cost at a certain period of manufacturing by vendors supplied equipment? You can make theoretical extrapolations and whatever but are still not actual.

proj_planner
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Hi Luca,

It often difficult to obtain the actual cost of work performed (ACWP).

What kind of figures you normally use for ACWP.How do you obtain your actual cost.

Please eloborate.

Thanks

Kumar
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PS.
I think this discussion should be posted in the Project Management section.

[ Moved by moderator ]

Luca Basile
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The CPI (Cost Performance Indicator) and SPI (Schedule Performance Indicator) you use in EV (Earned Value) analysis to check the health of Your project in terms of time and cost.

First define the SV (Schedule Variance) as the difference between the BCWP (Budget Cost Work Performed) and the BCWS (Budget Cost Work Schedule) and the CV (Cost Variance) as the difference between the BCWP and ACWP (Actual Cost Work Performed).
In the Cash flow chart you will have your baseline curve (BCWS), and other two lines the BWCP (the work performed at the tender costs) and ACWP (the work performed at the actual costs).

But these are big number not normalized.
To normalized you use CPI and SPI defined as
CPI = BCWP / ACWP
SPI = BCWP / BCWS

A project in time has SPI equal to 1, bigger than 1 means you are ahead schedule

A project with a CPI equal to 1 means that the cost incurred are as per tender.

You can put on chart these two parameter to analyse the health of your project and use for trend analysis after you have recorded a significant period. (the population must be statistically significant).
The TCPI (To Complete Performance Index) can be defined in cost (budget or LRE) terms.
In cost (budget) terms is the cost efficiency to complete on budget (BAC-BCWP)/(BAC-ACWP) and must checked against the CPI. If they are similar the budget estimation it can be consider still accurate.
In cost (LRE) is the cost efficiency to complete at LRE (Last Revised Estimation) (BAC-BCWP)/(LRE-ACWP). Again to check against the CPI.

You can also evaluate EAC (Estimation at Completion) as ACWP plus ETC (Estimation to Completion) and the VAC (Variance at completion) as the difference between the BAC (Budget at Completion) and EAC.

According to some studies a project that reach the 75% of its scope will never improve these parameters (CPI or SPI).