If a project has a cost performance index (CPI) of 0.75, it indicates
- AThe project is over budgetCorrect
- BThe project is ahead of schedule
- CThe project is under budget
- DThe project has surplus resources
Solution
Concept
Cost performance index (earned value analysis)
Formula
CPI = EV / AC (earned value ÷ actual cost)
Step-by-step solution
1. CPI = EV / AC = 0.75, which is less than 1. 2. EV < AC means more money has been spent than the value of work done. 3. The project is over budget.
Explanation
A CPI below 1 means each rupee spent gives less than a rupee of work, so the project is over budget. CPI above 1 means under budget. Schedule is judged by the schedule performance index (SPI), not CPI.
Shortcut
CPI < 1 → over budget; SPI < 1 → behind schedule.
Common mistake
Confusing CPI with SPI.
Correct answer: A) The project is over budget