To Complete Performance Index (TCPI)

To Complete Performance Index (TCPI)

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To Complete Performance Index (TCPI)
To Complete Performance Index (TCPI)

To Complete Performance Index (TCPI) is another strong forecasting tool of Earned Value Management (EVM). According to PMI’s PMBOK Guide “The to complete performance index (TCPI) is a measure of the cost performance that is required to be achieved with the remaining resources in order to meet a specified management goal, expressed as the ratio of the cost to finish the outstanding work to the remaining budget.”
Simply we can say that the To Complete Performance Index (TCPI) is an estimate of future cost efficiency of the project.

What is the difference between Cost Performance Index(CPI) and To Complete Performance Index (TCPI) ?



Cost Performance Index(CPI) measures the current cost efficiency.
– To Complete Performance Index (TCPI) measures the future cost efficiency.
Also we can say that CPI is the actual performance of the completed work but TCPI is the estimated performance of the remaining work.

Formula

TCPI = (Remaining Work) / (Remaining Funds)

There are two cases to calculate the remaining funds.

Case 1 : Project is Under Budget
Formula of Case 1: TCPI = (BAC – EV) / (BAC – AC)
Remaining funds will be calculated by subtracting the Actual Cost(AC) from the Budget At Completion(BAC)

Case 2: Project is Over Budget
Formula of Case 2: TCPI = (BAC – EV) / (EAC – AC)
Remaining funds will be calculated by subtracting the Actual Cost(AC) from the Estimate at Completion (EAC)



Example for Case 1
We have a project to be completed in 30 months and the Budget At Completion(BAC) of the project is 90,000,000 USD. 10 months have passed and 33,000,000 USD has been spent, and 40% of the work has been completed.

Actual Cost (AC) = 33,000,000 USD
Budget at Completion (BAC) = 90,000,000USD
Planned Value (PV) = (10/30) x 90,000,000 =30,000,000 USD
Earned Value (EV) = %40* 90,000,000 =36,000,000 USD
Cost Performance Index (CPI) = 36,000,000/ 33,000,000 = 1,09
Cost Performance Index (CPI) is 1,09 > 1 so we are under budget and we will use the formula of Case 1
Formula of Case 1: TCPI = (BAC – EV) / (BAC – AC)
TCPI = (90,000,000 – 36,000,000) / (90,000,000 – 33,000,000) = 0,947
This shows that if we can progress with a Cost Performance Index of 0.947, our project will be completed on budget.

Example for Case 2

We have a project to be completed in 30 months and the Budget At Completion(BAC) of the project is 90,000,000 USD. 10 months have passed and 42,000,000 USD has been spent, and 40% of the work has been completed.

Actual Cost (AC) = 42,000,000 USD
Budget at Completion (BAC) = 90,000,000USD
Planned Value (PV) = (10/30) x 90,000,000 =30,000,000 USD
Earned Value (EV) = %40* 90,000,000 =36,000,000 USD
Cost Performance Index (CPI) = 36,000,000/ 42,000,000 = 0,857
Estimate at Completion (EAC) = BAC / CPI = 90,000,000 / 0,857 = 105,017,502 USD
Cost Performance Index (CPI) is 0,857<1 so we are over budget and we will use the formula of Case 2
Formula of Case 2: TCPI = (BAC – EV) / (EAC – AC)
TCPI = (90,000,000 – 36,000,000) / (105,017,502 – 42,000,000) = 0,857



Why TCPI is not greater than one ?

As shown in the example for Case 2, we are expecting that in order to compete the project on budget, TCPI must be greater than one. But is this approach correct ? Lets analze.
If we will complete this project on budget, in the formula, EAC must be the same as BAC.
TCPI = (BAC – EV) / (BAC – AC)
TCPI = (90,000,000 – 36,000,000) / (90,000,000 – 42,000,000) = 1,125
This shows that if we can progress with a Cost Performance Index of 1,125 our project will be completed on budget. But it is not realistic that we can complete our project on budget so our EAC(105,017,502) value will be our new approved budget and TCPI will be calculated as follows.
TCPI = (90,000,000 – 36,000,000) / (105,017,502 – 42,000,000) = 0,857
Because of the increased EAC, TCPI is less than one.



Summary

To Complete Performance Index (TCPI) is a strong new tool for project management teams. TCPI enables us to measure the cost performance advancement that must be made on the value of the remaining work. By the help of TCPI we can easily find the future efficiency of the project and complete the project within the budget.

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