Study guide
11.3 Performance Indices
AACE Certified Cost Technician CCT
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1 Chapter 1: AACE Certification, Ethics & Total Cost Management Framework
1.1 About the AACE CCT Exam & Certification Pathway 1.2 AACE Canons of Ethics & Professional Practice 1.3 Total Cost Management (TCM) Framework Architecture 1.4 Cost Engineering Terminology & Core Concepts 1.5 Strategic Asset Management: Asset Performance, Assessment & Configuration Control
2 Chapter 2: Elements of Cost, Labor, Materials & Indirects
2.1 Cost Classification & Cost Behavior 2.2 Labor Costs, Craft Rates & Labor Burden 2.3 Materials & Equipment Cost Fundamentals 2.4 Job-Site Indirects & Home Office Overhead Allocation 2.5 Cost Dimensions: Life Cycles, Perspective, Influence & the Legal Dimension
3 Chapter 3: Engineering Economics: Time Value of Money & Depreciation
3.1 Time Value of Money & Cash Flow Diagrams 3.2 Uniform Series & Equivalence Factors 3.3 Nominal vs. Effective Interest Rates & Inflation 3.4 Depreciation Methods & Asset Write-Down
4 Chapter 4: Capital Budgeting, NPV, IRR & Life Cycle Costing
4.1 Net Present Value (NPV) & Present Worth Analysis 4.2 Internal Rate of Return (IRR) & MARR 4.3 Payback Period & Benefit-Cost Ratio Analysis 4.4 After-Tax Cash Flow Analysis & Life Cycle Costing
5 Chapter 5: Statistics, Probability & Decision Models
5.1 Descriptive Statistics & Measures of Dispersion 5.2 Probability Concepts & Distributions 5.3 Decision Trees & Expected Monetary Value (EMV) 5.4 Linear Programming & Optimization Models 5.5 Physical Measurement, Unit Systems & Quantity Conversions
6 Chapter 6: Organization, Communications & Project Management Basics
6.1 Organizational Structures & Project Roles 6.2 Communications Management & Project Reporting 6.3 Cost Data Management & Historical Normalization
7 Chapter 7: Cost Estimating Principles & Classification Systems
7.1 Estimating Fundamentals & Basis of Estimate 7.2 AACE 18R-97 Cost Estimate Classification System 7.3 Conceptual & Parametric Estimating Methods 7.4 Detailed Estimating & Estimate Closeout
8 Chapter 8: Allowances, Escalation, Location Factors & Contingency
8.1 Allowances vs. Contingency vs. Management Reserve 8.2 Location Factors & Escalation Analysis 8.3 Contingency Determination & Risk Analysis
9 Chapter 9: Project Planning, WBS & CPM Scheduling
9.1 Work Breakdown Structure (WBS) & Scope Definition 9.2 Activity Definition, Precedence & Dependencies 9.3 Critical Path Method (CPM) Forward & Backward Pass 9.4 Float Calculations & Schedule Compression 9.5 Requirements Elicitation, Plan Implementation & Plan Validation
10 Chapter 10: PERT Estimating, Progress Measurement & Schedule Control
10.1 PERT Three-Point Estimating & Network Variance 10.2 Progress Measurement & Rules of Credit 10.3 Schedule Baseline Maintenance & Change Control
11 Chapter 11: Earned Value Management (EVM): Variances, Indices & Forecasting
11.1 EVM Foundations & Core Parameters 11.2 Cost & Schedule Variances 11.3 Performance Indices 11.4 Forecasting: EAC, ETC, VAC & TCPI
12 Chapter 12: Procurement, Contract Types & Administration
12.1 Contract Types & Risk Allocation Spectrum 12.2 Procurement Process, Solicitation & Bidding 12.3 Surety Bonds & Project Insurance 12.4 Contract Administration, Changes & Claims
13 Chapter 13: Project Risk Management: Identification, Analysis & Response
13.1 Risk Management Planning & Identification 13.2 Qualitative & Quantitative Risk Analysis 13.3 Risk Response Strategies & Risk Control
14 Chapter 14: Quality Management, Value Engineering & Resource Management
14.1 Quality Concepts & Cost of Quality (COQ) 14.2 Quality Control Tools & Continuous Improvement 14.3 Value Engineering & Value Methodology 14.4 Resource Management, Leveling & Learning Curve Theory 14.5 Environmental, Health & Safety (EHS) Cost Management
11.3 Performance Indices
Key Takeaways Explain This Topic AI
Performance indices quantify operational efficiency rather than absolute monetary volume, with the Cost Performance Index (CPI = EV / AC) measuring cost efficiency and the Schedule Performance Index (SPI = EV / PV) measuring schedule accomplishment efficiency.
The universal mnemonic rule for all EVM efficiency indices dictates that 'Earned Value (EV) always goes on top' in the numerator, ensuring consistency and preventing inverted ratios.
An index value of 1.0 indicates exact alignment with baseline efficiency, values greater than 1.0 indicate favorable performance (> $1.00 of value earned per unit expended), and values less than 1.0 represent adverse inefficiency.
The Critical Ratio (CR = CPI * SPI), also known as the Cost-Schedule Index, combines cost and schedule health into a single composite indicator, where values below 0.80 indicate severe distress.
The Empirical CPI Stability Rule proves that a project's cumulative CPI typically stabilizes by the 15% to 20% completion point and rarely improves by more than 0.10 (10%) thereafter without formal baseline scope reauthorization.
Last updated: September 2026
11.3 Performance Indices
Quick Summary: While absolute variances ( C V CV C V and S V SV S V ) reveal the monetary magnitude of project deviations, performance indices measure operational efficiency. The two primary efficiency metrics are the Cost Performance Index ( C P I = E V / A C CPI = EV / AC CP I = E V / A C ) and the Schedule Performance Index ( S P I = E V / P V SPI = EV / PV SP I = E V / P V ) . An index of 1.0 represents nominal baseline performance , an index greater than 1.0 represents favorable efficiency , and an index less than 1.0 represents inefficiency . To avoid memorization errors, always remember the cardinal rule: Earned Value ( E V EV E V ) always goes on top in the numerator . Furthermore, historical project data proves that cumulative CPI stabilizes between the 15% and 20% completion gates and rarely recovers by more than 0.10 (10%) thereafter.
1. Efficiency Indices: Why Dimensionless Ratios Matter
Absolute dollar variances cannot tell an executive whether a contractor is performing efficiently. For instance, knowing a project has a negative Cost Variance of -$100,000 sounds alarming, but if the contractor has completed $10,000,000 worth of work at an actual cost of $10,100,000, the operation is operating at a stellar 99% cost efficiency rate. Conversely, if a contractor has only completed $200,000 of work at an actual cost of $300,000, the identical -$100,000 cost variance represents a catastrophic failure of productivity.
By converting raw dollar figures into dimensionless efficiency indices, cost engineers establish standardized benchmarks that can be tracked across time, compared between subcontractors, and used to generate statistically defensible forecasts.
2. Cost Performance Index (CPI) Formulation & Interpretation
The Cost Performance Index (CPI) is the single most critical performance metric in project controls. It measures the cost efficiency of the work completed to date. C P I = E V A C = Budgeted Cost of Work Performed Actual Cost of Work Performed \mathbf{CPI = \frac{EV}{AC} = \frac{\text{Budgeted Cost of Work Performed}}{\text{Actual Cost of Work Performed}}} CPI = AC EV = Actual Cost of Work Performed Budgeted Cost of Work Performed
Practical Interpretation of CPI Values
CPI answers the executive question: "For every dollar we actually spend, how much budgeted work value are we getting back?"
CPI Value Operational Performance Practical Meaning & Financial Impact
CPI > 1.0 Cost Efficient (Favorable) The project is earning more value than it spends. E.g., C P I = 1.25 CPI = 1.25 CP I = 1.25 means the project earns $1.25 of work for every $1.00 spent (a 20% cost savings rate).
CPI = 1.0 On Budget (Nominal) The project is performing exactly at baseline budget efficiency. E.g., $1.00 of work earned for every $1.00 spent .
CPI < 1.0 Cost Inefficient (Unfavorable) The project is burning cash faster than it earns value. E.g., C P I = 0.80 CPI = 0.80 CP I = 0.80 means the project earns only $0.80 of work for every $1.00 spent (losing $0.20 per dollar). CPI EFFICIENCY VECTOR:
- 0.60 0.80 1.00 1.20 1.40
- <---|------------|------------|------------|------------|--->
- Severe Adverse Target Favorable Exceptional
- Distress Overrun Baseline Savings Efficiency
- 3. Schedule Performance Index (SPI) Formulation & Interpretation
The Schedule Performance Index (SPI) measures the schedule efficiency of the project. It quantifies the rate at which physical work is being accomplished relative to the planned timeline. S P I = E V P V = Budgeted Cost of Work Performed Budgeted Cost of Work Scheduled \mathbf{SPI = \frac{EV}{PV} = \frac{\text{Budgeted Cost of Work Performed}}{\text{Budgeted Cost of Work Scheduled}}} SPI = PV EV = Budgeted Cost of Work Scheduled Budgeted Cost of Work Performed
Practical Interpretation of SPI Values
SPI answers the executive question: "At what rate is work physically progressing compared to the baseline schedule plan?"
SPI Value Operational Performance Practical Meaning & Production Rate
SPI > 1.0 Schedule Efficient (Favorable) Work is progressing faster than scheduled. E.g., S P I = 1.10 SPI = 1.10 SP I = 1.10 means work is being earned at 110% of the planned baseline rate .
SPI = 1.0 On Schedule (Nominal) Work is progressing exactly at the planned baseline rate. Work completed matches work scheduled.
SPI < 1.0 Schedule Inefficient (Unfavorable) Work is progressing slower than scheduled. E.g., S P I = 0.75 SPI = 0.75 SP I = 0.75 means the team is accomplishing only 75% of the work planned for that timeframe.
The Mnemonic Rule for EVM Indices
Tip
The Golden Rule of EVM Indices: Earned Value (EV) Always Goes On Top! \mathbf{\text{Earned Value (EV) Always Goes On Top!}} Earned Value (EV) Always Goes On Top! When setting up index calculations, never hesitate over whether AC or PV belongs in the numerator. EV is always in the numerator: C P I = E V A C and S P I = E V P V CPI = \frac{\mathbf{EV}}{AC} \quad \text{and} \quad SPI = \frac{\mathbf{EV}}{PV} CP I = A C EV and SP I = P V EV
The SPI Endgame Distortion (Revisited)
Just as Schedule Variance ( S V SV S V ) collapses to zero at project completion, SPI inevitably converges to 1.0 at project closeout : Final S P I = B A C B A C = 1.0 \text{Final } SPI = \frac{BAC}{BAC} = \mathbf{1.0} Final SP I = B A C B A C = 1.0
Even if an offshore drilling platform is delivered three years behind schedule, its final SPI will mathematically equal 1.00. Cost technicians must never rely on SPI to evaluate schedule health in the final 10% to 15% of a project lifecycle.
4. The Critical Ratio (CR) / Cost-Schedule Index
Project managers frequently face operational trade-offs between cost and schedule. For example, a superintendent may authorize double-shift overtime to accelerate a lagging milestone, which increases schedule efficiency ( S P I > 1.0 SPI > 1.0 SP I > 1.0 ) but degrades cost efficiency due to premium wage rates and fatigue ( C P I < 1.0 CPI < 1.0 CP I < 1.0 ).
To capture total project health across both dimensions, cost engineers calculate the Critical Ratio (CR) , historically termed the Cost-Schedule Index (CSI) : C R = C P I × S P I = ( E V A C ) × ( E V P V ) = E V 2 A C × P V \mathbf{CR = CPI \times SPI = \left(\frac{EV}{AC}\right) \times \left(\frac{EV}{PV}\right) = \frac{EV^2}{AC \times PV}} CR = CPI × SPI = ( AC EV ) × ( PV EV ) = AC × PV E V 2
Strategic Diagnostic Benchmarks for Critical Ratio +-----------------------------------------------------------------------------------+
- | CRITICAL RATIO HEALTH BENCHMARKS |
- | |
- | CR >= 1.20 --> Exceptional overall performance / Significant project surplus |
- | 1.00 - 1.05 --> Nominal target health; balanced project execution |
- | 0.90 - 0.99 --> Minor performance friction; monitor closely |
- | 0.80 - 0.89 --> Serious distress; requires active corrective action |
- | CR < 0.80 --> Critical project crisis; high probability of default or failure |
- +-----------------------------------------------------------------------------------+
- Trade-Off Mechanics: The Compensating Ratio
Because CR is multiplicative, strength in one dimension can compensate for weakness in another:
Scenario A: C P I = 0.80 CPI = 0.80 CP I = 0.80 (Over budget) and S P I = 1.25 SPI = 1.25 SP I = 1.25 (Ahead of schedule). C R = 0.80 × 1.25 = 1.00 CR = 0.80 \times 1.25 = \mathbf{1.00} CR = 0.80 × 1.25 = 1.00 Interpretation: Management is deliberately "buying schedule" with overtime. The overall project health remains balanced because the cost sacrifice is generating commensurate schedule acceleration.
Scenario B: C P I = 0.80 CPI = 0.80 CP I = 0.80 (Over budget) and S P I = 0.85 SPI = 0.85 SP I = 0.85 (Behind schedule). C R = 0.80 × 0.85 = 0.68 CR = 0.80 \times 0.85 = \mathbf{0.68} CR = 0.80 × 0.85 = 0.68 Interpretation: Critical crisis. The project is simultaneously hemorrhaging funds and losing ground against the calendar. The project is compounding failure.
5. The Empirical CPI Stability Rule (Christensen Research)
One of the most consequential, scientifically validated discoveries in project controls is the CPI Stability Rule , established through comprehensive empirical research by Dr. David S. Christensen and validated across hundreds of major defense and commercial capital projects. +-----------------------------------------------------------------------------------+
- | THE CHRISTENSEN CPI STABILITY RULE |
- | |
- | 1. Cumulative CPI stabilizes between the 15% and 20% project completion mark. |
- | 2. Cumulative CPI rarely improves by more than 0.10 (10%) from its value at the |
- | 20% completion gate through final project commissioning. |
- | 3. Cumulative CPI typically degrades further as closeout and testing begin. |
- +-----------------------------------------------------------------------------------+
- Executive & Exam Implications
When a contractor experiences severe cost overruns early in a project (e.g., reaching C P I = 0.78 CPI = 0.78 CP I = 0.78 at the 20% completion mark), management frequently presents optimistic recovery narratives: "We had early soil issues, but our productivity will improve during structural framing, and we will make up the deficit!"
Empirical cost engineering data proves this narrative is mathematically false. Across thousands of historical projects studied:
If cumulative C P I CPI CP I is 0.80 at 20% completion, the maximum statistically probable recovery is 0.90 ( 0.80 + 0.10 0.80 + 0.10 0.80 + 0.10 ).
The probability of a project recovering from a cumulative CPI of 0.80 back to a baseline efficiency of 1.00 without deleting scope is statistically near zero percent ( < 1 % < 1\% < 1% ).
Cost technicians must use this rule to challenge ungrounded executive forecasts and demand realistic Estimate at Completion (EAC) adjustments early in the project lifecycle.
6. Aggregating Indices: The Weighted Average Fallacy
A recurring computational error in project reporting is calculating total project CPI or SPI by taking the simple arithmetic average of individual control account indices.
Caution
The Arithmetic Averaging Fallacy: Project CPI ≠ C P I 1 + C P I 2 + ⋯ + C P I n n \text{Project CPI} \neq \frac{CPI_1 + CPI_2 + \dots + CPI_n}{n} Project CPI = n CP I 1 + CP I 2 + ⋯ + CP I n You cannot average indices directly! You must sum all Earned Values and divide by the sum of all Actual Costs: Project C P I = ∑ E V ∑ A C and Project S P I = ∑ E V ∑ P V \mathbf{\text{Project } CPI = \frac{\sum EV}{\sum AC}} \quad \text{and} \quad \mathbf{\text{Project } SPI = \frac{\sum EV}{\sum PV}} Project CPI = ∑ AC ∑ EV and Project SPI = ∑ PV ∑ EV
Numerical Proof of the Fallacy
Consider a project with two control accounts:
Control Account A (Small Pilot Study): B A C = $ 10 , 000 BAC = \text{\textdollar}10,000 B A C = $ 10 , 000 . E V = $ 10 , 000 EV = \text{\textdollar}10,000 E V = $ 10 , 000 , A C = $ 5 , 000 AC = \text{\textdollar}5,000 A C = $ 5 , 000 . C P I A = $ 10 , 000 $ 5 , 000 = 2.00 CPI_A = \frac{\$10,000}{\$5,000} = \mathbf{2.00} CP I A = $5 , 000 $10 , 000 = 2.00
Control Account B (Mass Civil Construction): B A C = $ 1 , 000 , 000 BAC = \text{\textdollar}1,000,000 B A C = $ 1 , 000 , 000 . E V = $ 500 , 000 EV = \text{\textdollar}500,000 E V = $ 500 , 000 , A C = $ 1 , 000 , 000 AC = \text{\textdollar}1,000,000 A C = $ 1 , 000 , 000 . C P I B = $ 500 , 000 $ 1 , 000 , 000 = 0.50 CPI_B = \frac{\$500,000}{\$1,000,000} = \mathbf{0.50} CP I B = $1 , 000 , 000 $500 , 000 = 0.50
Flawed Simple Average: C P I A + C P I B 2 = 2.00 + 0.50 2 = 1.25 ( Falsely reports stellar efficiency! ) \frac{CPI_A + CPI_B}{2} = \frac{2.00 + 0.50}{2} = \mathbf{1.25} \quad (\text{Falsely reports stellar efficiency!}) 2 CP I A + CP I B = 2 2.00 + 0.50 = 1.25 ( Falsely reports stellar efficiency! )
True Weighted Project CPI: True C P I = ∑ E V ∑ A C = $ 10 , 000 + $ 500 , 000 $ 5 , 000 + $ 1 , 000 , 000 = $ 510 , 000 $ 1 , 005 , 000 = 0.507 \text{True } CPI = \frac{\sum EV}{\sum AC} = \frac{\$10,000 + \$500,000}{\$5,000 + \$1,000,000} = \frac{\$510,000}{\$1,005,000} = \mathbf{0.507} True CP I = ∑ A C ∑ E V = $5 , 000 + $1 , 000 , 000 $10 , 000 + $500 , 000 = $1 , 005 , 000 $510 , 000 = 0.507
Analysis: The project is actually in severe distress ( C P I = 0.507 CPI = 0.507 CP I = 0.507 ), losing nearly 50 cents on every dollar spent. The simple arithmetic average completely concealed the disaster because it gave equal mathematical weight to a $10,000 study and a $1,000,000 construction account.
7. Step-by-Step Worked Calculation: Comprehensive Index Diagnostics
Scenario: A regional hospital infrastructure upgrade has reached Month 6. The overall Budget at Completion (BAC) is $2,400,000 . The project controls team compiles the cumulative status parameters across the project's three major phases: CUMULATIVE STATUS PARAMETERS AT MONTH 6:
- Phase 1 (Demolition & Site Utilities): BAC = $400,000 | PV = $400,000 | EV = $400,000 | AC = $380,000
- Phase 2 (Building Structural Retrofit): BAC = $1,200,000 | PV = $900,000 | EV = $720,000 | AC = $960,000
- Phase 3 (Interior Architectural Fitout): BAC = $800,000 | PV = $200,000 | EV = $120,000 | AC = $140,000
- Step 1: Calculate Efficiency Indices for Each Phase
Phase 1: C P I 1 = $ 400 , 000 $ 380 , 000 = 1.053 ; S P I 1 = $ 400 , 000 $ 400 , 000 = 1.000 ; C R 1 = 1.053 × 1.000 = 1.053 CPI_1 = \frac{\$400,000}{\$380,000} = \mathbf{1.053}; \quad SPI_1 = \frac{\$400,000}{\$400,000} = \mathbf{1.000}; \quad CR_1 = 1.053 \times 1.000 = \mathbf{1.053} CP I 1 = $380 , 000 $400 , 000 = 1.053 ; SP I 1 = $400 , 000 $400 , 000 = 1.000 ; C R 1 = 1.053 × 1.000 = 1.053
Phase 2: C P I 2 = $ 720 , 000 $ 960 , 000 = 0.750 ; S P I 2 = $ 720 , 000 $ 900 , 000 = 0.800 ; C R 2 = 0.750 × 0.800 = 0.600 CPI_2 = \frac{\$720,000}{\$960,000} = \mathbf{0.750}; \quad SPI_2 = \frac{\$720,000}{\$900,000} = \mathbf{0.800}; \quad CR_2 = 0.750 \times 0.800 = \mathbf{0.600} CP I 2 = $960 , 000 $720 , 000 = 0.750 ; SP I 2 = $900 , 000 $720 , 000 = 0.800 ; C R 2 = 0.750 × 0.800 = 0.600
Phase 3: C P I 3 = $ 120 , 000 $ 140 , 000 = 0.857 ; S P I 3 = $ 120 , 000 $ 200 , 000 = 0.600 ; C R 3 = 0.857 × 0.600 = 0.514 CPI_3 = \frac{\$120,000}{\$140,000} = \mathbf{0.857}; \quad SPI_3 = \frac{\$120,000}{\$200,000} = \mathbf{0.600}; \quad CR_3 = 0.857 \times 0.600 = \mathbf{0.514} CP I 3 = $140 , 000 $120 , 000 = 0.857 ; SP I 3 = $200 , 000 $120 , 000 = 0.600 ; C R 3 = 0.857 × 0.600 = 0.514
Step 2: Sum Project Totals and Calculate Project-Level Indices ∑ P V = $ 400 , 000 + $ 900 , 000 + $ 200 , 000 = $ 1 , 500 , 000 \sum PV = \$400,000 + \$900,000 + \$200,000 = \mathbf{\$1,500,000} ∑ P V = $400 , 000 + $900 , 000 + $200 , 000 = $1 , 500 , 000 ∑ E V = $ 400 , 000 + $ 720 , 000 + $ 120 , 000 = $ 1 , 240 , 000 \sum EV = \$400,000 + \$720,000 + \$120,000 = \mathbf{\$1,240,000} ∑ E V = $400 , 000 + $720 , 000 + $120 , 000 = $1 , 240 , 000 ∑ A C = $ 380 , 000 + $ 960 , 000 + $ 140 , 000 = $ 1 , 480 , 000 \sum AC = \$380,000 + \$960,000 + \$140,000 = \mathbf{\$1,480,000} ∑ A C = $380 , 000 + $960 , 000 + $140 , 000 = $1 , 480 , 000 Project C P I = ∑ E V ∑ A C = $ 1 , 240 , 000 $ 1 , 480 , 000 = 0.8378 ≈ 0.84 \mathbf{\text{Project } CPI} = \frac{\sum EV}{\sum AC} = \frac{\$1,240,000}{\$1,480,000} = \mathbf{0.8378 \approx 0.84} Project CPI = ∑ A C ∑ E V = $1 , 480 , 000 $1 , 240 , 000 = 0.8378 ≈ 0.84 Project S P I = ∑ E V ∑ P V = $1,240,000 $ 1 , 500 , 000 = 0.8267 ≈ 0.83 \mathbf{\text{Project } SPI} = \frac{\sum EV}{\sum PV} = \frac{\text{\$1,240,000}}{\$1,500,000} = \mathbf{0.8267 \approx 0.83} Project SPI = ∑ P V ∑ E V = $1 , 500 , 000 $1,240,000 = 0.8267 ≈ 0.83 Project C R = C P I × S P I = 0.8378 × 0.8267 = 0.6926 ≈ 0.69 \mathbf{\text{Project } CR} = CPI \times SPI = 0.8378 \times 0.8267 = \mathbf{0.6926 \approx 0.69} Project CR = CP I × SP I = 0.8378 × 0.8267 = 0.6926 ≈ 0.69
Step 3: Project Completion Gate & Stability Check
Calculate current physical percent complete for the total project: % Complete = ∑ E V B A C = $ 1 , 240 , 000 $ 2 , 400 , 000 = 51.67 % \% \text{ Complete} = \frac{\sum EV}{BAC} = \frac{\$1,240,000}{\$2,400,000} = \mathbf{51.67\%} % Complete = B A C ∑ E V = $2 , 400 , 000 $1 , 240 , 000 = 51.67%
Evaluation against the Christensen Stability Rule:
At 51.67% completion , the project has passed the 15%–20% stabilization threshold.
The cumulative C P I CPI CP I of 0.84 is permanently locked into the project's performance trajectory.
Under the stability rule, the maximum historical recovery observed across industry benchmarks is 0.84 + 0.10 = 0.94 0.84 + 0.10 = \mathbf{0.94} 0.84 + 0.10 = 0.94 .
Management cannot realistically promise to complete the project within the authorized 2 , 400 , 000 b u d g e t ( 2,400,000 budget ( 2 , 400 , 000 b u d g e t ( CPI = 1.00$). An immediate formal budget overrun forecast must be communicated to the hospital board.
8. Exam Watch: High-Yield Traps & Rules of Thumb
Warning
Inverted Ratio Trap: On exam day, stress causes candidates to invert formulas, calculating A C / E V AC / EV A C / E V for CPI. If E V = $ 80 k EV = \text{\textdollar}80k E V = $ 80 k and A C = $ 100 k AC = \text{\textdollar}100k A C = $ 100 k , the true CPI is 0.80 0.80 0.80 (inefficient). Inverting the formula yields 100 / 80 = 1.25 100 / 80 = 1.25 100/80 = 1.25 (falsely indicating high efficiency!). Always recite the rule: EV always goes on top.
Caution
The 20% CPI Stability Milestone: Exam questions frequently test the specific percentage completion threshold where cumulative CPI becomes stable. Remember the exact range: 15% to 20% completion . After this point, cumulative CPI will not improve by more than 0.10 (or 10%) .
Tip
Critical Ratio Mental Check: If an exam question gives C P I = 1.10 CPI = 1.10 CP I = 1.10 and S P I = 0.90 SPI = 0.90 SP I = 0.90 , calculate C R = 1.10 × 0.90 = 0.99 CR = 1.10 \times 0.90 = 0.99 CR = 1.10 × 0.90 = 0.99 . Because C R ≈ 1.00 CR \approx 1.00 CR ≈ 1.00 , the project is overall stable because favorable cost performance is compensating for slight schedule slippage.