A project manager calculates a key performance metric by dividing Earned Value by Actual Cost. The result is 0.85. What does this value indicate about the project's financial status?
The project is under budget
The project is over budget
The calculated value is inconclusive without additional information
The project is exactly on budget
The correct answer is that the project is over budget. The metric described in the question is the Cost Performance Index (CPI), which is calculated as CPI = EV / AC (Earned Value divided by Actual Cost). The CPI is a measure of cost efficiency in a project. A CPI value less than 1.0 indicates that the project is spending more money than planned for the work completed. Specifically:
In this case, with a value of 0.85, the project is spending more than planned for the work accomplished. For every dollar spent, the project is only earning $0.85 in value. This suggests that cost-saving measures or budget adjustments may be necessary to improve the project's financial performance.
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