Managing Project Health with the To Complete Performance Index (TCPI)
By: Melanie Calverley
Multiple Earned Value Indices Make Up the To Complete Performance Index (TCPI)
The Earned Value Management (EVM) index of To Complete Performance Index (TCPI) is a mathematical projection of the cost performance in a project that must be achieved on the remaining work to meet the acknowledged business goals of the organization. These agreed-to business goals include the Budget at Completion (BAC) or the Estimate at Completion (EAC). These earned value indices must be understood first to better grasp the concept of TCPI, as well as a few others that we will briefly cover in this article.
BAC is the original total budget estimate established at the beginning of a project. The EAC is established when there is an assumed deviation from the original BAC in the future. The EAC formula is the current Actual Cost (AC) added to the remaining value (Earned Value, or EV) of the work to be performed on the project. The formula is EAC = AC + (BAC - EV). EAC, which is the total dollar value, is not to be confused with the Estimate to Complete (ETC), which is the amount of funding required to complete the remainder of the project’s work.
Before assessing the TCPI formula, it is also a good idea to understand the earned value indices for both the Budgeted Cost of Work Performed (BCWP), the Actual Cost of Work Performed (ACWP), and the Planned Value (PV). The BCWP represents the budgeted cost of the value of the work that has been accomplished (another term for the earned value (EV) and completed to date, and the ACWP represents the cost incurred for work completed. The ACWP is known as a project’s actuals, and these actuals are typically recorded and stored in a company’s accounting system. As opposed to the ACWP, the PV represents the value that should have been earned, per the project schedule.
Further, understanding the Cost Performance Index (CPI) is helpful in differentiating between it and the TCPI cost indices. The CPI is a measure of the BCWP (actual cost/earned performed) to the ACWP (actual cost incurred and recorded), thus making the formula as such: CPI = Earned Value / Actual Cost. You can relate the CPI as a metric to the current costs’ health of the project.
TCPIEAC or TCPIe
TCPI can be thought of as the ratio between the remaining work to the project’s remaining funds. The TCPI is the efficiency level that must be achieved to complete the project work at the EAC value, which has been established earlier when the costs deviated from the original plan, the BAC. With the TCPI, a project manager can determine the level of performance (earned value) that will be required to achieve the project’s goals. In other words, the TCPI, as opposed to the CPI, can determine the action required for the future cost health of the project.
There are technically two formulas for TCPI, which makes this cost-efficiency indicator unique from several other earned value indices. The first TCPI formula that we will discuss is the TCPIEAC indicator, which is the future cost-efficiency factor implemented to reach a specific EAC. It is important to take note that Primavera P6 sets the BAC equal to the EAC so that it uses only the EAC in its TCPI calculations, assuming that the original BAC is no longer realistic and attainable.
The formula is structured as such:
You may want to show certain columns in Primavera P6 that are specific to the indices you want to track:
Our Primavera P6 schedule shows us the following dollar values from the project schedule:
- BAC = $1,511,451.01
- EAC = $1,505,056.72
- PV = $1,156,136.67
- BCWP = $1,053,235.71
- ACWP (ACWPCUM, Actual Total Cost) = $1,102,924.38
- CPI = 0.95
- TCPI = 1.14
When you are measuring TCPIEAC, ensure that you are using the actual total cost in Primavera P6. Using our TCPIEAC formula, we then divide $458,215.30 by $402,132.34. We get 1.139463938662581, and we round the figure to 1.14, and that is our TCPIEAC.
The CPI of 0.95 has indicated that for every $1.00 that we have spent so far on the project, we have earned $0.95 of earned value. Therefore, the TCPIEAC indicates that for every future $1.00 that we spend on this project, that we need to earn $1.14 to reach our EAC. This is a fairly aggressive measurement to catch up to since the differential between the CPI and the TCPI is significant and greater than 0.10. This variance may indicate that the EAC requires re-evaluation since it may not be realistic and attainable. The project team must ensure that project health measurements, such as the TCPI, are analyzed regularly basis to avoid large variances well into the project.
TCPIBAC or TCPIB
The second TCPI formula is the TCPIBAC, which represents the future cost efficiency and performance that is required to meet the original budget, or BAC, for the project. The EAC indicator is replaced with the BAC indicator to obtain the answer. Both TCPIBAC and TCPIBAC are valid to use; however, you will want to ask yourself which outcome you are trying to obtain so that you can use the correct TCPI formula for your situation. If you need to try to stay within the original budget parameters, you will want to use the TCPIBAC. If you are basing your figures on a revised estimate or you are using the Primavera P6 default configuration, you will use TCPIEAC, not TCPIBAC.
The formula is structured as such:
Using our formula, we divide $458,215.30 by $408,526.63. We get 1.121628962107072, and we round the figure to 1.12, and that is our TCPIBAC.
Conclusion
TCPI, like the other earned value indices, can help a project team stay on top of their projects. TCPI is unique in that it presents the project team with an efficiency factor that provides the team with a solid estimate of the amount of effort that it will take to catch up on a project. If used early on, cost overruns can be avoided, and issues can be mitigated.
© 11/16/2020
Original article by author, Melanie Calverley, first posted by Leopard Project Controls at: https://consultleopard.com/managing-project-health-with-the-to-complete-performance-index-tcpi/