CPI Stability Myth

There is undoubtedly the equivalent of an ‘urban myth’ in circulation within the general project management community, arising from US Defence based research from the early 1990s, that the Cost Performance Index (CPI) always stabilizes at the 20% completion and the final outcome will be within 10% of this value and usually worse. This myth has been extended by some authors to all projects in all industries; and I would suggest that this is demonstrably false in at least some circumstances. If CPI stability was an incontrovertible ‘fact’ for all projects, there would be no need for active management of the project after 20% completion!

The erstwhile peaceful halls of the PMI College of Performance Management (PMI-CPM) are resounding to an ever increasing battle between the proponents of CPI stability and newer research suggesting CPI stability is not automatic.

 

Earned Value is a very useful project management control tool mandated by many Government agencies in the USA, UK and Australia; and the PMI-CPM is one of the leading international organisations focused on providing a forum for EV practitioners. However, the migration of the EV toolset from carefully controlled major defence projects into the general PM business community is definitely creating issues.

 

The DoD research established ‘CPI stability’ on a large number of military projects. Newer research by Henderson, Zwikael (See the Fall 2008 edition of Measurable News) has found CPI stability is not a ‘given’ and it rarely exists on commercial projects. These findings have prompted a very strong response (also in the Fall 2008 Measurable News).

 

Rather than arguing over research findings, I would the next steps should be to start identifying what underlying factors cause stability in the CPI measure as evidenced by the DoD research, determine if the factors are desirable and then find ways to improve project management practice in other industries so that the desirable factors are encouraged.

 

My feeling is that when CPI stability is shown to be established, the ‘CPI Stability’ is a strong indicator of other important (but much harder to measure) factors such as stable management, stable requirements, an efficient management system, effective project culture, etc (many of which are likely to be present in major Defence projects as evidenced by the research undertaken by Christensen).  Conversely, where CPI is unstable, significant changes in the underlying project can be reasonably assumed to be occurring, either at the management level or at the requirements/scope level. These changes may be beneficial or detrimental but are undoubtedly a risk that warrants the attention of senior management.

 

If these feelings are correct, it would also be useful to develop an understanding of the usefulness of CPI instability as a risk indicator (ie, what level of instability indicates a ‘project at risk’).

 

‘Watch this space’ there are likely to be many interesting moves over the next few months!

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One response to “CPI Stability Myth

  1. Pat you bring up some intersting points in you post. One thing upper managment overlooks is the CPI for individual WBS items. CPI can tell a story of failure or success, but it will rarely work on the project level. Several of the projects that I have scheduled over the last few years have seen a dip in the CPI during the change over of one phase of the project to the next. During the changrover a false dip in the CPI will occur. The dip will level out when the learning curve sets in. That is why looking at the individual WBS items will provide the insight of what is going on with the project. Understanding CPI and when to use it, is the only way that it will add value to a project.

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