PMP Exam Prep: To Complete Performance Index (TCPI)
The Project Management Institute (PMI)’s Project Management Professional (PMP)® exam may include questions around the definition, purpose, and calculation of project management formulas used to assess cost and schedule. Among those project management tools is the To Complete Performance Index (TCPI), informally known as the “TCPI PMP.” Whether preparing to take the PMP® exam or as part of ongoing project management efforts, understanding different ways TCPI can be calculated and how to interpret the results is beneficial.
On this page:
- To Complete Performance Index (TCPI) Defined
- Calculating TCPI
- TCPI Formula Options
- TCPI Value Meanings
- Budget at Completion (BAC)
- Estimate at Completion (EAC)
- Key Points about TCPI for Project Management
- Cost Performance Index (CPI)
- TCPI Example
- Comparing CPI and TCPI
- TCPI and the PMP Certification Exam
- PMP® Certification Exam Question Example
To Complete Performance Index (TCPI) Defined
The To Complete Performance Index (TCPI PMP) tool connects to several other core project management processes including Actual Cost (AC), Budget At Completion (BAC), Earned Value (EV), and Estimate At Completion (EAC). The PMI®’s online lexicon provides this definition of TCPI:
|To-Complete Performance Index (TCPI)|
A measure of the cost performance that is 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.
– Source PMI.org Lexicon https://www.pmi.org/pmbok-guide-standards/lexicon
Part of the value of TCPI is it can provide insight for projects headed to or in distress; an insight that can help not just the project manager, but for all stakeholders but also the project team members, sponsors, and functional managers. What the TCPI formula, in PMP exam terms, is:
“How efficiently must we use our remaining resources (financial)?”
The PMI learning library includes the 2012 conference paper “TCPI The Tower of Power” with this summary of the tool: “TCPI is a calculated projection of cost performance that a project must achieve on the value of the remainder of the project work to achieve a specified end result.” To calculate TCPI, there are multiple project management terms and formulas to know.
To calculate TCPI, or to be able to answer TCPI questions on the PMP certification exam, it is important to know the inputs used in the formula.
|Budget at Completion (BAC)||BAC = Sum of all planned budgets||Cost planned and approved for the project to complete its work|
|Earned Value (EV)||EV = % work complete × budget||Amount of work performed by the time of calculating the TCPI|
|Actual Cost (AC)||AC = Amount spent on budget||The cost incurred by the time of the TCPI computation|
|Estimate at Completion (EAC)||EAC = AC + BAC – EV||The expected total cost of completing all work|
With those values, the TCPI formula can be used to calculate “the future cost performance of the project.” One way to think of the TCPI formula is as (Remaining Work) / (Remaining Funds). There are two ways a PMP can calculate TCPI depending on if the original budget or the estimate at completion is used.
TCPI Formula Options
To achieve original budget:
The overrun or underrun has not resulted in a change to the project schedule and/or budget.
To achieve the Estimate at Completion:
- The project’s budget has changed, and the original budget (BAC, Budget at Completion) no longer applies, or,
- Additional funds covering the cost overrun have been requested and approved by the project sponsor, thus the EAC is the new ultimate target of the project
Project Managers, whether preparing for PMP® exam questions or working to enhance on-the-job skills, need to know which formula to use for a given situation and how to interpret the results of the TCPI calculation.
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TCPI Value Meanings
|Negative||< 1||= 1||> 1|
|spent more than budget||below budget||on|
For the PMP exam, project managers studying the To Complete Performance Index need to know more than the definition and formulas. Project Managers need to understand the logic behind the calculation to know which formula to use, what the inputs for the formula mean, and what to do with the TCPI value.
Budget at Completion (BAC)
The PMI’s A Guide to Project Management Body of Knowledge (PMBOK® Guide) gives this definition of BAC: “the sum of all budgets established for the work to be performed.” At the most basic level for example, if the original project budget is $25,000, then the project’s BAC is $25,000.
Rather than thinking of the concept as the “BAC PMP formula,” it should be viewed as understanding what Budget at Completion is as a definition and how to determine it. Consider these elements for the Budget at Completion value:
- Determined at the project’s start, based on work planned
- Used with Planned Value (PV) to determine the budget’s status against planned work
- Compared to Estimate at Completion (EAC) at a point of analysis based on the expected future work
- Expressed in cost units (any currency)
Although there is not a BAC formula, the BAC value is used in many Earned Value formulas. The accuracy of the BAC has many downstream impacts within the Earned Value calculations. There are three main techniques for determining the BAC: analogous estimation, expert judgment, and parametric judgment.
Estimate at Completion (EAC)
According to the PMBOK® Guide, Estimate at Completion is “The expected total cost of completing all work expressed as the sum of the actual cost to date and the estimate to complete.”
There are many variables in even the most detailed project plan. Your industry, changes in the global supply chain, weather events, or even union issues can impact the progress of project work. To that end, the EAC formula to use depends on the situation. In calculating EAC, separate labor and material costs, as there are different budgets and management tools for each.
Estimate at Completion (EAC) Formulas
|Initial estimates are wrong or obsolete||Majority of the budget is accurate despite some changes||Steady progress aligned to the original estimate||Consider cost and schedule for an updated budget forecast|
|AC + ETC||AC + BAC – EV||BAC / CPI||AC + ((BAC-EV) / (CPI x SPI))|
|a new estimate is produced||future performance will be based on the budgeted cost||future performance will be the same as past performance||future cost performance will be influenced by past schedule performance|
AC = Actual Cost, ETC = Estimate to Complete, BAC = Budget at Completion,
EV = Earned Value, CPI = Cost Performance Index, SPI = Schedule performance Index
Key Points about TCPI for Project Management
The To Complete Performance Index gives insight into deviations of cost and performance to plan. One reason the tool is used in project management is it can indicate the “extent the cost variance needs to be adjusted” to stay on plan.
- TCPI value equals 1, the project continues at the current budget rate
- TCPI value is less than one, the project’s final cost will be lower than budget
- TCPI value is greater than one, the project’s final cost will be beyond the budget; choices must be made to address budget projections
- TCPI indicates what factor needs to change to complete the project at the planned budget
- TCPI formulas are straightforward but making project changes can be difficult in any industry
The TCPI formula is a great tool, but the accuracy of the input data and the quality of the interpretation of the calculation will directly impact the accuracy of the to complete performance index value. The PMI 2012 conference paper “TCPI The Tower of Power” posits the asking of these questions to better understand the full picture:
- What are the remaining project risks?
- How tight is the remaining schedule?
- What are the remaining resources?
- What is the technical nature of the remaining work?
- Are there any quality issues?
By no means is this an exhaustive list of all root causes for budget changes. It is the act of getting to the root cause and asking pointed questions that can make a difference in better decision-making.
Cost Performance Index (CPI)
In A Guide to the Project Management Body of Knowledge (PMBOK® Guide), the following definition of Cost Performance Index (CPI) is provided:
“The Cost Performance Index (CPI) is a measure of the cost efficiency of budgeted resources, expressed as a ratio of earned value to actual cost.”
Whereas the CPI PMP definition may be referenced on the PMP certification exam, it is not a description that will help non-project managers understand the value of the formula. In basic terms, the CPI shows how well the project is sticking to the budget.
The CPI formula for the PMP exam is calculated with the Earned Value (EV) and Actual Cost (AC). Calculating the Cost Performance Index provides insight into the budget health of the project. Using the formula CPI = EV / AC, the project manager will have a value of less than 1 (project over budget), of 1 (project on budget), or greater than 1 (project under budget).
Cost Performance Index Value Meanings
|< 1||= 1||> 1|
|over budget||on budget||under budget|
CPI in project management measures the cost efficiency of a project. Managers can use the CPI to tell the overall story of the project status from a financial perspective. The CPI could indicate the initial budget was not aligned with the project outcomes or estimates were too conservative.
In this example from PM Study Circle, core information is provided and the student must know key formulas to use the TCPI formula to answer the question:
Comparing CPI and TCPI
The differences between CPI and TCPI include:
- CPI is current and TCPI is estimated future cost-efficiency
- CPI has one formula and TCPI has two formulas
The same values are needed for both CPI and TCPI formulas, including AC and EV. In the provided chart, note how the same values are used in different formulas to achieve different levels of insight into project efficiency.
TCPI and the PMP Certification Exam
The PMP exam is designed to measure not merely rote memorization of formulas and calculations, but analysis and critical thinking skills. Be prepared:
- to calculate the TCPI with either formula based on the information provided,
- to interpret project health and efficiency using provided TCPI data
- to analyze data based on the TCPI’s distance from zero (negative value, degree below 1 or the degree above 1), and
- to select the best formula to use given project parameters.
Use practice questions to hone skills in using the TCPI formula and in understanding TCPI and related concepts or terms.
PMP® Certification Exam Question Example
|You are the project manager of a waste treatment plant installation project and it really stinks. You know that your original budget cannot be achieved, performance is atypical, and management has approved your revised forecast. You also know the following EVM information: PV = $1,700, BAC = $5,000, EV = $1,800; and AC = $ 1,600. Your sponsor is very concerned with the project and wants to meet with you immediately to discuss it. What is your To Complete Performance Index (TCPI)?||1||1.125||1.245||0.892|
|You are managing a hydroelectric project for the government and you are getting pressure from your sponsor to deliver the project within your baselines. You are made aware of a potential labor shortage that is a risk that you have not accounted for. You need to determine how your project is progressing and report to your sponsor so you can request additional funding, if needed. Your project has a CPI of 0.81 and TCPI = 1.25. You know that your project is:||Over budget and ahead of schedule||Under budget and ahead of schedule||Over budget and TCPI is an index of cost performance relative to schedule performance and reflects overall effort required to complete the project on time and on schedule||Over budget and TCPI is a projection of cost performance that must be achieved on the remaining work|
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- The correct answer is A. Since you cannot achieve your budget, you need to use the TCPI formula that uses EAC in the denominator, which is TCPI = (BAC-EV)/(EAC-AC). However, you first need to calculate EAC where variances are atypical, which is EAC = AC + (BAC – EV) or 1,600 + (5,000 – 1,800) = 4,800. Now you can calculate TCPI as (5,000 – 1,800)/(4,800 – 1,600) = 1.00.
- D. CPI of 0.8 shows that for every dollar spent we are getting only 81 cents worth of completed work. To complete performance index (TCPI) is a projection of cost performance that must be achieved on the remaining work to meet a specified management goal such as the BAC or the EAC.
Project managers and PMP(s) should understand what TCPI is and what it indicates about the health of an active project. Additionally, know there are multiple formulas for calculating TCPI and when to use which.
The TCPI can be a powerful tool because it is generally easy to ascertain if the team will be as productive as indicated.