Have you ever wondered how PMP® professionals are almost always spot-on at assessing projects? Since a project tends to deviate from its baseline throughout its run-time, project managers meticulously evaluate every aspect of these projects for possible flaws.
And this entire process requires assistance from various project management tools, which is why PMP® professionals master a range of techniques and tools to acquire that certificate.
Schedule Performance Index or SPI is one of such tools of the Earned Value Management process. With the help of SPI, project managers determine the project’s current position, shifts, and progress since baseline. In this article, we will discuss how SPI works and why you, as an aspiring project manager, should master it.
What is Schedule Performance Indexing?
Schedule Performance Index or SPI is one of the fundamental materials of Earned Value Management. Now you may ask the meaning of Earned Value Management. To explain, EVM is a project management technique used to predict likely risks and measure the project’s performance.
This method focuses on the cost, schedule, and scope of the project and integrates them to determine the necessary alterations.
SPI is essentially a project performance metric that evaluates the project deviation from its baseline and how far off it is from the scheduled timeline. It runs the actual project through its system to deliver us the comparison to its initial planned progress.
Since it is a ratio of Earned Value to Planned Value, it gets interpreted per the integer it produces.
While working as a project manager, you will have to do expert guessing and eliminate risk factors. However, by introducing Schedule Performance Indexing, you can make an informed decision.
It allows the project managers to have an outlook on the project’s compliance with the planned project. Thus, the interpreted values of SPI showcases the time efficiency of your project so the project managers can alternate the process.
Fundamental Terms for Schedule Performance Indexing
Before you jump into the calculations, you need to get familiarised with some of the key terms for Schedule Performance Indexing. While some of these terms get used in calculating SPI, others work with SPI to determine the Earned Value Management.
One of the first elements of EVM, Planned Value, can be explained as the amount of work you had initially planned to get done by a certain point in your schedule. The project manager calculates PV before the project execution because it works as a baseline.
Thus, the total PV is also known as Budget at Completion or BAC.
The formula for PV:
Planned Value or PV = (Percentage of completed work) * (Budget at Completion or BAC).
The work assigned to you is completed by 40% within the first 6 out of 12 months of the schedule. The budget of the project is $100,000.
So, PV = 40% of BAC
= 40% of $100,000
Earned Value is the actual amount of work completed with time. It is essential for any project because even if it gets terminated or suspended temporarily, Earned Value will show you the completed work to date.
So, you get the work worth the money spent so far. Thus, it is also called Budgeted Cost of Work Performed or BCWP.
Anyone not entirely familiarised with the concepts can get Planned Value and Earned Value mixed up. Note that while Planned Value is the amount of work you plan on getting done by a given time, Earned Value is the work you get done.
The formula for EV,
Earned Value or EV = (Percentage of completed work) * (Budget at Completion or BAC).
Schedule Variance and Schedule Performance Indexing are a lot alike. SV focuses on measuring how much you’ve gained so far in the project timeline per the initial schedule. However, the calculations are different.
SV shows a comparison between Earned Value and Planned Value, whereas SPI shows a ratio of the two. Moreover, a negative result for SV means the project is behind schedule, while a positive one implies the opposite.
Even though both the techniques offer similar metrics, they have different approaches to showcasing the results. SV works the best for small numbers because SPI provides complex results when calculated with smaller values.
And that is why it is essential to consider using both of them while evaluating a project’s EVM for additional context.
The formula for Schedule Variance,
SV = Earned Value or EV – Planned Value or PV.
Cost Performance Variance is also a technique for Earned Value Management or EVM. Unlike Schedule Variance, Cost Variance shows the difference between the budget you had planned to spend and the amount of cost incurred so far.
The purpose of this process is to help you understand if you’re going over or under your planned budget.
Every project manager wants to be within the initial budget, which is Cost Variance is executed throughout the project run-time. Now a project manager interprets the results per the positive or negative value of the project.
Cost Variance is used along with SPI to determine the current condition of the project.
The formula for Cost Variance,
CV = Earned Value or EV- Actual Value or AV.
Difference between Cost Performance Index (CPI) and SPI
Cost Performance Index is one of the fundamental aspects of EVM and executed along with SPI on projects to determine EVM Value. CPI evaluates whether or not a project is running within or over the initial budget.
It uses a similar technique as SPI in calculating its results. While an SPI tells you whether your schedule is efficient or not, a CPI tells you whether your budget is efficient or not.
Simply put, CPI shows the amount of work done for every penny that you spend on the project. So you get a ratio of the total amount planned to spend so far and actual costs. Similar to SPI, a value of 1.0 of CPI indicates the total cost is within budget. However, a result lower than that shows the project is over budget, and an outcome higher than 1.0 means the expenditures are under the budget.
The formula for Cost Performance Index or CPI,
CPI = Earned Value or EV / Actual Cost or AC.
When to Perform Schedule Performance Index
A project manager should execute Schedule Performance Indexing throughout the project run-time at regular intervals. Here, a project is prone to deviations at any time, which is why regulating SPI throughout the project timeline allows project managers to determine project conditions better.
According to the value achieved from the SPI, a project manager may or may not alter the process.
With that said, you need to integrate these intervals during the planning of the project. According to the project length and characteristics, you may apply expert guessing and determine where EVM is needed.
Otherwise, you may skip evaluating EVM in an important interval and later achieve a negative value. And this could later cause you to lose precious time and add more delay to the schedule.
How to Perform Schedule Performance Index
Even though the entire concept of EVM may seem intimidating to a lot of project managers, its calculations and interpretations are not complex.
Before you start Schedule Performance Indexing, you need to determine both Earned Value and Planned Value at that point of the project. For starters, you need to calculate EV. So assuming if your work done is 20 units within 15 days, then your EV will be 20.
Secondly, you need to calculate your PV. So, if you had equal amounts of work completion planned for each interval, then within 30 days, you plan to complete 60 units of work. So, your PV will be 30 units within 15 days of project execution.
Once you determine the EV and PV of the project, evaluating the SPI is a piece of cake. All you have to do now to determine the value of SPI is plot the values within the formula.
So, the value of SPI will be EV / PV
Or, SPI = 20/30
Therefore, SPI = 0.67
The process of interpretations of SPI is essential, considering an inaccurate report may result in different alterations than needed. When your SPI value is equal to 1, it means that you are following your initial budget incurring no such deviations. Thus an SPI result of 1 shows how your Earned Value is going along the line of your Planned Value.
With that said, a value of SPI less than 1.0 indicates less the amount of work executed is less since baseline than intended. However, a result greater than 1.0 indicates how SPI is under budget.
Schedule Performance Index Examples
We have cited an example of Schedule Performance Indexing for you to understand the concept better. However, note that the following calculations are deemed not accurate and only used for reference.
Let’s assume that the project assigned to you has a budget of 100,000 USD. You have to complete the project within a year. By the 6th month, you complete 30% of the work, and your cost incurred is 60,000 USD.
Here, they did not provide a Planned Value. We can assume that the project distribution will be equal throughout the 12 months. So, within the 6th month, you need to execute 50% of the work.
Here, Actual Cost or AC = $60,000
Planned Value or PV = 50% of $100,000 = $50,000
Now, Earned Value or EV = 30% of $100,000 = $30,000
Therefore, Schedule Performance Index or SPI = EV / PV
= 30,000 / 50,000
Here, since the value for SPI is less than 0.1, you are running under the initial budget and need to make alterations to fit your schedule.
Schedule Performance Index for PMP® Professionals
Every project in the world goes through deviations, and a project manager ought to expect that. While they can prepare for probable shifts beforehand, some things are bound to be out of control. In such instances, Schedule Variance Indexing can play to the project managers’ advantage. It allows them the luxury to keep track of all the ongoing processes and rectify or alter activities as needed to meet the scheduled timeline. These alterations may include padded schedules, expanding execution teams, or redistributing the workload. So SPI is necessary for a smoother project execution experience.
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