What is a key indicator of cost efficiency in a project?

The Cost Performance Index (CPI) is a key indicator of cost efficiency in a project because it provides a measure of the financial efficiency of the project in relation to its budget. CPI is calculated by dividing the Earned Value (EV) by the Actual Cost (AC). This ratio shows how much value is being earned for each dollar spent on the project.

A CPI greater than 1 indicates that the project is performing efficiently, providing more value than what has been spent, while a CPI less than 1 suggests inefficiency, where costs exceed the value delivered. Therefore, CPI not only allows project managers to assess the current financial performance but also helps in forecasting future performance and making informed decisions regarding budget management.

In contrast, Earned Value (EV) and Actual Cost (AC) are components that contribute to calculating CPI but do not independently represent cost efficiency. Planned Value (PV) relates to how much work should have been completed at a certain point in time according to the project schedule, but does not directly indicate financial efficiency.