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PMP Practice: Determine strategy to handle change

Question 2 of 5 in Manage Project Changes

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River Reyes is managing a warehouse automation project for Apex Ridge Labs. The project is currently in month 5 of an 8-month schedule. A vendor has submitted a change request to upgrade the conveyor belt system from standard to high-speed components, which would add $45,000 to the budget but reduce installation time by 3 weeks. Before presenting this change to the Change Control Board, River needs to calculate the project's current cost performance to understand whether the project can absorb this additional cost. The project metrics are: Budget at Completion (BAC) = $680,000, Earned Value (EV) = $310,000, Actual Cost (AC) = $340,000. What is the project's Cost Performance Index (CPI), and what does it indicate about the project's ability to handle the proposed cost increase?
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Correct answer: CPI = 0.91, indicating the project is over budget and getting $0.91 of value for every dollar spent, making cost increases risky without additional funding

Explanation

The Cost Performance Index is calculated by dividing Earned Value by Actual Cost: CPI = EV ÷ AC = $310,000 ÷ $340,000 = 0.91. A CPI below 1.0 means the project is over budget, specifically getting only $0.91 worth of completed work for every dollar spent. This indicates the project is experiencing cost overruns of approximately 9 percent. When evaluating a change request that adds $45,000 to a project already running over budget, the project manager must present this performance context to the Change Control Board. The unfavorable cost performance means accepting this change would require either additional funding approval from the sponsor or a trade-off in scope or quality. The calculation provides objective data to inform the change decision, which is essential for managing project changes effectively in a predictive environment where budget baseline adherence is critical.

**Why not A:** CPI = 2.19 is an incorrect calculation. The Cost Performance Index is calculated as EV / AC = $310,000 / $340,000 = 0.91, not 2.19. A CPI above 2.0 would indicate extraordinary efficiency, which does not match a project where actual costs exceed earned value.

**Why not C:** CPI = 0.46 is an incorrect calculation. This value would indicate the project is getting less than half the expected value for every dollar spent, which represents a severe overrun not supported by the given metrics where EV and AC are relatively close.

**Why not D:** CPI = 1.10 is incorrect. A CPI above 1.0 would indicate the project is under budget, but since AC ($340,000) exceeds EV ($310,000), the project is actually over budget with a CPI below 1.0. The correct calculation is $310,000 / $340,000 = 0.91.

Key Concept

This question covers Determine strategy to handle change under Manage Project Changes (Process).

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