Solution

The correct answer is Budgeted cost of work performed ÷ Actual cost of work performed

Key PointsThe Cost Performance Index (CPI) is a key performance indicator in project management, particularly in the context of earned value management. It is used to assess the efficiency of cost performance on a project. The formula for calculating CPI is:

• \(\text{CPI} = \frac{\text{BCWP}}{\text{ACWP}}\)

Where:

• BCWP (Budgeted Cost of Work Performed): The value of the work actually performed and completed according to the budget.
• ACWP (Actual Cost of Work Performed): The actual cost incurred for the work performed.

So, the CPI is essentially a ratio that helps you understand how well the project is performing in terms of cost efficiency. If the CPI is greater than 1, it indicates that the project is under budget, which is generally a positive sign. On the other hand, if the CPI is less than 1, it suggests that the project is over budget.

Now, let's relate this to the given options: \( \frac{\text{Budgeted cost of work performed}}{\text{Actual cost of work performed}}\)

This is the correct formula for calculating the Cost Performance Index (CPI) based on the explanation above. It compares the budgeted cost of the work performed to the actual cost of the work performed. Therefore, option 3 is the correct choice for determining the Cost Performance Index.