Analyzing Stability of Estimates at Completion
interchanging the performance indices used. The Cost Performance Index (CPI) and Schedule Performance Index (SPI) can be used either individually or in conjunction to statistically forecast the final cost of a program (Fleming & Koppelman, 2010). The Schedule Cost Index (SCI), also known as the Critical Ratio (CR), is the product of CPI and SPI. EACs calculated using SCI are often the largest estimates since CPI and SPI are typically less than one (Christensen, 1996). The Composite Index (CI) features a weighted combination of the two performance indices where the weights sum to one. CPI is often heavily weighted in generating EACs and, if stable, provides an effective benchmark for assessing the likelihood of a cost overrun (Christensen & Heise, 1993; Christensen & Payne, 1992). SPI, however, receives a greater weight in the early stages of a program (Christensen, 1996). The seminal work of Christensen (1996) assessed the stability of various EACs by analyzing 64 development and production contracts from the Defense Acquisition Executive Summary database. Christensen found EACs calculated using CPI (EAC CPI ) achieve stability within 10% deviation from cost at completion at 50% complete and was an adequate lower bound to final cost. EACs calculated using SPI (EAC SPI ) and SCI (EAC SCI ) achieve stability within 10% deviation at contract initiation. Specific to defense development contracts, Christensen (1996) found EAC CPI and EAC SPI to achieve stability at 60% complete and EAC SCI at 20% complete. This latter finding permeated the subsequent literature as Christensen’s oft cited “stability rule” of EVM (Christensen & Templin, 2002; Fleming et al., 2010; Henderson & Zwikael, 2008; Kim, 2016). As a result, Kim et
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Defense ARJ , Spring 2025, Vol. 32 No. 1
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