The Project Notebook

PMP® Challenge Question – 2/1

There were no correct responses to the last challenge question, so I’ll hold those questions for future use. Here’s a fresh question to start off February:

An Earned Value Analysis for a recently closed out project revealed:

SPI = 0.7, CPI = 1.0

State at least THREE conclusions you can draw from this statement.

See you on 2/15 with the correct answer!

Earn Your Value (Part III)

To recap parts one and two of this post, we saw:

– how earned value is useful for monitoring both costs and schedule
– the basic formulas used to see if our projects are off track (and by how much)
– the recommendation that earned value be looked at weekly
– the ideal values for cost and schedule index are one (1.0)
– a simple way of communicating earned value information to our clients.

This week I’d like to take a look at the things we can do to manage our projects, especially if the CI and/or SI is much bigger or much smaller than one. Note that I can merely suggest causes — you will need to diligently look at your projects and their circumstances to arrive at the conclusion right for you. You may want to produce a graph or visual of your progress so you can pinpoint the time at which things started to go south.

CI << 1 and SI = 1
Being on schedule but over budget might represent a significantly underestimated budget (or a tight budget dictated by the project sponsor), a purchase which required significantly more dollars, or a significant amount of paid overtime to keep the timeline. Since the money is gone, this is difficult to mitigate and bring back on track. Significant re-planning or re-phasing of the project may help. Its probably best at this point to be more concerned about keeping on schedule while watching over the budget more carefully as you go forward.

CI = 1 and SI >> 1
Being ahead of schedule and on budget has some usual generic causes you need to look at first. One is common for construction and other projects relying on good weather — there was insufficient time in the schedule to mitigate a long run of bad weather. Needless to say, with the delay, you may have resources not working at optimum rates since less work has been completed. You may also have fewer resources working on your project than needed. They are less expensive resources, but the job isn’t getting done. You need to look carefully at your resource and risk plans to sort this out.

CI >> 1 and SI = 1
Under budget but still on schedule? This could be enviable, or it might be a sign of unpaid overtime not being tracked. Still, you will probably do best to determine the cause and keep the project on schedule without being overly concerned about budget.

CI >> 1 and SI << 1 In this case, you are under budget, but behind on schedule. The most likely cause is in your resource plan again -- you may have too few resources or are waiting for supplies. CI << 1 and SI << 1
This is far more typical of troubled projects — they have problems with both budget and schedule. Worst case, the project is ready for termination. You may have to continue working due to contractual circumstances, but its going to be difficult to correct both costs and schedule. You may have to consider asking for more budget to make some favorable adjustments to the schedule, or shifting some of the work to subsequent project phases. This situation requires the most analysis and judgement to correct.

CI >> 1 and SI >> 1
The answer to being significantly ahead of both schedule and budget usually lies in “sandbagged” estimates. Everyone was a little too cautious and added too much time and money. There may have also been very favorable conditions. You probably want to consider sacrificing some of the budget for the greater good of the company and its project portfolio. Planning for an early release of resources may be necessary as well. In any event, make sure you keep a reasonable contingency (say 15%) available in case your lucky streak stops!

As a final thought, you might want to calcuate what is sometimes called the critical ratio for your project, which multiplies the Cost Index and Schedule Index. This helps you arrive at a single number combining cost and schedule and allows you some leeway in each. As always, if you have a question or comment, feel free to drop me a line at sdcapmp@aol.com or as a comment to this entry.

Happy New Year!

Earn Your Value (Part II)

Last week we looked at the basic principles and formulas surrounding Earned Value Management. While the full practice of EVM may be very complex, it also provides a simple way to update clients on the status of smaller projects. But before we look at the “how”, let’s take a look at the “how often”.

The frequency will actually depend on many things, but I recommend you start with once a week. If a month passes by and there’s a problem, its usually too late to do anything about it. Once a week allows you to keep closer track of expenditures and invoices. Once a week also let’s the client see the progress. You can always skip reporting for a week if you didn’t work on the project, but you still need to follow up on tracking of expenditures and invoices. I usually log expenditures, invoices, and payments to see the full project picture.

Your weekly report to clients needs to contain the basics of cost and schedule variance, plus an estimate of the remaining expenses. Knowing the cost and schedule indices isn’t necessarily of interest to a client, but its useful information to determine project health. Rather than include it, you might use it in a formula to color code the information. The basic format I’ve used for clients is:


Note that each project and change request is listed separately. The client clearly sees the weekly progress of what was projected vs. the actual expenditures. At the start of the status reporting, I include an explanation of what each column means. A simple footnote under the table explains any significant deviations. Whenever I used this format for client projects, I never had issues getting the client to pay the bill. They clearly saw what was happening from week-to-week — there were no surprises.

You might improve upon this slightly by color coding based on the indicies. Anything around a 1.0 is good. Anything too large may be too good to be true and anything less than .9 may indicate an issue which needs to be addressed. You can decide the actual performance based on how tightly you need to control the project.

So to recap, last week we looked at the basic Earned Value formulas. This week we looked at a very simple way to apply the formulas and report the data. Next time we’ll take a look at how to apply the data in a meaningful way to manage projects.

Happy Holidays to all!

Earn Your Value (Part I)

As I was thinking about what to write this week, I noticed my only mention of Earned Value Management was both brief and some time ago. Its an important topic, so I’m going to devote my next three entries to it. This week, we’re going to look at the basics. Next week, we’ll look at how to report Earned Value to clients and stakeholders. In the third and final post in this series, we’ll look at how to use Earned Value Management principles to manage projects.

The usual illustrative story of Earned Value goes something like this … you hire a painter to paint four walls in four days. Each day is budgeted for $1,000 for a total of $4,000. If at the end of 2 days, I tell you the painters spent $1,500, do you know what the status of the project is?

The answer is “No” because you don’t know how much work was actually completed. If I were to tell you the painters finished 3.5 walls, would you know? Also “No” because you don’t know how much was spent.

Earned Value is a project management technique which can help you look at time, cost, and performance of your project — you see the relationships between all the dimensions and not just a view of one. There are simple calculations to provide you with the amount of deviation from schedule and costs, plus performance factors which can be used to predict the future performance of your project. Even simple projects or consulting engagements can benefit from application of the key principles.

The 4 basic formulas to remember are quite simple:

CV = EV– AC — the cost variance is the earned value less the actual cost
SV = EV– PV — the schedule variance is the earned value less the planned value
CI = EV/AC — the cost index is earned value divided by actual costs
SI = EV/PV — the schedule index is earned value divided by planned value

Basically these formulas help you to understand:

– how far from planned costs and schedule am I?

– at what rate am I deviating from planned costs and schedule

The planned value in the illustrative example is $2,000, the cost of the work planned for by the end of the second day. Since I completed 3.5 days of work, the earned value is $3,500. You can see at a glance that I’m ahead of schedule as well as ahead of my budget. This means the cost index and schedule index will both be greater than 1.

At the end of day 2, I now have several good ways to update my project estimate. If I think the savings I accrued in the first two days of the project are typical of what I will experience for the rest of the project, I can multiple my final estimated budget ($4,000) by the inverse of the cost index. This gives me a new estimated final budget of $1,720. On the other hand, I might judge this not to be typical, in which case I might re-plan the remainder of the project, looking closely at the quality of the work completed and any obstacles which could slow down the finishing of the last 1/2 wall.

Of course this is a very simple example and a more complex schedule or budget would require considerably more analysis. As additional resources, there is an extensive bibliography online, an excellent training resource is Roger Mandel, and Quentin Fleming’s (pictured above) book which describes earned value project management in its most fundamental form.
Don’t forget to check back next week to see how we can share Earned Value information with clients and stakeholders.

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© 2010-2012 Ray W. Frohnhoefer, MBA, PMP, CCP