The Project Notebook

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.

Sources of Risk

[Note: Over the next few weeks, I’m going to focus on project risk.]

Growing up, I knew life was a risky business. In the early cartoons and comedies I watched, safes and pianos fell on hapless victims. Perhaps the most memorable though were the Road Runner cartoons where disaster befell Wile E. (Ethelbert) Coyote at every turn. Road Runner avoided precariously balanced boulders which always fell on Coyote. Then there were the numerous Acme product failures where rocket skates and simple bombs malfunctioned at the expense of the Coyote.

Our projects face many sources of risk too. Here are just a few:

Risks External to Projects:

  • Legislative
  • Legal (patents and lawsuits)
  • Changes in technology (does your software project need to support Windows Vista?)
  • Natural hazards and conditions (have you seen the latest volcano news?)
  • Environmental (does a protected or rare species lie in your freeway path?)
  • Corporate policy and procedural changes

Risks Internal to Projects

  • Client driven scope changes
  • Out of balance cost, schedule, or quality
  • Unplanned for events and change
  • Project selection (did we pick the best project to work on now?)
  • Resource issues
  • Design (did we specify something we can’t build?)

And on top of it all, there are those unknown unknowns — the things we never would have thought to identify and plan for. With all these sources, how can we make sure we capture all the possibilities? There are a few simple things to think through and do at the start of any project:

  1. Who are our stakeholders, including supporters and detractors? What is their influence?
  2. Are there steps we should add to the project to ensure success? For example, a feasibility study or expert review.
  3. Do we have a plan in place to manage scope and change effectively?
  4. Brainstorm the risk possibilities to determine main internal and external risk sources.
  5. Consult experts and those who monitor external conditions to determine risk (what’s the likelihood of rain during our construction project? will a new operating system derail our software project?).
  6. Examine risk sensibly (a process commensurate with the levels and impacts of risk) and statistically (did you know air travel is safer than travel by car?).

Next week we’ll take a look at a simple and sensible risk management process to steer your project clear of those pianos and safes! In the meantime, please come back and visit often — during September I’ll be announcing the plan to give away a complete PMP Exam Prep kit.

Creating Project Templates

This week someone emailed me and asked me how I create templates for my pre-written software (PeopleSoft, Clarify, Siebel, INFORM, etc.) engagements, so I thought I would share the thinking and one of its products this week. First, let’s look at why I create them.

Effective consultants have tools which enable them to repeat engagements and bring value to customers while integrating new and improved practices, but never start from scratch. For a project manager, this represents a “starter” plan which can be used again and again. From the customer perspective, expectations need to be solidly set. An “out-of-the-box” plan is usually a good starting point since you can point to this plan and clearly identify the customizations and enhancements which are out-of-scope.

To create the out-of-the-box plan, you either need to get input from many people who have conducted implementations, both successful and unsuccessful or conduct them yourself. This will allow you to determine the correct list of tasks. The experiences will help you home in on the correct effort and resources to allocate to each task. Adding the billing rate of the resources means you can get a good look at the actual cost to the customer for the out-of-the-box implementation. Now, when the customer wants to start a discussion of customization and changes, you have something to build on. Before seeing the customer, I typically review the contract and any customizations already agreed to, populate them into the plan, and proceed to manage changes in an effective way which customers can easily understand.

Creating a good template doesn’t stop there, however. Its nice to make sure each concrete step and deliverable has some associated tools, templates, or guidance to assist in completing the tasks. At Siebel Systems we both posted them to our web site and zipped them up for CD distribution so consultants could refer to the plan and the tools necessary to complete the task.

I’m obviously not going to upload anything proprietary, but I do have a very old plan for a very old version of Siebel software which should give you some ideas of what’s possible. You will need MS Project to view this file (you may need to right click the link and save the file locally with a .mpp extension). In this particular case, we didn’t worry about the effort and resources so much since we had our own estimating tool which would help us fill that in. Don’t have MS Project but still want to peek at the file? Just drop me a line via email or comment and I’ll get you a PDF version.

Special Announcement!

The fourth annual PMI, San Diego Chapter, Inc. conference is September 13th and 14th at the Handlery Hotel. This year’s theme is PM Drives Business Value. The conference will feature an all-star lineup of 4 major speakers: Reo Carr (publisher of the SD Business Journal), Rudolf Melik (Tenrox CEO), Dr. Anna Crivici (Amylin VP), and Kathy Hedges (VP SAIC). Click here for a brochure! Be sure to take advantage of early registration.

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