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Wednesday, 07 December 2016 02:23

Episode 378: Project Metrics (Free)

episode378Click Here to Listen to the Interview: http://bit.ly/PMPodcast378
Read More Here: http://bit.ly/2gVCSQM

Setting up a PMO usually means setting up some Project Management KPI (Key Performance Metric). But which?

This interview about PMO metrics with Denise McRoberts was recorded at the 2016 PMI Global Congress in San Diego, California. We discuss her paper and presentation "Meaningful Metrics -- The Path toward Measuring what Matters". Here is the abstract:

"The project management office (PMO) was in a rut. The number of projects in work at any one time was increasing; project managers were routinely reporting that all was well while schedules slipped, and there was limited understanding of true project costs." Does this sound all too familiar? In this session, attendees will learn some innovative methods to implement metrics and key performance indicators (KPIs) to better understand your organizational weaknesses and how to overcome them. This session will provide a case study on how a PMO did just that, with plenty of practical examples

You will learn what makes a 'good' metric, how metrics should be developed, and that we also need specific project metrics and project portfolio metrics.

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Earned value is a way to measure the progress of a project with greater precision and accuracy than is typically available. The primary units of measure are the Budgeted Cost of Work Performed (BCWP) (which is also called the “Earned Value”), the Actual Cost of Work Performed (ACWP), and the Budgeted Cost of Work Scheduled (BCWS). Now let’s put these fundamental metrics together.

Today’s Date: March 31

Completed Activity

A

B

C

D

Remaining Work

Target Date

March 10

March 15

March 31

April 5

July 31

Budgeted Cost

20

10

15

5

500

Actual Cost

20

5

20

10

?

Schedule Variance (SV)

The Schedule Variance (SV) tells you whether you are ahead of schedule or behind schedule, and is calculated as BCWP - BCWS. In our example above, the BCWP is 50 (20 + 10 + 15 + 5) and the BCWS is 45 (20 + 10 + 15). Note that the difference is activity D. Since work has been completed on this activity, it is included in the BCWP. However, since it was not scheduled to be completed by March 31, it is not included in the BCWS.

The Schedule Variance is 5 (50 – 45). If the result is positive, it means that you have performed more work than what was initially scheduled at this point. You are probably ahead of schedule. Likewise, if the SV is negative, the project is probably behind schedule.

Cost Variance (CV)

The Cost Variance gives you a sense for how you are doing against the budget, and is calculated as BCWP - ACWP. If the Cost Variance is positive, it means that the budgeted cost to perform the work was more than what was actually spent for the same amount of work. This means that you are fine from a budget perspective. If the CV is negative, you may be overbudget at this point. In our example above, the BCWP is 50. The ACWP is 55. Therefore, the Cost Variance is -5 (50 – 55), which implies we are overbudget.

Schedule Performance Index (SPI)

This is a ratio calculated by taking the BCWP / BCWS. This shows the relationship between the budgeted cost of the work that was actually performed and the cost of the work that was scheduled to be completed at this same time. It gives the run rate for the project. If the calculation is greater than 1.0, the project is ahead of schedule. In the example above, the SPI is equal to (50 / 45) or 1.11. This implies that your team has completed approximately 11% more work than what was scheduled. If that trend continues, you will end up taking 11% less time to complete the project than what was scheduled.

Cost Performance Index (CPI)

This is the ratio of taking the BCWP / ACWP. This shows the relationship between the budgeted cost of work performed and the actual cost of the work that was performed. It gives the burn rate for the project. If the calculation is less than 1.0, the project is over budget. In our example, the CPI is (50 / 55) or .91. A CPI of .91 means that for every $91 of budgeted expenses, your project is spending $100 to get the same work done. If that trend continues, you will end up over budget when the project is completed. 

Budget at Completion (BAC)

This calculation can be in terms of dollars or hours. It is the Actual Cost of Work Performed (ACWP) plus the budgeted cost of the remaining work. This should make sense, and it does if you are spending your budget at roughly the same rate as your plan. However, if the Cost Performance Index (CPI) is not 1.0, it means that you are spending at a different rate than your plan, and this needs to be factored in as well. So, the better formula for the Budget at Completion (BAC) is the ACWP + (Budgeted Cost of Work Remaining / CPI). In other words, if you are running 10% overbudget to get your work done so far, there is no reason to believe the remaining work will not also take 10% more to complete, and your final budget at completion would be 10% over as well.

In our example above, the ACWP is 55 and the Budgeted Cost of Work Remaining is 500. The estimated budget at completion would be 55 + (500 / .91) or approximately 604.5. Since our total budget is 550, this shows that we will be approx 10% over budget.

Summary

Math is the crux of Earned Value. Although there are many other formulas as well, these are the basics behind this concept.

The question, then, is how is our sample project doing? The good news is that our Schedule Variance (SV) shows that we are ahead of schedule, and our Schedule Performance Index (SPI) quantifies that at 11% ahead of schedule. If we take Earned Value calculations on an ongoing basis, we can see what the trend is. If this trend holds true, then we should finish the project 11% ahead of schedule.

Likewise, the Cost Variance (CV) shows we are overbudget, and the Cost Performance Index (CPI) quantifies the overbudget situation to be close to 10%. (We are spending an extra $9 for every $91 budgeted.)

So, is this good or bad? Earned Value calculations give you the numbers you need to ask the right questions. In our sample project we are trending ahead of schedule and overbudget. This may mean that the cost of resources is higher, but they are being more productive. It could mean that the project manager is using more resources than planned, which is allowing the project to be completed faster, but at a higher cost. It could mean that the team members are working overtime. If it were important, it may be possible for the project team to slow down a little and save costs, thereby completing the project closer to schedule and budget targets.

There are many possibilities and many questions to raise – all brought to light by the Earned Value calculations.

At TenStep we are dedicated to helping organizations achieve their goals and strategies through the successful execution of critical business projects. We provide training, consulting and products for organizations to help them set up an environment where projects are successful. This includes help with strategic planning, portfolio management, program / project management, Project Management Offices (PMOs) and project lifecycles. For more information, visit www.TenStep.com or contact us at admin@TenStep.com.
Published in Blogs
One service that is typically associated with a PMO is reporting on the status of all the projects being executed within the organization. This concept can be extended so that the PMO tracks a complete, portfolio-wide view of all active, pending and historical projects.

On the surface, this might seem simple. However, it can be quite time-consuming. First, the PMO must work with the management stakeholders to define what is in the consolidated status report. Some organizations like to keep each project to one line, with some type of overall status indicator such as green (okay), yellow (caution) or red (trouble). If the reader wants more information, he can follow up with the project manager. Other organizations like to see a full status report on each project. If there are questions or concerns, the status report may contain the answers so that additional follow-up is not required.

Problems Gathering the Status

The PMO needs to collect status information on each project, consolidate it and report it. However, like all activities that rely on people, this can be easier said than done. Your PMO will probably encounter the following challenges:
  • Timeliness. First, chances are that all of the project managers will not send you the required status information within the timeframe you need it.
  • Accuracy. In many cases, the information will not be accurate. For instance, the project manager may make his or her project appear to be on schedule, even though not all scheduled activities are completed. The rationale is that the team will make up the activities in the next reporting period. You may spot this if the accomplishments for the previous period do not reflect the same work that was supposed to be completed according to the prior status report.
  • Completeness. In many cases, the information on the report is accurate, and it may also be timely. However, you may find that it is not complete. For instance, the information provided may be very brief and may not provide a real sense for the status of the project.
Overcoming Status Reporting Problems

Of course, these problems need to be overcome. The PMO can address these types of chronic problems through activities such as the following:
  • Explain who is requesting the information and what it will be used for. This is a key aspect of consolidated reporting. People do not like to spend the time to provide information if they don't feel it will be used. If they understand who is requesting the information, it might become a higher priority for them.
  • Be clear on the information you need and use what you are requesting. You want to be clear on the information you need and how it will be used. Make sure that you do not ask for status information that you don't need for consolidated reporting.
  • Clearly communicate when the Status Reports are due. The PMO will have difficulty gathering status information from some percentage of project teams. Make sure that you do not give anyone the excuse that they did not know when it was due.
  • Follow up with project managers on items that need further explanation and clarity. If you receive status information that does not contain the content or format you need, make sure you follow up with the project manager. This follow-up is designed to make sure that the project managers know what you need, with the hope that they will provide this in future Status Reports.
  • Use the governance process if necessary. If you find that the PMO is spending too much time running around for the information every month, you are going to have to go to the Sponsor for backing. Senior managers need to be held accountable if project managers in their organization cannot get the status reports in correctly and on time.
Consolidated Metrics

There are a number of places where the organization gains value with the implementation of project management. If the PMO does not attempt to track and quantify some of these benefits, the organization will have no idea what value has been provided. In general, the metrics associated with project management value are also indirectly indicative of the value of the PMO. For instance, if more projects complete within expectations, it would indicate the value associated with project management, and would also point out the value provided by the PMO.  

Organizational Metrics

One of the most difficult items the PMO will be asked to work on is determining the value of project management. It is one of the most fundamental questions for your sponsor and senior management to ask, and yet it is also one of the most difficult to successfully answer. There seems to be intuitive value in implementing a standard project management methodology, but if you try to quantify the value, you will quickly become stuck. There are a few approaches to these organizational metrics. One is to rely on industry research and look for companies and case studies that are similar to your organization for comparison. The thought is that if someone else was able to measure value and you are a similar company implementing in a similar way, you should be able to claim similar value.

The second method is to actually try to calculate the value associated with using a methodology. For instance, the PMO can work with project managers on different types of projects to determine the cost savings associated with maintaining good scope change procedures, managing risk proactively, and managing client expectations effectively. As you continue to interview a subset of the project managers, you should start to see some trends that you can apply to the rest of the projects in your organization.

You could also look for the reuse value associated with using a common project management process. Again, this approach asks project managers to estimate the savings associated with using similar processes on multiple projects and getting their estimate of the cost and time savings associated with reusing the common processes on an ongoing basis.

There are some areas of service where the PMO does not already have a sufficient level of expertise. Metrics could be another one of these areas. Many companies do not know much about defining and capturing a good set of metrics. Some consulting firms have a strong expertise in this area that could be leveraged to make sure you start off on the right foot.

Summary

The PMO is in the unique organizational position of being able to view all of the projects going on in the organization. Therefore, the PMO is the logical organizational entity to define and collect a common set of metrics, and it is the logical place to collect common project status information for consolidated reporting. These activities can be simple if all the projects collect metrics and report status as requested. However, this is rarely the case, which makes these valuable services a couple of the most time-consuming services the PMO performs.  

At TenStep we are dedicated to helping organizations achieve their goals and strategies through the successful execution of critical business projects. We provide training, consulting and products for organizations to help them set up an environment where projects are successful. This includes help with strategic planning, portfolio management, program / project management, Project Management Offices (PMOs) and project lifecycles. For more information, visit www.TenStep.com or contact us at admin@TenStep.com.
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