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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.
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Obviously your project is in trouble if you are missing deadlines and consistently exceeding the estimated effort and cost to get work done. However, you may have a project that actually appears to be on schedule, yet you are concerned about potential problems down the road.

There are things that you can look for that will give you some sense as to whether there are potential troubles lurking. At this point you can’t really call them issues or problems, but they can be identified as risks that have the potential to throw your project off in the future.

Are You Falling Behind Early in the Project?

Many project managers believe that if they fall behind in a project early on, they can make up the time through the remainder of the project. Unfortunately, there is a natural tendency to fall behind as the project progresses. First of all, the more distant you look, the less accurately you can estimate. Second, there are always unexpected items that come up during projects. It is a good idea for project managers to try to get ahead of schedule early on in the project with the expectation that they will need the extra time later.

If you find that you are falling behind early in the project, your best remedy is to start developing corrective plans immediately. Don’t sit back passively and hope you can make the time up later. Be proactive instead, and put corrective plans in place today to get back on schedule.

Are You Identifying More and More Risks?

We are trying to identify warning signs that a project may be in trouble, even though it appears to be on schedule. If you have a multitude of issues that you are addressing today, you probably are not on schedule. However, you may be fine now, yet face a number of identified risks in the future. Of course, all projects have some future risks. However, if you see more and more risks as the project gets going, this could be a big warning sign that your project is in trouble.

If you face this problem, the good news is that you are identifying risks while there is still time to address them. Even if you have an abnormal number of risks, you may still be okay if you really focus on managing them successfully.

Customer Participation Starts to Fade

Your customer needs to be actively engaged during the planning process and the gathering of business requirements. If you cannot get them excited about participating during this timeframe, then you are really in trouble. However, many times the customer begins to become disengaged when the project is a third completed and the project work starts to turn more toward the internal project team. It is important to keep the customer actively involved. The project manager needs to continue to communicate proactively and seek the customer’s input on all scope changes, issue resolution, and risk plans. The customer also needs to be actively involved in testing. The project manager needs to make sure that the customer stays involved and enthusiastic. Otherwise testing and implementation will be a problem down the road.

Morale Starts to Decline

On the surface, if you are on schedule, there is no reason for morale to be going south. If you detect that this is happening, it could be a sign that you are in trouble. You need to determine the cause. Morale might be slipping because people are being asked to work a lot of hours to keep the project on track. That would tend to be an indicator of trouble in the future. It is also possible that the team may think the future schedule is unrealistic. In any case, poor morale needs to be investigated and combated.

Summary

One of the important responsibilities of a project manager is to continually forecast into the future to update the schedule, identify risks, and manage expectations. A project that seems on track today could have major problems tomorrow. Keep your eyes open for these warning signs that things are worse than they appear. If you recognize them ahead of time, they can all be classified as project risks, and can be managed and controlled in a manner that will allow your project to succeed.

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
Earned Value is a way to measure the progress of a project with greater precision and accuracy than is typically available. Earned Value metrics can be combined to show whether the project is on schedule and on budget. If it is not, Earned Value metrics can indicate the percentage the project is over or under budget and the percentage the project is ahead of or behind schedule.

Let’s look at the environmental factors that must be in place before Earned Value can be implemented, and examine why these factors can work against the adoption.

Project Factors

On the project side, the biggest factor to consider is the simple rule of “garbage in, garbage out” - you need to start with good project data to use Earned Value metrics effectively later in the project.

  • Schedule. You need a good schedule with good estimates for all of the underlying activities. If you are imprecise with your effort and cost estimates, Earned Value calculations will not work well for you.
  • Scope change management. If you create good initial estimates for the work activities, but then you do a poor job of managing scope, the Earned Value calculations are going to go bad in a hurry. On the other hand, the Earned Value numbers would show the effects of taking on more unapproved work, and so they would start to raise a problem flag early in the project.
  • Capturing actual effort and cost. Many project managers build good schedules and manage the schedule based on completing the activities on time. Many projects don’t capture the actual effort hours associated with completing each activity. Obviously that is needed for Earned Value calculations to work.
Organizational Factors

It is difficult to implement Earned Value on one individual project if the entire organization is not behind it. First of all, it takes time to capture and calculate Earned Value numbers and you may find that this extra time is not appreciated by your manager – even if you could show that the extra time invested would ultimately result in a better managed project. Likewise, the resulting Earned Value numbers would be of interest to the project manager, but most other stakeholders in the organization won’t have a clue as to what the formulas mean.

From an organizational perspective, the implementation of Earned Value into the organization requires a change in the way people perform their jobs. As such, it needs to be seen as a culture change initiative. First and foremost in a culture change initiative is sponsorship and leadership. You must have a champion who is willing to be the sponsor and who will ensure the proper training, processes and incentives are put into place so that Earned Value concepts are applied consistently across the organization.

The work required to implement Earned Value also depends on the processes that exist in your organization today. If your organization is not used to creating detailed schedules with accurate effort, cost and duration estimates, it will take some work to build that skill. Likewise, if people aren’t used to tracking time and costs on an activity level, it will require major changes to how team members account for and track what they are working on. To implement time reporting may also require new tools and processes be established.

Weighing the Cost Against the Value

Executives should determine whether Earned Value is right for their organization.

First, they should look at the effort and cost associated with implementing the concepts successfully. As described earlier, depending on where the organization is today, the cost could be substantial and the timeframe could be quite long.

Second, they need to determine what other core skills will need to be enhanced to make the Earned Value concepts work. For instance, project managers may need to learn better estimating techniques for the calculations to be relevant. They may also need to learn better techniques for building more accurate schedules.

Third, after understanding the effort and cost, the executive need ask themselves what incremental value would be gained by more precisely managing project progress. For instance, if a project manager manages by end date, they should pretty much know whether the project is ahead or behind schedule. So, if the project manager can estimate that a project is three weeks over schedule, is there really much additional value with knowing that the project is trending three weeks and two days over schedule, as shown through Earned Value calculations? Likewise, a project manager may estimate a project is $10,000 overbudget, while the Earned Value calculation might show that the project is trending at $10,615 over budget. In other words, if the project managers have a decent skill set today, what incremental value will be gained by going to Earned Value?

Summary

Perhaps it is no wonder that organizations see a lot of pain in moving toward Earned Value and not a corresponding amount of incremental value. Given the alternative initiatives and the usage of resources, it is not surprising that in most organizations, a move toward Earned Value would not be one of the top priorities. It is a good concept and it makes sense intuitively. However, from the perspective of most companies, the pain of implementation seems to outweigh the value gained.

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
Tuesday, 02 December 2014 19:43

When to Implement a Requirements Freeze

There are different opinions about when to implement a requirements freeze. When considering a freeze, it is important to keep the following facts in mind.

You Cannot Freeze Business Change

Business is always changing, and the project solutions that are built must reflect these changes. However, you can still freeze change requests. Freezing change requests is simply a technique to bring closure to the project. Remember that when you build a solution for your client, the project only represents the initial steps in the product lifecycle. Once the system goes into production, there may be follow-up phases to the project, or the solution will go into a support and enhance stage. This stage could easily end up representing ninety percent, or more, of the entire solution lifecycle. The enhancement process is the way that the application is changed over the long-term. So, do not seek to freeze business change overall, only to freeze changes that would extend the life of the initial project. If changes are needed after the project freeze is implemented, they go on the backlog to be addressed later as enhancements.

All that being said, you do not want to deliver a solution that does not meet the business needs. That would not make sense either. If you implement a requirements freeze, you must also have a process in place for getting around the freeze. What you are really doing is gaining agreement with the client sponsor to raise the threshold for scope change management. During the freeze, for instance, it may be that all change requests need to be approved by the sponsor personally. If the sponsor understands the benefit of the change request, as well as the cost and impact to the project, he may still approve the request if it is important enough. However, even important changes may not get approved during the freeze. What may happen instead is that the change will be prioritized high as part of an enhancement request after the solution goes live.

Fixing Errors is not Affected by the Requirements Freeze

You may wonder whether system testing is the right time to implement a freeze. Remember that the freeze is on business requirements changes. Of course, if you find problems or errors in the system test, they need to be corrected. System testing is a time when you do stress testing, usability testing, documentation testing, performance testing, etc. As an example, during requirements testing you may find that you misinterpreted a requirement, which will require a change. This is not a change to the requirements, but the correcting of an interpretation error. This may be allowed. During stress testing, you may find that your hardware is not powerful enough to take the load. This may require changes to the system configuration, or a change in how the transactions are processed. Again, this may be required under the freeze.

However, hopefully your client is not adding new business requirements during system testing. When you get to system testing, in many cases you have to retest when changes are introduced. For instance, if a change request is allowed during system testing, you must make the change, unit test it, run integration tests, and potentially rerun all the system tests. This is very disruptive, and if possible these changes should wait until the enhancement process after implementation. In fact, at this point in the project, you may even defer some errors that were uncovered during testing if they do not have a major impact to the value of the solution.

Summary

If you consider implementing a requirements freeze, it shows that you have recognized that continued change requests will jeopardize your ability to deliver within your budget and deadline. You can then come to an agreement with your sponsor to allow the team to focus on a fairly stable system for completion of the testing and implementation process. Critical change requests are still allowed, while less critical changes are deferred until after implementation, during the enhancement process.

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
Tuesday, 04 November 2014 17:04

Managing Projects with Unrealistic Deadlines

If you are a project manager dealing with what you perceive to be an unrealistic deadline, you will first want to discuss this with your manager and see if there are any factors that are driving the project deadline that may be unknown to you. Sometimes the person who gives you the deadline seems like the bad guy, but see if you can understand the motivation. For instance, there may be a business activity that is driving the deadline. There may be some event occurring that this project needs to support. Or, your project may be one of a number of initiatives that need to come together at a specific time. It does not necessarily make your challenge any easier, but you may find that by better understanding the reason for the deadline, you may have an easier time getting yourself and your team members motivated to try to achieve it.

On the other hand, if the deadlines seem arbitrary and are not the result of some other business driver, then you should find that out as well. Sometimes managers set arbitrary end dates just to provide what they consider to be stretch objectives. However, if the manager is not careful, there will be a time when there is a firm business justification for an aggressive end date, but no one will believe it.

Once you understand the motivation for the deadline date, there are project management techniques that can be utilized to increase the chances of success and better manage expectations.

Try to Adjust the Triple Constraints of Time, Cost and Scope

All projects require some time and cost to create the deliverables agreed to in the project scope. When one of these constraints is out of balance, at least one of the others needs to be adjusted to get them back in alignment. For instance, if your budget is cut, you need to reduce the scope or increase the time to deliver.

If you find that the time constraint is not in alignment with cost and scope, talk to your manager about increasing the resources that are available for the project. Adding resources to the project makes the cost go up, but may allow you to hit the deadline. Also talk to your customer about reducing the project scope. See if there are features and functionality that they can live without for now so that you can deliver the project within the deadline specified.

Utilize Risk Management

When you start a project, the first thing you need to do is plan. One aspect of the planning process includes identifying risks and putting plans into place to mitigate the risks. In your case, if you don't think you can hit the imposed end-date, now is the time to say something. When you do, your manager and your customer start to hear that the end-date is at risk before the project even begins. As part of the risk identification, you can ask the project team, your customer and your manager for their ideas on how to mitigate the risk. Utilizing risk management will help better manage expectations early in the project and also be a way to gather input and ideas for ways that you might be able to hit the deadline.

Utilize Scope Management

On many projects, you start with an aggressive delivery date, and then the project gets increasingly behind schedule because the project manager does not effectively manage scope. Then you end up having even more work to do by the deadline date. Disciplined scope management will ensure that you only have to deliver what was originally promised, and that any approved changes are accompanied by a corresponding increase in budget and timeline.

Aggressively Manage the Schedule

In many projects, you might get a little behind but have confidence that you can make up the time later. However, when you start a project with the deadline at risk, be sure to manage the schedule diligently. You have no margin for error. If early due dates start to slip, you are going to be in trouble early. As you monitor the schedule, treat missed deadlines as issues and work hard to solve the reasons behind the slippage. Again, get your team, management and customers involved. If your customers are causing delays, get more accountability from your business managers for helping to resolve project resource problems. Again, if the problem cannot be resolved perfectly, at least you are continuing to manage expectations.

Look for Process Improvement Opportunities

Lastly, take an honest look at your schedule and your approach for executing the project. Talk to your team, customers, and manager about any ideas they may have for speeding up the project. This will get everyone thinking about being part of a solution. For instance, if your manager insists on having the project completed earlier than the date you have specified, ask him what techniques he could suggest to achieve the earlier end date. Document any suggestions you receive. Show your customer the project plan as well. If you are not achieving the end date they expect, ask them for ideas on how to shorten the project. See if they can help you come up with a solution to the scheduling problem, instead of just passively waiting for the project to be completed.

In addition, perform a self-evaluation of the project schedule and see if there are ways that you can reduce costs and cycle-times. For instance, are there some different development techniques that you could try that might decrease the end-date? Could you utilize a Joint Application Development (JAD) session to gather requirements more quickly than traditional interviewing techniques? Look at how you currently deliver projects and how you manage them to see if there are ways that you can accomplish the project objectives for less time and cost.  

Summary

In summary, although it appears that you are being held accountable for events and circumstances that are not within your control, you do have control over the processes you use to manage the project. First, see if you can balance the early deadline by increasing resources or reducing project scope. Second, proactively manage risk, scope and the schedule so that you can better manage expectations and have the best chance for success given the constraints you are under. Third, work with your manager, customer and project team to evaluate how you are executing the project. You may discover ideas and techniques that will allow you to deliver the project more quic that you might have first thought possible.

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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