If you have ever served on a project, you have most likely encountered some stop light reporting. This is where when you are at status green, all is good, status yellow, there may be issues, and status red, “we got a problem.” This does very little for the project team because you can have a green status all the way up to the last day, and then some risk factor puts the project immediately into red. This process is a bad way to measure the status of a project.
On the other hand, earned value management (EVM) is a very complex set of formulas, where to answer one equation, you first need to answer another. This can be difficult to do on a regular basis, especially on shorter projects, but it is more effective.
What is a project manager to do?
It breaks down to two things, money and schedule. To do this, I use a subset of EVM called indexing. I have formulated a simple set of examples to demonstrate how it works.
For the sake of simplicity, we will use round, easily divided numbers.
The proprietors of our company Kim and Tim Lally are having 100 apple trees planted in their back yard. They hired a team of two, expert tree planters to accomplish the task in 10 days. They agreed to pay the team $100 per day. So ten trees per day at the cost of $10 per tree.
The first day goes like this:
- The team is able to plant twenty trees because the ground nice and soft, ready to go, and the team came up with a better tree planting method that saves time.
- The Lally’s paid the team $100.
If you were reporting project status, is the Project 20% complete or 10% complete?
The answer is not so easy here. Do we use the money spent to date or the progress? In project management, we use neither, or rather we use both. In order to express project status realistically, I will show you the schedule performance index, and the cost performance index. In order to demonstrate the concept, I have to show you a chart or three.
Chart 1 will represent our first scenario, Schedule performance index:
Chart 1 represents an early delivery of the project. We see the two workers are working at pace of 20 trees per day based on different conditions, and improved processes. I use projection (see my blog named “Estimates, Forecasts, Projections for further information on this) to determine an early delivery. In this case, we reflect the early project delivery as a schedule performance of greater than zero, or SPI > 0. This is a good thing by the way. You don’t have to actually do the SPI calculation (Earned ValuePlanned Value, for those curious), you just need to know that the completed amount of work exceeds the estimated amount of work scheduled to be completed at that time.
The next index is the cost performance index. Chart 2 reflects the project as under budget.
In our apple tree example, our team, in their efficiency is expected to deliver the project in half the time at their pace of 20 trees a day. We can use a projection to determine our actual cost to complete the project. This variance is expressed as a cost performance index of greater than 0, or CPI > 0. Often we express this in earnings, as in “you are earning more than you spent,” (i.e. under budget). Keeping this simple again, you do not need to do the math (Earned ValueActual Cost); you just need to know that you have spent less than scheduled.
In the above example, I am going to show a project at risk. The team is behind schedule and this will negatively affect the budget. This further shows how the project status can be a little muddy. Shown here that again based on our budget, the tree team went over due to the slower pace based on the actual work performed. Therefore, we have an SPI < 0, and a CPI < 0, or over budget and behind schedule, or late in this case.
So we express the project in both terms, this allows the money and schedule to be reported independently, but always in conjunction with each other. It’s important to note that you can have under budget projects that run late, or early projects over budget, as well as a few other scenarios. One index does not always drive the other as it did in this case.
Let me know if this would work on your project reporting; I’d love to hear your thoughts at jchamberlain@ktlsolutions
JEFF L. CHAMBERLAIN, PMP | Project Manager
Jeff comes to KTL Solutions with an extensive background in healthcare IT, technical consulting, and telecommunications. He has been a project manager for almost 20 years, holding certifications from the Project Management Institute as a Project Management Professional, from the Management and Strategy Institute as a Six Sigma Lean Professional, and he holds a Scrum Master Certification from the Scrum Alliance. He has managed both hardware and software implementations for both the government and private sectors, in industries such as healthcare, insurance, telecommunications, staff augmentation, supply chain and shipping.
Jeff has provided training for clients globally, working in Europe, Russia, North and South America on various topics from system optimization to wireless theory and design. He possesses a Bachelor’s Degree in Technical Writing from the University of Baltimore.