Thursday, March 3, 2016

Project Management Metrics

Gauging whether there is incremental improvement and setting up mechanisms to track and measure these improvements is the difficult part and this is where Metrics come in.

Metric’ is defined as “Standard of measurement by which efficiency, progress, performance, productivity, quality of a deliverable, process, project or product can be assessed”.  Metrics help in building predictability, improving organization’s decision making ability, and lay out what is working and what is not working within the organization and help guide the management focus in the right directions.

Project management metrics enable Project managers to:

  • Assess status of ongoing project in terms of schedule, cost and profitability.
  • Foresee any potential risks.
  • Nail down the problems much before they become severe.
  • Keep a check on project profitability.
  • Assess productivity of team.
  • Assess quality of work products to be delivered.

There can be different project management metrics defined based on complexity and nature of project. However, following five performance metric groups cover all the important aspects of a project to measure during execution:

Metrics #1: Schedule and Effort/Cost Variance
The goal of this metric is to measure the performance as well as progress of the project against signed baselines.  This metric is very important and is the base for profitability of project. The EVM (Earned Value Management) concept, as defined by PMI standard PMBOK, is the commonly used method to track this metric. It integrates project scope, cost and schedule measures to help the PM to assess and measure project performance and progress. The principles of EVM can be applied to all projects, in any industry. Under this method, at any given point in time, project performance to date is used to extrapolate the expected costs and duration at project completion. This technique uses past performance (i.e. actuals) to more accurately forecast future performance. EVM develops and monitors three key dimensions of each work package:
Planned Value (PV)How much you planned to spend for the work you planned to do i.e. it is the authorized budget assigned to the work to be accomplished for an activity or work breakdown structure component. Total PV is also known as Budget at Completion (BAC). PV at any stage = (Planned % Complete) X (BAC)
Earned Value (EV)Earned value is the value of work performed expressed in terms of the approved budget assigned to that work for an activity or work breakdown structure component. It is the authorized work that has been completed, against the authorized budget for such completed work i.e. EV is ‘how much you planned to spend for the work you actually did’. Earned Value is also known as the Budgeted Cost of Work Performed (BCWP).
Actual cost (AC): Actual cost is the total cost actually incurred and recorded in accomplishing work performed for an activity or work breakdown structure component. It is the total cost incurred in accomplishing the work that the EV measured. I.e. how much you spent for the work you actually did. Actual Cost is also known as the Actual Cost of Work Performed (ACWP).
Using these three variables project Schedule variance and Cost variance metrics can be derived which shows if the project is running over or under budget; project is running behind or ahead of schedule, as follows:
Schedule Variance (SV) is the measure of schedule performance of the project. It is the difference of Earned value and the planned value i.e.  SV = EV – PV
  • Positive result means that you are ahead of schedule.
  • Negative result means that you are behind schedule.
Cost Variance (CV) is the measure of cost performance on the project. It is equal to earned value (EV) minus actual costs (AC). Any negative CV is often non-recoverable to the project.
CV = EV – AC

  • Positive result means that you are under budget.
  • Negative result means that you are over budget.
Since EVM method allows PM to extrapolate the expected costs and duration at project completion based on project performance to date, PM can develop a forecast for the estimate at completion (EAC) which may differ from the budget at completion (BAC) based on project performance. Forecasting of EAC involves making estimates or prediction of conditions and events in the project’s future based on information and knowledge available at the time of forecasting. EAC is typically based on actual cost (AC) incurred for work completed, plus an estimate to complete (ETC) the remaining work. I.e. EAC = AC + ETC.
Based on this PM can also derive another metric, Variance at completion (VAC) = BAC – EAC

Metrics #2 – Productivity: Resource Utilization

The objective of this metric is to measure productivity of resources involved in project and let PM assess over or under-utilization cases.
Utilization% = Total Effort spent by resource/Total Budgeted Effort for the resource
Budgeted effort is the planned billable work of resource. Any over-utilization and under-utilization indicated by this metric has an impact on the project’s profitability. It is important for the PM to track this metric very closely and find out the reason for deviations and the action items to bring back resource utilization to optimal level. Delayed projects, increased ramp up activities, less work provided by customer, unplanned vacations, less competent resources can impact this metric. To get better control over this metric, robust time reporting systems should be available in the organization. Using this, PM can analyze effort distribution across different project phases/activities. For e.g. Effort distribution can tell PM that how much effort is being spent on defect resolution, customer support or design activities. PM can take corrective actions based on this, if required. For instance, if the resource is complaining that customer support is taking considerable time but the effort distribution shows it otherwise, PM can see where the corrections are needed on what resource is doing. Effort distribution from time reporting systems can also tell the areas of improvement for  better estimations/planning for the next project.

Metrics #3: Change requests to Scope of work

Signed Scope baseline with customer forms the baseline for the entire project planning and development. Any change to signed scope should happen in controlled manner. So here comes another important metric for PM to track i.e. the number of change requests coming from customer for the already signed scope of work. Each and every change request, once approved by internal change control board (CCB), requires update to Scope baseline which in turn has a cascade impact on cost baselines and schedule baselines and resource plans. Uncontrolled change requests often result in project scope creep and further impact negatively on the project cost/schedule, which is the worst thing to happen for any project. PM should never allow such scope creep. Based on the magnitude of the variance from original scope baseline, CCB should decide whether to accept or reject the change request and this decision should be communicated back to customer. In case of acceptance of change request, the impact on project cost and schedule should be clearly communicated in written form to customer and a written agreement from customer secured on those from customer before proceeding.

Metrics #4: Quality and Customer Satisfaction

Throughout the execution of project, Quality Assurance should always be on the radar of project manager. Quality is defined as the number of severe, medium or low defects delivered through the lifetime of the project. It indicates the health of the deliverable to the end user and drives the Customer Satisfaction. PM needs to define, based on project type, what severe, low and medium means. Quality should be reported throughout the life of the project; the later defects are caught, the more impact they will have on the project. Under quality metrics, following are the key ones to track:
Defect density = Total number of defects found/ Measure of size.
For e.g. in case of software projects this can be: how many defects are found in 1KLOC (Kilo line of code). In general, size measure can be considered as planned effort like ‘person day total planned effort’.
Defect age
Number of days since the defect is open and not fixed. It can also be inferred as the time customer has been waiting for their issues to get resolved,
Defect resolution rate = Total number of defects resolved/ Total effort spent
Rate of closing the open defects over a period of time. If the rate of resolution is not in line with the defects being opened over a particular time, this indicates to the PM a situation of concern.

Metrics #5: Gross Margin

Gross Margin is the mother of all metrics and the quickest way to determine if your business in on track or not and acts as an early warning system to put in place margin improvement initiatives. Ultimate goal of project execution is to bring revenue to organization with the approved gross margin. Gross margin (GM) is basically the difference of total revenue and the total cost spent on project i.e. profit.

When a project is started, certain GM levels for the project are approved by project sponsor. This approved GM value is generally based on project scope definition, duration, a forecast of resources: onsite, offshore and organization’s investment analysis. Project PNL (Profit and Loss) statement gives a way to PM for tracking his/her projects GM metric at any point of time. For this, PNL statements and forecasts should be current documents i.e. changes in project parameters need to be reflected quickly in this statement to keep the PM informed about any potential risks to project profitability. All the above four project management performance metrics impact this metric, if not handled in controlled manner. A good organizational level PNL tool rather than manual excel sheets reduces the overhead on PM here.

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