Earn Your Value - Part III

cost management schedule management scope management May 19, 2019
Earn Your Value - Part III

To recap parts one and two of this post, we saw:

- how earned value is useful for monitoring both costs and schedule
- the basic formulas used to see if our projects are off track (and by how much)
- the recommendation that earned value be looked at weekly
- the ideal values for cost and schedule index are one (1.0)
- a simple way of communicating earned value information to our clients.

This week I'd like to take a look at the things we can do to manage our projects, especially if the CI and/or SI is much bigger or much smaller than one. Note that I can merely suggest causes -- you will need to diligently look at your projects and their circumstances to arrive at the conclusion right for you. You may want to produce a graph or visual of your progress so you can pinpoint the time at which things started to go south.

CI << 1 and SI = 1
Being on schedule but over budget might represent a significantly underestimated budget (or a tight budget dictated by the project sponsor), a purchase which required significantly more dollars, or a significant amount of paid overtime to keep the timeline. Since the money is gone, this is difficult to mitigate and bring back on track. Significant re-planning or re-phasing of the project may help. It's probably best at this point to be more concerned about keeping on schedule while watching over the budget more carefully as you go forward.

CI = 1 and SI >> 1
Being ahead of schedule and on budget has some usual generic causes you need to look at first. One is common for construction and other projects relying on good weather -- there was insufficient time in the schedule to mitigate a long run of bad weather. Needless to say, with the delay, you may have resources not working at optimum rates since less work has been completed. You may also have fewer resources working on your project than needed. They are less expensive resources, but the job isn't getting done. You need to look carefully at your resource and risk plans to sort this out.

CI >> 1 and SI = 1
Under budget but still on schedule? This could be enviable, or it might be a sign of unpaid overtime not being tracked. Still, you will probably do best to determine the cause and keep the project on schedule without being overly concerned about budget.

CI >> 1 and SI << 1 In this case, you are under budget, but behind on schedule. The most likely cause is in your resource plan again -- you may have too few resources or are waiting for supplies.

CI << 1 and SI << 1
This is far more typical of troubled projects -- they have problems with both budget and schedule. Worst case, the project is ready for termination. You may have to continue working due to contractual circumstances, but it's going to be difficult to correct both costs and schedule. You may have to consider asking for more budget to make some favorable adjustments to the schedule or shifting some of the work to subsequent project phases. This situation requires the most analysis and judgment to correct.

CI >> 1 and SI >> 1
The answer to being significantly ahead of both schedule and budget usually lies in "sandbagged" estimates. Everyone was a little too cautious and added too much time and money. There may have also been very favorable conditions. You probably want to consider sacrificing some of the budget for the greater good of the company and its project portfolio. Planning for an early release of resources may be necessary as well. In any event, make sure you keep a reasonable contingency (say 15%) available in case your lucky streak stops!

As a final thought, you might want to calculate what is sometimes called the critical ratio for your project, which multiplies the Cost Index and Schedule Index. This helps you arrive at a single number combining cost and schedule and allows you some leeway in each. As always, if you have a question or comment, feel free to drop me a line at [email protected] or as a comment to this entry.

[This article was originally published 28 December 2019]

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