Business Analysis: It’s All About Whom You Believe

 

Okay, GTIM Nation, it’s time for another payoff grid (yaaaah)! Last week I discussed the problems presented when a project’s cost/schedule performance system was relaying information showing that a project was in trouble, but its principals rejected that insight, or even attempted to cover it up or refute it. Technically speaking, this is one of four possible outcomes from the cost/schedule performance system interacting with management, so:

So, under what circumstances would the cost/schedule performance system indicate that the project is doing fine, but the project team reacts as if it’s in trouble? Well, that depends on the information system.

In past blogs I’ve asserted that all valid management information systems have all of the following attributes:

• The information is timely. Depending on the data cycle, information has a relatively short shelf-life, after which it really can’t be relied on for making decisions of import.
• The information is accurate. Inaccurate information is useless.
• …and, perhaps most important but most elusive, the information has to be relevant.

Why is relevant management information elusive? Consider the following scenario. Midway through a medium-sized project, the Earned Value performance indicators Cost Performance Index and Schedule Performance Index (cumulative) are sitting at 1.02 and 1.05, respectively, meaning that, at the current rate of performance, you will wrap up under-budget and early. However, your friend the accountant, and that risk management fellow, are insisting on interrupting your project review meeting.

“Look you here, Ms. Project Manager!” the accountant begins, “you are spending more than your cumulative time-phased budget. At this burn rate, your project will overrun!”

The risk manager chimes in. “Also, the risk analysis indicates a 25% chance of weather interfering with some of the soon-to-start Control Accounts, which add up to $150,000 (USD – the RM wouldn’t actually say “USD,” that’s just for the international readers). Unless you have $32,500 in ready contingency, you will overrun, based on this analysis.”

You look over at your Project Controls Analyst.

“Jay, how confident are you in your figures?”

“You’ve got more than 90% of your tasks’ budget using one of the quantifiable EV methods, and the actuals have been verified. I’m very confident.”

The accountant speaks up.

“I’m a CPA, and the risk manager happens to be a recognized expert in the field. Whom are you going to believe?”

Whom, indeed?

Here’s the problem with those pushing management information streams that are essentially irrelevant: if they err in saying that a problem is nigh, and needs to be addressed, but that “problem” never actually materializes, there is rarely a downside to such alarmism. In fact, such ones as our fictional accountant and risk manager would be in a position to assert that it was their sounding-of-the-alarm that helped prevent the negative future predicted from unfolding. Conversely, should something really go south on the project, but their systems failed to provide any kind of an advanced warning, then not only would their systems’ vulnerabilities be laid bare, they, themselves, might very well have a harder time convincing the next PM (certainly the current PM) that the data they bring to the project review meetings is, well, relevant. If we assume that accountants weighing in on project cost performance or risk managers weighing in on, well, anything (a caveat: after the original risk analysis is performed, and contingency plans and budgets established), then these purveyors of marginally relevant information would be crazy to not constantly beat the sky-is-falling drum.

On the other hand, I have never – never – witnessed a properly functioning Earned Value Management System – even a very simple one – fail to give fewer than three reporting cycles’ worth of warning when any activity or task (with a duration of at least six reporting cycles) at the reporting level was headed for significant (>20%) overruns or delays.

So, whom are you going to believe? One more clue: the first party to point to their education level or depth of experience as a reason their arguments should be considered valid, as happened in our little story, is directly signaling that they have lost the relevancy argument on its merits.

They’re also signaling that you would be crazy to believe them.