Is PM As Technically Advanced As It Should Be?

 

I believe that it’s axiomatic that the two most important questions that any Project Management Information System should be able to accurately answer are:

• At this rate of performance, when will this project be done?
• And how much will it cost?

Oh, sure, there are myriad others bits of information that can help shape the PMs’ overall strategy as well as day-to-day decisions, but I consider them secondary to reliably answering the two questions above. Why? Because a manager’s time is finite. The PM who scatters his energies among all of the activities and tasks within the project will be out-performed by the manager who knows which of her activities are doing fine without her attention, and instead concentrates on those tasks that are facing some kind of difficulty.

So, this being the case, has the optimal strategy for providing the answers to the two key questions been identified?

Yes, actually. In Dr. David Christensen’s paper Determining An Accurate Estimate At Completion[i] (National Contract Management Journal, 1993), he establishes that a calculated EAC is consistently and reliably within 10% of a project’s real at-completion costs once the project has passed the 20% completion point. This, in turn, was predicated on other studies that established the Cost Performance Index’s (CPI) stability. Since almost all EAC calculations involve the CPI (in fact, the most common EAC formula is total budget divided by the CPI), the establishment of its stability was, in my humble opinion, one of the great PM information system breakthroughs of the latter part of the 20^th century. It presented a quick, easy, and accurate way of answering the two main questions cited at the beginning of this blog.

For those of you who are newer to Earned Value Methodology, the CPI is calculated so:

CPI = Cumulative Earned Value / Cumulative Actual Costs

What’s Cumulative Earned Value?

Cumulative Earned Value = Total Budget * % Complete

The algebra whizzes within GTIM Nation probably already know what I had to be shown, that the Estimate at Completion formula, of dividing the Total Budget by the CPI, can be simplified to:

Estimate at Completion = Cumulative Actual Costs / % Complete

“Impossible!” the purists will say. “That critical piece of information can be accurately calculated with just two fairly-easy-to-acquire data points?” Yes, it can, and it gets better: the same formula works for duration! To know, within ten points of the final outcome, when your project will be finished, simply divide the cumulative duration by the percent complete to get total duration. Subtract out cumulative duration, and that’s how much longer you should expect the project to continue.

Now, has the GTIM blog just obliterated the need for comprehensive cost and schedule baselines, and complex Critical Path Methodology networks? Hardly. Those will always be in demand for advanced PM techniques and strategy development.

What the above assertions do (or at least should) overturn is the whole notion that EACs are best calculated using the “bottoms-up” method, where the PM (or cost analyst, or scheduler) re-estimates the project’s remaining work, adds this figure to the cumulative actual costs, and claims victory. Whereas the list of cumulative actual costs is usually reliable, that other component – the re-estimation of the remaining work – almost never is. Every single line item in the new estimate is subjective. It’s what the PM or estimator believes will happen in the future while ignoring what has happened in the project to that point, especially if a spate of poor performance has hit the project. That, of course, will be corrected going forward, the PM tells himself, as it influences away from reality each of the hundreds of data points going into the new baseline estimate.  The whole bottoms-up approach to the EAC is analogous to a person taking a one-mile hike, and being asked mid-point how long he thinks it will take to complete. Rather than look at his timer and multiply that amount by two, he instead tries to guess how far away he is from the finish line. If he had said prior to beginning the hike that he would finish at a certain time, the answer at the mid-point assessment will almost invariably be the same as it was at the beginning, available performance data notwithstanding.

I have no delusions that the above brilliantly-articulated analysis will bring a sudden halt to the practice of coming up with an EAC based on the bottoms-up approach. As a cliched method, it’s simply too entrenched in the commonly-accepted “wisdom” of PM aficionados and guidance-generators, who would rather embrace conventional wisdom than proven, repeatable management science.

And that preference is but one example of why PM is not as technically advanced as it could be.

[i] Retrieved from https://www.researchgate.net/profile/David_Christensen4/publication/228984762_Determining_an_accurate_estimate_at_completion/links/569f9d1908ae4af52546bb07.pdf on March 2, 2019, 13:28 MST.