Project Management

Poor Man’s Project Management, Revisited

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Modelling Business Decisions and their Consequences

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I have to laugh whenever I hear some manager state that he doesn’t use nor need Earned Value. All managers, even ones who don’t think of themselves as PMs, use Earned Value, and here’s the proof: if your accountant comes to you and says “You’re half spent,” what’s the first thing that enters your mind? It’s automatic – “Am I half done?” And, at that moment, an Earned Value calculation has taken place.

The brutal fact of the matter is that a perfunctory level of project cost and schedule performance measurement and reporting (the very core of Project Management, in my opinion) can be attained with limited resources. Exhibit A in this argument is the production of probably the most valuable bit of information that a cost/schedule performance system can deliver, the estimate of total costs at completion (EAC) and total project duration. A simple comparison of these two parameters with the originally planned budget and scheduled end date reveals the coveted Variance at Completion numbers. Conventional wisdom holds that the EAC should be attained by performing a detailed re-estimate of the project’s remaining scope, add that to its cumulative actual costs, and you have your EAC. As for estimates of the project’s duration, a complete Critical Path Methodology (CPM) baseline is indicated, with the rules pertaining to a maximum number of activities with start-to-start relationships set (typically, very low), the method(s) for collection percent complete data stipulated, the maximum activity length specified, among many other parameters itemized, before a reliable finish-by date can be asserted. To all of the above, I say: nonsense. Those two extremely valuable information bits can be had far more simply and affordably. Here’s how.

GTIM Nation knows of my respect for the work of Dave Christensen, particularly his analysis on Cost Performance Index (CPI) stability[i]. The reason that the CPI’s stability is a big deal is because it’s the denominator in one of the most common EAC calculations:

EAC = Budget at Completion / CPI

Because of Dr. Christensen’s work, seasoned (or at least well-read) Project Controls Analyst know that this formula will return an estimate that’s reliably within ten points of the actual cost at completion, once the project has cleared the 20% complete point.

Here’s where things get interesting. Recall that the CPI is the cumulative Earned Value amount divided by the cumulative Actual Costs. And what is the Earned Value parameter? That’s percent complete multiplied by the total budget (the aforementioned BAC). Members of GTIM Nation who are good at algebra (I am certainly not among them) already see where this is going. The above formula for calculating a reliable EAC can be reduced to simply dividing the cumulative Actual Costs by the cumulative percent complete.

Two parameters.

Two.

All of the insistence on an up-to-date master resource dictionary feeding an off-the-shelf estimating software package, which then transfers its data to a Critical Path Methodology software for time-phasing in order to create the Cost Baseline – yeah, not really necessary, at least not for these two key performance indicators.

But wait, as the telemarketers say, there’s more. The same trick works for duration. For a cheap but reliable estimate of a project’s (or singular activity’s) duration, divide its cumulative duration by the estimate of its percent complete from the same time, and you have it. Compare that figure to the project’s originally planned duration, and you have the variance.

I can almost hear the more seasoned members of GTIM Nation saying “Michael, haven’t you gone too far down the road on this whole reductionism business? I mean, even if these are reliable ways of deriving at-completion cost and schedule performance data, they offer absolutely no insight as to which parts of the Work Breakdown Structure are responsible!” To which I would say, that’s absolutely correct, and, if you are working a complex, high-budget project, with an involved customer, you will absolutely need all the other formal stuff. However, I would also like to point out that most off-the-shelf Critical Path Methodology (CPM) packages compute likely task duration the way I just laid out, by dividing cumulative duration by percent complete. Of course, the CPM packages take into account dozens (if not hundreds) of other parameters; but, if you’re on a tight budget (and in a hurry), this may be your ticket.

Ultimately, quality PM information streams can be made available on a budget, but only if the organization is enlightened enough to eschew superfluous elements of the traditional PMO. Like overly detailed baselines. And risk management (no initial caps).


[i] Christensen, David S., and Rees, David A., Is The CPI=Based EAC A Lower Bound To The Final Cost Of Post A-12 Contracts?, Journal of Cost Analysis and Management, Winter 2002.

Posted on: June 15, 2024 11:18 PM | Permalink

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