The Money Files

The Gartner PPM and IT Governance Summit was held in London last week. Lars Mieritz, a Gartner analyst, gave a good presentation about using metrics for communicating project success and effectiveness. He started out by saying that the top concerns of C-level executives and their direct reports, based on their research, were:

• Demonstrating PMO value
• Effective reporting and executive dashboards
• Measuring the business value of projects, programmes, and portfolios.

Gartner has many years of research in this area and he shared an interesting trend: in 2003 the top concern of CIOs with regards to IT strategy was the need to improve governance and provide leadership. In 2013 the top concern was delivering business solutions. There’s been a shift towards integrating IT more effectively with the rest of the business.

Why metrics count

Project management metrics based around portfolio performance help improve the perception of success. When researchers asked people what they thought of their PMO the views were pretty poor:

• 29% said they got some value out of the PMO but it was largely bureaucratic
• 33% said it was an integral part of getting things done
• 28% said it was a useful admin/support function.

As Lars said, he hasn’t spend decades in PPM only to be considered a useful admin function, so it’s clear that PMO customers believe there is certainly room for improvement in the services the PMO provides.

KPIs, said the verbatim comments that formed part of the feedback of this study, don’t link to business strategies. They don’t talk about shareholder value. Metrics relating to output don’t explain how to improve this output. Metrics don’t identify or clarify issues relating to performance. And finally, business management teams can’t relate to technical measures.

So, PMOs have plenty of metrics, but PMO customers don’t understand them or think they are useful. What should we be doing instead?

Creating good metrics

The main takeaway for me from this section of the presentation was that you shouldn’t copy someone else’s dashboard. What works for one business isn’t going to work for another, so templates aren’t actually that useful here. Every PMO is unique and provides a variety of bespoke functions to the rest of the organisation, so you should tailor the reporting and metrics in use to reflect that.

Metrics, Lars said, should reflect a strong customer focus to ensure they are well-understood and take a business view of project success. How is success viewed? he asked. Then shape management communications (i.e. reporting and metrics) along those lines. He offered some questions to ask yourself when putting together the relevant metrics for your PMO:

Is there organisational acceptance for standardisation around a single approach or method of reporting? This is particularly relevant if different business units have built their own measures and techniques over time or due to mergers and acquisitions. Different techniques mean different results.

Are the definitions of KPIs and metrics simple and useful for external comparisons? Even if you don’t need to compare performance of your PMO and projects with other companies right now you can be that someone will ask you to benchmark performance at some point in the future. Make your life easy and prepare for that now.

• Can you use data from other departments to save reinventing the wheel?
• Is all the underlying data readily available and more importantly, credible?
• Does everyone understand why you are gathering metrics and the purpose and objectives of this initiative?
• Are there sufficient resources to put together a full, comprehensive metrics plan? Do you have enough people or budget to support any training required?
• Is there senior management buy in? Setting up metrics is, after all, a project and it needs executive sponsorship.

Implementing project metrics

Once you’ve defined what metrics are relevant for your PMO, you then have to go ahead and implement them. Lars recommended engaging with users to ensure they understand the process and how these metrics will help improve things. For example:

• Average time lag between identifying an issue and corrective action – shows you delays in addressing problems and then you can work on speeding this up.
• % of projects with complete documentation – shows you where projects might be at risk due to information not being gathered; identifies project managers who many need additional support.
• % of projects with a status report over 10 days old – shows you where project data is out of date and who needs a kick to remind them to update it.
• % of total effort required to reach end of first phase – shows you potential for project to deliver on time and accuracy of planning/estimates.

“Good dashboards show where the problems are,” he said. And that gives you the chance to show what you are doing to eliminate the problems.

Dashboards should track what is important. He also had a great recommendation for PMO leaders who have to produce short reports for their colleagues or sponsors: if you don’t have much time to present statistics (or many pages to present on) then cycle round the metrics you show each time. For example, average number of training days per project manager won’t change much from month to month so show this one month and then report on something else next month. Over time it will give you the chance to report on more metrics, and of course if someone wants to see the training days figures they can always ask for them.

In summary, Lars concluded that metrics should enable us to take action, otherwise what’s the point of them? He said that we should seek metrics that are simple, intuitive and focus on goals and that finally metrics don’t replace judgement. You’ll always have to apply your contextual knowledge to a dashboard to interpret the full situation.

I attended the Summit as a guest of Genius Project.

How do you know if your project is going well? Schedule performance is a reliable way of assessing whether you are on track or not. Here are 6 ways to review your schedule performance and see if you are making the progress you expected.

1. Earned Value

Earned Value management is probably the most reliable way to track and manage schedule performance, but it’s also quite complex to get right, especially if you have no prior experience of working in an EV environment. On a small project you might find that a full EV approach is overkill.

However, it is a good discipline so if you have the time to set it up properly and feel it would be beneficial in your project environment, then you’ll get accurate and useful results with it.

2. RAG/RYG Indicators

Managing through simple colour-coding is pretty basic, but many senior executives like this as it helps them see which projects in a portfolio need their attention. Projects that are coded Red or Amber/Yellow need management attention, and those that are Green don’t.

To add an extra level of data to this simple scheme, you can flag trends with arrows. If the project is green at the moment but at risk of sliding into the Yellow zone, include a downwards arrow in the status information, for example.

You do need to set definitions for what each colour means. This will help avoid the situation where one project manager thinks a project is performing well and another would report the same situation as needing management attention, so set your criteria (or check what your PMO has already set) before your project starts.

3. Progress against milestones

Schedule progress is easy to measure against milestone data. List the milestones that should have been achieved during this reporting period and note whether they were hit or not. This gives a really visual, simple way of showing if the schedule is on track.

If a milestone has not been achieved by the target date you should also include a revised forecast so you have an idea of when it will be completed by.

4. Team morale

This is a measure that was flagged to me by Healthcare Project Management, a book by Kathy Schwalbe and Dan Furlong. I hadn’t considered this before, but team morale does have an impact on schedule performance. They write: “If project team members are always working extra hours, the schedule might not be realistic… On the other hand, if workers are coming in late and leaving early while still producing quality work on time, the schedule might not be challenging enough.”

A happy team may work extra hours because they believe in the project and love what they are doing. Or they might be doing the extra hours because they are swamped with work and couldn’t cope otherwise (in which case you should watch for burn out as they won’t be able to sustain that for long).

5. Tracking Gantt chart

If you use your Gantt chart software to generate baselines and show actual start and finish dates you can generate a tracking Gantt. This will show you progress against your original forecast and is a visual way to display schedule performance. You can generate all sorts of views of this information so you can get a good understanding of which tasks are underperforming. This is easy and useful, so use baselines if you can.

6. Status review meetings

Finally, you have the option of reviewing schedule performance in person (or as part of a virtual team meeting) with the rest of your team as part of a status review session. Trusted team members will give you their impression of how the project is progressing and whether or not they are performing as per the forecasted scheduled work.

Combining this narrative report with data from your project management systems will give you the best overall view of schedule performance. After all, you can’t use data successfully without understanding the context, so it will help to have your team members discuss project status with the figures in front of them.

Understanding schedule performance is critical if you want to bring your project in on time. When you know how your project is performing, you can make changes as appropriate to bring it back on track or enable the continuation of the good work.

Last time I looked at the three general types of contract that you often find on projects: fixed price, cost-reimbursable and time and materials. That’s the overview, but as you’d expect with all things budget related, there’s a lot more to it when you start to dig into the detail.

Let’s look in a bit more detail at cost-reimbursable contracts. Personally, this is the type that I find the most confusing. Fixed price (you pay what both parties agree) and time and materials (you pay for the work done at the vendor’s agreed rates) are pretty straightforward, but cost-reimbursable contracts are harder to get your head around in my opinion.

There are four types. You’ll find the most common three in A Guide To The Project Management Body of Knowledge (PMBOK Guide) – Fifth Edition, each with a snazzy acronym:

Cost Plus Fixed Fee (CPFF)

All allowable costs (that’s whatever you’ve defined in the contract) get reimbursed. Then on top of that the vendor gets a fixed fee extra payment. This is determined at the beginning of the project, normally calculated as a percentage of the project cost. Note that this means it will be based on the estimated overall project cost, so if your costs go up significantly they won’t get any more (although they will probably ask for this to be renegotiated).

Cost Plus Incentive Fee (CPIF)

All allowable costs get reimbursed. Then there’s an incentive paid based on whether the vendor has hit certain performance targets. The theory behind this is that the vendor will try extra hard to meet your needs to earn that performance bonus. The risk is that you set the performance targets against things that are too easy to achieve or too difficult to measure and you end up paying the maximum when you don’t feel as if they have really earned it.

The other twist with this type of contract is that if the project goes over the original agreed budget then you will split the extra charges with the vendor. You’ll agree the amount of the split in the contract (it’s unlikely to be 50/50). This works both ways, so if the project is under budget, you’ll give some extra back to the vendor as you’ll split the saving with them as well. It’s another incentive to do well and to keep costs within budget.

Cost Plus Award Fee (CPAF)

Again, all allowable costs get reimbursed. Then there’s an extra payment, but it isn’t as clearly worked out as in the other two cases. There are performance criteria for the vendor to achieve, and these are documented in the contract, but they are more subjective. The total fee available as an award is negotiated and documented in the contract so the vendor knows the maximum that can be achieved. Then the project team determines how good a job the vendor has done against set criteria and then determines how much of that available fee the vendor will actually get. They can’t dispute the award, so if it is lower than they would have hoped, that’s tough, and they may actually get nothing if the project team consider that their work has not been satisfactory.

These types of contract are used extensively by NASA. As they say in their contracting guidelines, you can’t standardise the performance factors. What’s important on one project is not important on another: early delivery of a weather satellite might be good to help monitor natural disasters more quickly, but early delivery of a planetary probe means nothing because the window to launch it only occurs every couple of years. Therefore in that case early delivery may actually cost money as the probe would have to be stored somewhere. Performance measures should be tailored to the contract and project and, as the NASA guidelines recommend, based on outcomes not outputs.

The final cost-reimbursable contract doesn’t get used much according to Wikipedia. It’s:

Cost Plus Percentage of Cost

In this contract, the allowable costs are covered as you would expect, and the vendor also gets a payment based on those costs. This is calculated as a percentage of their overall cost. So, as they spend more, their fee goes up. See the problem? There’s no incentive to keep costs low. It’s also not that attractive to project teams who have to pay the increasing costs, plus the increasing contractor fee. It’s not surprising that this type of contract is specifically prohibited for U.S. government procurements (its banned in 16.102, the section on Policies if you want to confirm this for yourself, on page 403 of a 1889-page Federal Acquisition Regulation document, or you could just trust me!).

So those are the 4 types of cost-reimbursable contracts. You probably won’t come across all of them, but it’s good to know that they are out there in case you ever do need to use them or a supplier tries to get you to go for one and you aren’t convinced it is the right thing for your project. As with all procurement matters, get specialist help if you are dealing with contracts and legalities: it is very easy to tie yourself and your company into a contract that isn’t clear and that doesn’t serve your best interests so if in doubt, get your in-house counsel to look it over.

You can’t do many projects to change something without spending a bit of cash. And when money is involved, a contract is essential! Generally you’ll come across one of three types of contract on a project: fixed price, cost-reimbursable (also called costs-plus) or time and materials. However, the contract is for the whole deal, so if it makes sense to have some services from a vendor on a fixed price basis and others on time and materials, then the contract would include both these terms. You wouldn’t have a different contract for both elements simply because they were on different terms. There may be other reasons to have contracts for different terms but they are likely to be because the deal was agreed at a different date or similar.

OK, let’s take an example. You want to buy software consultancy and development services from a vendor. They will help you spec out the software so it is fit for use by the users, then they will build it. The requirements gathering part of this deal is on a fixed price basis. They know that it will take them 6 workshops and some prep time to prepare the complete requirements, so they can cost for that in one hit (fixed price). But they don’t know how long it will take to build the software, because they don’t have the requirements yet. If it’s a lot of work they want to be compensated, but they don’t want to overcharge you if it’s not much work, so they’ll price that based on the effort it takes (time and materials). They do know that there is a software licence that they will have to buy on your behalf, and you plan to pay them for this at the purchase price (cost-reimbursable). The one contract between your company and theirs will cover all these elements.

You choose your contract terms based on the best procurement arrangement for your company and theirs depending on what you both want to get out of it and making sure that everyone’s interests are covered. So let’s look at those three contract types in a bit more detail.

Fixed price contracts

With a fixed price contract the buyer (that’s you) doesn’t take on much risk. This is great for the project’s risk register, but not so great for the project budget. As the seller adopts all the risk they normally add a bit to the price to allow for any risks. For example, just because our software consultancy firm thinks it is going to take 6 workshops to define requirements because it has done on the last 10 occasions this doesn’t mean it actually will this time round. They have never worked in your industry before so they add enough into the fixed price proposal to cover them in case they have to do more.

What sometimes happens is that vendors want to win your business so much that they price too low. The problem there is that if something does go wrong and all the risk is on the vendor’s side, they then don’t have enough profit in the deal to make it worth their while, and they may even lose money by working on your project. If this happens then you should watch out – they may start to cut requirements or drop quality to try to claw something back.

However, the advantage for you with a fixed price contract is that you know exactly how much it is going to cost you before you begin the work, and for many project teams this is very valuable.

Cost-reimbursable contracts

With a cost-reimbursable contract you pay the vendor for the actual cost of the work. This could be materials, equipment, whatever and will normally include direct (e.g. salaries) and indirect costs (e.g. electricity for running the office). Indirect costs will be a fixed percentage amount – they won’t send you their electricity bills and ask you to pay a proportion.

So how does the vendor make any money? Obviously they aren’t working for you for nothing, and while you are covering all their expenses they want there to be some kind of financial return. The contract will include a clause that allows them to claim a profit over the cost price, either a fixed fee or some kind of incentive payment. It’s common, but if your vendor proposes this make sure you fully understand what you are signing up to.

Time and materials contracts

Time and materials contracts see the vendor being reimbursed for materials purchased plus a per day or per hour rate for time spent. The developers building the software in this example will charge on a time and materials basis. In this case, there probably won’t be many materials and they will charge their daily rate for time spent writing and testing the new product. They will act pretty much as if they are a salaried member of your project team, and you’ll have a fair amount of control over what they do (as you are paying for it, after all). They might ask you to sign timesheets or at least submit their own timesheets for your approval along with the invoice as proof of the hours spent working on your software.

This sort of contract is great for projects where you don’t know exactly what you want when you start out. Provided you keep a close eye on costs and manage the budget and the work so that you don’t overspend, this can be a really cost effective way to add more resources and skills to the team.

Which of these have you used on your projects? Let us know your experiences in the comments.