Assessing Project Performance against Project Baselines - Research Paper Example

Assessing Project Performance Against Project Baselines This paper reviews the basic concepts of monitoring projectperformance and Earned Value Management established in traditional project management and determines whether and how these concepts can be applied for successful project performance monitoring. First the origins and concepts of Earned Value are reviews, followed by its application in different knowledge areas of project management. 1. Project Performance A project is monitored and controlled from initiating, planning and executing to closing. This involves collecting actual data, measuring performance, interpreting performance data and identifying trends to initiate process improvements through corrective and preventive actions. Continuous monitoring helps project team to identify any areas that require consideration through out the project (PMI, 2008). This involves Comparing actual performance to the planned baselines of scope, cost, time, quality and risk. Initiating corrective and preventive actions. Initiating any change requests. Process change requests for approval. Monitoring that approved change requests have been implemented. Updating project baseline based on results of performance measurement. Disseminating information on revised cost and schedule. Provide information on project performance to all concerned. Typically, project managers use earned value management techniques to measure the project performance. This is discussed in next sections of this report. 2. History of Earned Value Earned Value Management technique is employed to measure the project performance against the planned baselines and to forecast any deviations from the planned activities to bring project variations within acceptable limits. Planned expenditures, budgeted expenditures and actual expenditures form the basis of Earned Value calculations. The concept was introduced in 1890’s to measure engineering performance in industrial setups where a cost variance against actual expenses was established to determine project performance. In 1960’s, US Navy formally began to use this technique in their projects. It was later made more user-friendly based on define set criteria by National Defense Industrial Association to effectively employ this technique in public and private sector projects (David, 1994). Project Management Institute introduced Earned Value Management as one of its tools and techniques to measure project performance against the already planned baselines. 3. Earned Value Management The key parameters (Daniel, 1985) used for earned value management calculations are discussed below: 3.1 Planned Value (PV). It is the planned budgeted cost for the work scheduled for completion on the schedule activity up to a given point in time. 3.2 Earned value (EV). EV is the budgeted cost for the work actually completed on the schedule activity up to a given point in time. 3.3 Actual cost (AC). AC is the actual total cost expended on the schedule activity up to a given point in time. Rita (2009) asserts that these values are related in a number of ways to establish project metrics for measuring the project performance as shown in graph below Earned Value Management for Project Performance Figure 1 Earned Value Management is the most commonly employed method, which relates project scope, cost and schedule for measurement of project performance. The most common metrics used to measure the project performance are Cost Variance (CV) and Schedule Variance (SV). The variance in CV and SV decreases as more work is accomplished towards project completion. Also values of acceptable variances in CV and SV can be determined early during the project planning (Charles, 2010). 3.4 Cost Variance (CV). Difference in Earned value (EV) and actual cost (AC) gives the cost variance. At the project completion, cost variance can be calculated as difference of Budget at Completion (BAC) and Actual Cost incurred. Formula: CV= EV – AC 3.5 Schedule Variance (SV). It is the difference with Earned Value and Planned Value. It will be equal to zero at the end of project because al the planned activities have been accomplished. Formula: SV = EV – PV Based on above values, the CV and SV, efficiency indicators for cost and schedule can be established to measure the project performance. 3.6 Cost Performance Index (CPI). Cost Performance Index (CPI) is a ratio of Earned Value (EV) to Actual Cost (AC). CPI value is a cost efficiency indicator showing either a cost overrun (less than 1) or a cost underrun (greater than 1). Formula: CPI = EV/AC 3.7 Schedule Performance Index (SPI). SPI is a ratio of Earned Value (EV) to Planned Value (PV) and is used to forecast the date of completion and estimate of completion. Formula: SPI = EV/PV 3.8 Estimate at Completion (EAC). Estimate at Completion is given by following formula EAC = AC + ((BAC -EV) / CPI) where BAC is the total budget at completion. 3.9 Estimate to Completion (ETC). Estimate to Completion is given by following formula ETC = (BAC - EV) / CPI 4. Predicting Future Project Performance Accuracy of Earned Value Management in predicting the future performance of the project depends upon three main factors (Anthony & Griffith, 2006). 4.1 Project Baseline. Earned Value Techniques relate Earned Value against the project baselines. More accurate the project baseline is, more beneficial would be outcome of earned value management, Thus, cost overruns would occur if project is under budgeted and scope creep would occur if project scope baseline is not accurately defined. 4.2 Actual Performance. Whether the actual performance relates to the approved project baseline plan. 4.3 Management Commitment. Results of the earned value provide management with indications of whether a deviation from planned project plan exists or not. This demands determination and commitment at the management level to initiate actions that help to bring project variances within predefined acceptable limits. 5. Traditional Projects According to Anthony and Griffith (2006), two major assumptions encompass the traditional projects. 5.1 Project Scope. It is assumed that scope is complete and well understood, and that when a change control system exists, there would be very few changes to the project scope. 5.2 Project Work. Another assumption is that the project completion follows a linear progression rate and that the present rate can confidently be used as an indictor of future work completion rate. 6. Earned Value Application For applying Earned value Management Systems in monitoring project performance, a task based comprehensive project management plan is developed in planning phase, which is base lined for future reference. According to Rita (2009), applying earned value techniques involve Develop project scope Determine project millstones, activities and work breakdown structure (WBS) based on hierarchy of project deliverables. Determining roles and responsibilities for completion of each task Determine project baselines Determine management reserves Develop project schedule Develop project budget As the project progresses, earned value technique is applied using the actual data in relation to planned baseline at each milestone, phase or similarly already defined points in a specific time during project. The project managers interpret the results of earned value to determine if there is a deviation in the project from master plan. They then initiate corrective actions that help bring the project back to its original course and preventive actions to check any potential deviation. If a change in scope is required then it is processed through a change control system for changes to be minimal. This would lead to revised project scope, cost and change requests that need to be communicated to all concerned through out the project organization (PMI, 2008). Thus this forms a major part of project communication plan as well. 7. Project Performance Monitoring Project Performance is measured using variance analysis, trend analysis and other tools and techniques against the project baselines of scope, cost, time and quality. These are discussed below: 7.1 Project Scope Performance Measurement Project scope is established during planning phase of the project and is base-lined against which performance of the project scope is measured. Recommended tools for measurement of performance in scope include variance analysis, change control system and configuration management. Based on results of project performance, change requests may be initiated that may affect and require changes to work breakdown structure, project scope statement and project scope management plan. Any change in project scope, may in turn bring changes to other parts of project management plan (Rita, 2009). Table 1 below provides information on tools and techniques applied for measurement of project scope performance. Table 1 : Project Scope Performance 7.2 Project Schedule Performance Measurement Project Schedule is measured against the predetermined project schedule baselines, which forms the basis for measuring and reporting the schedule performance. Tools used for measure of schedule performance include variance analysis and schedule comparison bar charts. These bar charts can be made using an excel sheet, MS Office Project or any other suitable project management software (PMI, 2008). Table 2 below shows inputs, outputs and tools and techniques used for project schedule performance measurement. Table 2 : Project Schedule Performance 7.3 Project Cost Performance Measurement Project performance in terms of cost is measured against the project baseline of cost. Summing up the estimated costs by period gives cost baseline that is usually represented by an S-curve. Project usually have multiple costs and thus multiple cost baselines for which performance measurements are made against each. For example, cost internal and external to the project may need to be measured against separate baselines. Tools used for project cot performance measurement include variance analysis, cost change control system and forecasting (PMI, 2008). Table 3 below shows inputs, outputs and tools and techniques used for project cost performance measurement. Table 3 : Project Cost Performance 7.4 Project Quality Performance Measurement Project quality is measured, monitored and controlled to determine if the project comply with relevant quality standards, which include project processes and product deliverables. This helps to eliminate causes of unsatisfactory project performance. Different statistical tools including control chart, histogram, Pareto chart and scatter diagrams may be employed to monitor and control the project quality against quality baselines (Rita, 2009). The project quality baselines describe the project quality objectives and form the basis for measuring quality performance against project performance baseline (PMI, 2008). Table 4 below shows inputs, outputs and tools and techniques used for monitoring of quality against project quality standards.. Table 4 : Project Quality Performance 8. Project Performance Reporting Although considered unimportant, it is very critical to report performance after project performance has been measured and is an integral part of communication plan (Rita, 2009). This reporting may take many forms including Status Reports. Describes the current status of the project with respect to performance baselines of scope, cost, time and quality . Progress Report. Describes what has been achieved till a specific time. Trend Report. Indicating any trend in project performance over a period of time. Forecast Report. This report provides information on future status and performance of the project. Variance Report. Compares actual data to planned baselines. This report includes the earned values to depict the project performance. Lessons Learned. This includes the lessons learnt during project implementation as a result of any project deviations and the line of action taken to bring project back on track. References PMI. (2008). A Guide to Project Management Body of Knowledge (PMBOK). (4 ed.). Pennsylvania: Project Management Institute. Rita, M. (2009). PMP Exam Prep. (6 ed.). Minnetonka: RMC Publications Inc. Charles, B. (2010). A Practical Guide To Earned Value Project Management. (2 ed.). Vienna: Management Concepts Inc. David, C. (1994). Using Performance Indices To Evaluate The Estimate At Completion. Journal of Cost Analysis and Management, 17-24. Daniel, M. (1985). Earned Value Technique For Performance Measurement. Journal of Management in Engineering, 1(2),74. Anthony, C., & Griffith, M. (2006, July). In Maurer Frank (Chair). Earned value and agile . Paper delivered at Agile conference. Read More