Beginning a new project can feel like a daunting endeavor to undertake in a small-to-medium size business. Poorly planned projects can be a drain on company resources and lead to apprehension on future initiatives. At some point it is likely that your organization has sponsored a project only to have the scope and/or budget run over with little to no desired results achieved.
Whatever situation you have found yourself in, we can help you avoid it in the future by giving you tools which provide an objective overview of the project. In a single dashboard, you will have clarity on your projects’ progress - including the under-performing aspects - which can be used in effective decision making. We will do this using KPIs (Key Performance Indicators) to view consumable and relevant pieces of information.
KEY PERFORMANCE INDICATORS
Key Performance Indicators are metrics used to measure the success of a project over time. Meaningful KPIs can drive improvement and growth in an organization. They are based on specific and measurable goals that will help you focus your efforts, use your time and resources productively, and increase your chances of successful project completion. As a small-to-medium size business you have the ability to track the status of your project without all the formalities of a larger organizations Project Management Office.
The illustration below is an example of a project management dashboard. This dashboard allows you to see the project status at a point in time to determine what, if any, changes need to be made. The 4 KPIs of Earned Value Analysis, Variances, Performance Index and Completion Analysis show the project status at a glance to stakeholders.
By reviewing the dashboard below, you will see that this project is over budget and under performing. Based on this information, you can make decisions on how to proceed with the allocated resources.
In the sections following, we will explain each of the graphs, the KPI data points, and the definitions behind each metric.
SAMPLE PROJECT HIGHLIGHTS
During the initiation phase of a project, tasks are identified for the work to be performed and a budget is allocated. This will usually consist of a work breakdown structure which assigns tasks along with the associated monetary value of completing the task. In future posts, we will walk through the work breakdown structure, but for this exercise we are making the assumption this has been done and monthly summaries are provided.
In this example, we are given an overall budget of $25,000 and a timeline of 12 months to complete the project. The budgeted amount and the expected percent complete are cumulative and build on the prior months information. For example, in March, the total budget for the work completed to date (including January, February and March) is $9,750. This combines the $2,000 budgeted for January, the $4,500 budgeted for February and remaining $3,250 for March. The same calculation applies for the time component. In March, the planned percent complete is 15% to date (including all work done in January and February). This continues on as we reach the 12 month mark.
Throughout the project, KPI’s should be monitored frequently as they provide valuable insight into the costs and schedule. Let’s review each of the graphs in more detail.
EARNED VALUE ANALYSIS
We are starting with the sample Earned Value Analysis. On a project management dashboard, the earned value analysis is one of the most valuable indicators to include because it shows you the schedule and budget for the project in relation to where the project stands at a point in time. It can be used to forecast future performance along with project cost and completion dates.
A KPI showing the earned value (EV) alongside the planned value (PV) and actual budget measure progress achieved on the project. You can easily look at the graph lines to determine the following:
If EV line is below PV, the project is behind schedule
If EV line is above PV, the project is ahead of schedule
If AC line is below EV, the project is within budget
If AC line is above EV, the project is over budget
The following Earned Value Analysis illustration shows us that the project fluctuated on scheduled completion, but started out and remained over budget.
The second KPI on the dashboard deals with variances. Variance measurements track the differences for actual vs. the baseline or known standard. There are 2 types of variances that are tracked in this project management dashboard and they are both important in knowing how to manage the budget and time elements of the project.
Cost variances can be positive or negative depending on the amount of difference in the actual cost and the planned value. It is the monetary value of the project.
Scheduled variance compares planned performance to actual performance without considering costs. It tells you if the project is on time, ahead of schedule or behind schedule.
A positive variance indicates the project is ahead of schedule or under budget. A negative variance indicates the project is late or over budget.
It is important to identify the variance thresholds and have contingency plans in place in case thresholds are exceeded. For instance, if the cost variance exceeds $2,500 or 25% of the total project cost, a contingency plan could be that lower priority tasks would be put on hold. A similar threshold and high level plan can be put in place if the project gets too far behind schedule. Internal and external factors can influence the project, and variances are expected, but setting expectations at the beginning along with next steps is crucial in managing a successful outcome.
In the Variances KPI example above, for months where the scheduled variance is positive, the project was ahead of schedule. Months where the scheduled variance was negative, the project was behind schedule. At the end of the 12 month period, this indicator shows the project is behind schedule.
At a glance, you can see that for the entirety of the project - the cost variance is negative - indicating that the project has been over budget from the start.
Another valuable KPI on the project management dashboard are the Performance Indexes. These indexes communicate the expected value of work performed and the actual value received to date.
Cost Performance Index (CPI) - Shows the rate the project performance is meeting cost expectations during a specified period of time.
If the index value is greater than or equal to 1, the project is within budget
Scheduled Performance Index (SPI) - Shows the rate the project performance is meeting scheduled expectations during a specified period of time.
If the index value is greater than or equal to 1, the project is within the schedule
Generally speaking, if either of these indexes is below .85, the project is performing poorly.
To Complete Performance Index (TCPI) - Shows the rate of completion that needs to be met in order to stay in budget.
If the index is less than or equal to 1, the project is meeting or exceeding the project budget and/or schedule.
The TCPI shows the future efficiency or performance of the project. As shown in the illustration above, in the month of October, a high level of effort will need to be put in place to meet the timeline. That was accomplished and the graph shows this in November by illustrating that a low level of effort is needed to meet the project timelines. that the es the following:
The final KPI on the project management dashboard is the project Completion Forecast. These 3 data points are all forecasts based on a point in time and are helpful in making adjustments to the project scope and budget, if needed.
In our sample project, we started out over budget and behind schedule. In the first quarter of the project, the estimate at completion and estimate to completion indicated that the project was close to doubling in budget and time. The negative Variance at Completion would show the project is on track to exceed the budgeted amount. Adjustments were made to bring costs more in line during the month of June which corrected some of the variances shown earlier.
Estimate at Completion (EAC) - This metric calculates the total project estimated cost at the forecasted completion date.
Estimate to Completion (ETC) - The cost of the remaining work to be completed.
Variance at Completion (VAC) - A comparison of the original budget at completion and the forecasted cost. A negative value indicates the project may exceed the BAC.
KEY PERFORMANCE INDICATOR (KPI) DEFINITIONS AND MEANINGs
The following chart provides field level descriptions for the indicators along with formulas needed to calculate the results.
When looking at each individual component of the dashboard, we can quickly see project status and make business decisions on how to course correct, if needed. The benefit of having these KPI’s set up for projects in your business is that you can easily make corrections before costs and/or schedule spiral out of control.
Click the button below to download the spreadsheet template:
At Quandary Tech, we specialize in applying project management for small businesses and medium size businesses. If you have any project management needs, please contact us at 800-208-6388 or click the button below.