CPM – Rich Garling

Earned Value Project Management

Abstract
Earned Value Project Management (EVPM) can be used very effectively in a typical software development project. This paper, by examining the process briefly step-by-step, will show how easy and effective the earned value process can be to a project. I am currently applying EVPM to my projects at work so I will be including real-life examples to show how effective EVPM is at managing progress in a project and showing its true status at any given time in the project.

Introduction

Earned Value Project Management (EVPM) has been bemoaned as being too much work with limited value. I get many resources that push back at me saying that there is too much documentation for little return. They have trouble seeing the value that EVPM brings to a project. Earned Value Project Management (EVPM) is a project management technique for measuring project performance and progress in an objective manner. It is a disciplined approach to ensuring that the project stays on course, on time, within scope and that it actually is getting its dollars’ worth. EVPM is a systematic process that uses earned value as the primary tool for integrating cost, schedule, technical performance management, and risk management (Kerzner, 2009). EVPM can determine the true status of a project at any given point in the project, but only if the rules for organizing the project are followed. This requires a disciplined approach.

What I will show in this discussion is how effectively EVPM can be on any size project, from $50,000.00 and up and how I have used EVPM on projects with resources both on-shore and off-shore. I will show you step-by-step from the initiation to the closing phase how effectively EVPM can help a Project Manager keep their project on track.

A Brief Look Back

EVPM got its start back in the late 1800’s when industrial engineers on the factory floors in the U.S. wanted to measure their production performance. These engineers created a three dimensional way to measure the performance of work done on the factory floor. They created a baseline called planned standards, and then they measured earned standards at a given point against the actual expenses to measure the performance of the factory. Today, their formula is the most basic form of earned value management today (Fleming & Koppelman, 2010).

Approximately forty years later the U.S. Navy introduced PERT (Program Evaluation Review Technique) to industry as a scheduling and risk management tool. The idea was to promote the use of logic flow diagrams in project planning and to measure the statistical success of using these flow diagrams. It didn’t last very long because it was cumbersome to apply.

Critical Path Method (CPM) was created by DuPont engineer Morgan R. Walker when he looked into developing a method that would improve the scheduling, rescheduling and progress reporting of the companies engineering programs. In 1957 Walker, with Remington computer expert James E. Kelley, Jr., developed a system using an arrow-diagram or network method which came to be known as the Critical Path Method (Archibald & Villoria, 1966). Pert/Cost would be introduced as a means in which to add into the network and manage both time and costs. Problem at the time was that computers had not become sophisticated enough to be able to support the concept.

But out of the Pert/Cost concept came the idea that you could measure earned value. The implementation of Pert/Cost in industry required eleven reporting formats, one of which was “Cost of Work Report” and within it there was a format called “value of work performed”. Pert/Cost standard lasted about three years, mostly due to its cumbersome use and industry not particularly liking being told what to do.

In 1965 the U.S. Air Force created a set of standards allowing it to oversee industry performance without it really telling industry what to do. What the Air Force did was to develop a series of broad base criteria and asked that industry satisfy these broad based criteria using their existing management systems. This developed into the C/SCSC (Cost/Schedule Control Systems Criteria) that every company wishing to do business with the government was required to meet.

And the results of these new criteria were impressive. But problems also arose. The original 35 criteria grew, at one point reaching 174, some being very rigid and dogmatic, mostly inflexible taking away from the original intent of being unobtrusive. In 1995 the National Defense Industrial Association rewrote the Department of Defense (DoD) formal earned value criteria and called the new list of 32 criteria the “Earned Value Management System” (EVMS) (Fleming & Koppelman, 2010). Eventually these new criteria would become part of the American National Standard Institute/Electronic Industries Alliance guidelines, what we normally call ANSI guidelines. And from this came a broad acceptance of the new criteria by industry.

Why Earned Value Project Management (EVPM)?

There are many reasons why EVPM should be used in every project. One reason is that EVPM provides a single management system that all projects should employ. The relationship of the work scheduled to the work completed provides a true gauge of whether one is meeting the goals of the project. The most critical association of what work was completed to how much money was spent to accomplish the work provides an accurate picture of the true performance cost.

EVPM requires the integration of the triple constraint: Scope, Cost, Time, allowing for the accurate measurement of integrated performance throughout the life of the project. Integration is a big issue in managing a project. Many times the project management team defines the project one way, the development teams another way, and further still QA will look at another way. Everyone is reading the same sheet of music, but they’re singing a different song. The requirement of the Work Breakdown Structure (WBS) has helped to bring alignment among the various teams impacted by the project. Its hierarchical structure helps to define the scope of the project in easily understood terminology to both the project team and the business sponsors.

Study after study conducted by the Department of Defense (DoD) shows that those projects using EVPM have demonstrated a pattern of consistent and predictable performance history (Fleming & Koppelman, 2010). The studies have shown that end results of projects using EVPM can be predicted as early as at the 15% -20% completion points. The ability to show at that early stage the direction your project is going allows the Project Manager to adjust course making corrections long before it is too late.

The development of a key metric called the “Cost Performance Index” (CPI), showing that acute relationship between the work actually completed and its matching budget, set against the actual costs spent to complete such work, allows management to constantly monitor the true cost performance of any project. In fact, the studies concluded the cumulative CPI didn’t change by more than 10% from the value at the 20% completion point (Christensen & Heise, 1993). I have used this metric successfully in many of my projects over the years. The Project Manager can deliver a forecast of the total funds required, or the Budget at Completion (BAC), by simply dividing the total project BAC by the cumulative CPI. This assumes that the actual cost performance results to date will likely continue to the end of the project. This is considered to be the best case forecast for a project within a statistical range of final cost estimates.

Another metric, “To Complete Performance Index”, concentrates on the remaining project tasks. It is the opposite of the cumulative CPI in that it reflects what it will take in future performance to recover from a negative actual cost position. The TCPI takes the work remaining, basically the total budget minus the work completed, and divides that by the funds remaining (the latest management financial goal less funds spent) to determine what it will take to complete the project.

One of the important benefits of using a performance measurement system is being able to determine how much of the scheduled work has actually been completed at any given point in the project. The basic issue is whether the project is on schedule, ahead of schedule, or behind schedule? And if you are behind schedule, by how far and what is the cost? Schedule performance knowledge like this is especially powerful when compared against the critical path of the project. Both the earned value Schedule Performance Index (SPI) and Critical Path Method (CPM) are metrics that, when used together, will correctly calculate the true schedule position of any project. Falling behind in getting the work scheduled completed is one of the first indicators of likely future problems. Project Managers do not like to fall behind schedule, even though a more important gauge is perhaps the performance against the project’s critical path. When one falls behind the planned work the tendency to add unplanned resources in an attempt to catch up can be quite strong. In essence, you’re doing the same work as was planned, but now you’ll be spending more money for the same amount of effort. Arbitrary decisions to catch up on the planned work can cause irreversible and non-recoverable damage to the project’s cost performance.

The employment of Management by Exception allows the portfolio or program managers to concentrate their efforts on those projects that are in trouble. Typically it means that those projects in the red get read, those in the green are of no concern. It allows managers to concentrate on the key metrics of CPI, SPI, TCPI, and EAC to determine if a project needs their help.

Must Have Documents in EVPM

There are three documents that every project must have, as a minimum, in order to employ EVPM:

The Scope

The most important document that can assure success in a project is the project scope document. EVPM cannot be effectively employed unless the Project Manager has defined the job to be done. It really is impossible to measure done if you don’t know what done means. The reason for EVPM is to be able to measure the work of the project as you are progressing. But you cannot know what to measure against unless you have defined the total scope of the project.

The scope, as defined by PMI, is the process of developing a detailed description of the project and product. The key benefit of this process is that it describes the product, service, or result boundaries by defining which of the requirements collected will be included in and excluded from the project scope (Project Management Institute, 2013).

The WBS

The WBS, as defined in PMI PMBOK, is a decomposition of the work deliverables into manageable work packages, it organizes and defines the total scope of the project (Project Management Institute, 2013). The WBS shows, in hierarchical form, each activity required to complete the project. These activities are organized into work packages of various duration’s, usually one day to one week. These packages are then aligned by precedent to determine a project schedule. The WBS will also include the resources that will be used to do the work on a particular package.

Project Schedule

The second requirement deals with the placement of the defined scope into a fixed time frame so that time performance can be measured throughout the life of the project. Some would suggest that these two rules are not unique to earned value project management, and that they are fundamental to all good project management, period. The project schedule is likely the best tool available for managing the day to day communications on any project. And further, one of the best ways to control a project plan is to monitor performance regularly with the use of a formal scheduling routine. Schedule the authorized work in a manner which describes the sequence of work and identifies the significant task dependencies required to meet the requirements of the program. Identify physical products, milestones, technical performance goals, or other indicators that will be used to measure progress. Identify, at least monthly, the significant differences between both planned and actual schedule performance and planned and actual cost performance, and provide the reasons for the variances in the detail needed by program management.

The Budget

Ultimately, you have to have a budget. Without knowing the costs of the different tasks that make up the project the Project Manager has nothing to use in which to measure against. These steps are particularly critical to an earned value project, because once the baseline has been put into place; the actual performance against the baseline will need to be measured regularly for the duration of the project. Regularly, on a periodic basis likely monthly, sometimes weekly, the Project Manager will want to measure how well the project is performing against the baseline. Project performance will be precisely measured employing earned value metrics, normally expressed as a cost or schedule performance variance from the baseline. Such variances will give an early warning of impending problems and are used to determine whether or not corrective action needs be taken in order for the project to stay within the defined parameters.

Baseline

Establishing a Performance Measurement Baseline (PMB), a baseline against which performance may be measured, is an essential requirement of earned value project management. The PMB is the reference point against which a project will measure its actual accomplished work. It will tell whether the project team is keeping up with the planned schedule, and how much work is being accomplished in relation to the monies being spent.

In Practice

Initiation and Project Estimations

I have discussed in a previous paper how the Software Development Lifecycle (SDLC) is implemented at Walgreens (Garling, 2015). Each project starts out as an idea in which an idea form is submitted to the Intake Management Group. The idea form contains the proposed name of the project, the sponsoring department, the Single Point of Contact (SPOC), and the target date. A business case document, Business Requirements Document (BRD), and the Charter are spelled are also included. These documents provide a detailed description of the proposed project and are submitted with the idea form. These documents provide a very high level view of the proposed project.

The idea form is logged and an announcement goes out to the intake committee members with the intake documentation attached to the meeting invite. The object of this meeting is for the committee to discuss with the requestor what it is the business is asking to be done and why. The committee will go over the specifics of the request, in particular the scope and the BRD of the project. They try to determine which teams in the company will be impacted by the project proposal. The makeup of the committee includes representatives from the Point of Sale (POS) Retail Execution teams: Development; Quality Assurance; eCommerce; Photo; Inventory Control; Payment Systems; Project Management Office (PMO); Key Performance Indicators (KPI); Electronic Data Warehouse (EDW), amongst others. The point here is that each group is represented to review the idea and to determine which of these various groups may be impacted by the proposed idea.

Phased Approach to Determine Project Costs – Phase Zero

Keep in mind that the Intake Committee is the first step to becoming an official project. If the idea is accepted by the Intake Committee, it is assigned to a Project Manager to help guide the proposed project along to determine the high level affect in time and dollars leading to an E0 estimation document. The E0 Estimation documents what the different teams impacted by the proposed project think, at a very high level, will the cost in dollars and time to do their portion of the project. This estimation is always at a +/-50% range. Much of the estimation is based on past experience of doing similar projects. If it’s a go, then the project is approved by the business sponsors.

At this point the Project Manager has used two methods in developing a project that can utilize EVPM methods: The scope of the project and Bottom-Up-Estimating. Each department impacted by the project delivers its estimation and the Project Manager adds them up. From the time the proposed project is assigned to the Project Manager, his main responsibility is to bring the identified impacted teams together to create a high level estimation of the time and cost of the work required to implement the proposed idea. This requires a well-defined and written scope. This estimation is based on a range of +/- 50%. So, if the QA team estimates it would take 2350 hours to go through the quality assurance process required by Walgreens, it would be quoted as a range from 1175 hours to 3525 hours. Walgreens usually uses a blended hourly rate to determine monetary costs.

The scope of the project is of utmost importance to EVPM. As stated early, you cannot properly plan a project unless you know the scope of the project. After all, how are you going to know when you’re done if you don’t know what you’re doing? Since EVPM is heavily dependent on time and cost, if you don’t define the scope you can never get to how long it will take and thus arrive at a measurable cost.

At Walgreens we keep in mind that at this point in the process we do not know the requirements in great detail. We use phased planning to define the scope and plan out the projects. Each phase serves as a gateway to the next phase causing the business and the PMO to determine if the project should move forward. In between each phase the project team is forming where members from each impacted team is assigned to the project. Their time is tracked in a software application known as PlanWell. PlanWell is an application that tries to mimic MS Project.

As I said earlier, Phase Zero determines go or no go with an estimation of +/- 50%. Phase Zero includes the Business Case document, the BRD, the Project Charter, a high level scope document and the E0 Estimation document. By approving the Phase Zero estimation the business sponsor has to set aside monies up to the upper limit of the estimation range.

At this point the project team has to prepare to present the project to an executive group called the IT Hub group. The IT Hub group will use the same documentation as the E0 estimation to determine if the project fits into the overall strategic goals of the company. This group is comprised of the management teams from each of the divisions within Walgreens. The IT Hub is a newcomer to the decision process. Walgreens has begun to recognize the importance of making sure these projects actually fit into the overall strategy of the company, especially with the recent merger with Boots. At this point in the IT Hubs development this will be the only time it reviews the project. If the IT Hub disapproves of the project, the project will be canceled.

Phase One

Phase One begins to determine detailed requirements. It produces the initial Functional Requirements Documents (FRD); provides more detailed information on the scope of the project; the project plan is developed; a Work Breakdown Structure (WBS) begins to be detailed out with the tasks and activities needed to complete the project; a more detailed BRD; creation of the project in PlanWell; the Project Management Plan (PMP) details the Communication Plan, the Risk Management Plan, the Change Request plan, the Document Management plan; all of these documents help to bring the team to the point of submitting what’s called an E1 Estimation. The E1 Estimation document tells the business that the team feels confident enough to estimate the cost of the project to within +/- 25%.

At this point a gateway meeting is held with the business sponsors, the PMO office, and representatives from each of the identified impacted teams. Their sole job in Phase One is to review the documentation put together by the project team and give a go/no go signal.

As the project team progressed with the analysis of the requirements of the project they were creating several important documents and information pertinent to using EVPM: The scope of the project; the WBS; and Functional Requirements Documents (FRD’s). Each of these documents would help to create the information needed to use key metrics in EVPM.

The team needed to determine the scope so that they could define the tasks needed to fulfill the scope requirements. From these tasks the team could determine the order in which each needed to be completed. They were especially interested in determining dependencies. Once they had determined the order of the tasks they could then determine the duration for each task and how many resources were needed for each task. Keep in mind that the number of resources could change if we determined that adding or subtracting helped with meeting our target date or our target cost.

From the completed WBS we would be able to create a schedule. The duration of each task can be converted into costs by taking the estimated duration and multiply by the blended hourly costs. Now we are able to determine Planned Value (PV) and eventually our Budget-at-Completion (BAC).

Phase Two

Phase Two brings the project team to the point of submitting an E2 Estimation, which is the final cost and time estimation delivered to the business. The project team is telling the business that it feels confident enough that it can bring this project together to a successful conclusion to within +/- 10%. By this time all project documentation has been created and approved. The scope document has been frozen with any changes requiring implementation of the Change Request process. All final FRD’s and TDD’s have been submitted, and the teams are ready to start the final phase: development.

Status Reporting

Each month the accounting department delivers to the PMO the monthly financial report through PlanWell. This report details the costs by project, by phase in the project, and by department. The Project Manager has to take this information and create what is called the monthly financial reports to each department and to the sponsoring business.

The financial report explains to the departments the financial status of their portion of the project, and explains to the sponsoring business unit the overall financial status of the project. The financial report shows the approved budget (PV), the actual spent for the project (AC), the remaining budget needed (ETC) and the Total Estimated Cost (EAC).

The project will also begin producing a weekly status report and possibly a monthly executive report. These reports contain a short summary of the project status, financial updates, what the project completed during the reporting period, and what it has planned to accomplish during the next reporting period. The length and detail of the information depends on the audience.

Project Performance Metrics

Once development begins, the Project Manager starts to use Project Performance Metrics (PPM) used in EVPM. The PPM measures project management performance compared to the approved budget and committed delivery date. The goal for Project Manager is to deliver projects within 10% of their budgeted work effort and within 10 calendar days of the agreed upon delivery date. The metrics are rolled up to the various management levels to measure project management performance at each level.

The key requirements for this metric are that projects are baselined at the appropriate time, and finding the true reason for any baseline change. The performance baseline work effort and go-live date are captured by the PMO, and the actual hours are captured using time sheets in the PlanWell project management system.

These PPM metrics are communicated to managers and above in the weekly status reports and the monthly executive status report. Two very important documents in the project are the project plan schedule and the WBS.

Included with the WBS is a document that further defines each work package activity of the WBS known as a WBS Dictionary. The WBS Dictionary includes a detailed description of the work to be done, what activity precedes and succeeds the activity. It also lists dependencies within and outside of the project, such as corporate servers that may be needed to house the result of the work package. It also lists the resource(s) responsible for developing the work package and the duration level of effort, usually in hourly units, to accomplish the work. The WBS Dictionary, at Walgreens, includes the blended hourly rate for the resource ($57/hour). Contractors at Walgreens are not allowed to know the exact rate of resources.

From the WBS and the project schedule we can use the following metrics that make up the PPM used in EVPM:

Planned Value (PV)

The Planned Value (PV): The PV, sometimes referred to as the Budgeted Cost of Work Scheduled (BCWS), is the authorized budgeted cost for a given work package. It is sometimes referred to as the performance measurement baseline (PMB) and the total PV project is known as Budget-at-Completion (BAC). It is made up of the planned duration and cost for the activity.

For example, let’s say that a given activity or work package is determined to take two resources five days to accomplish. Each resource cost is $57.00 per hour. Each work day is regularly scheduled for eight hours Monday through Friday. With two resources performing the work, that would come to a total of sixteen hours per day. Since it will take five days to complete the work, our costs would come to a total of $4560.00 (80 hours x $57.00).

Earned Value (EV)

The Earned Value (EV), sometimes referred to as the Budgeted Cost of Work Performed (BCWP), is the value of the authorized budgeted amount at a given point in the project. Using our above example, where each resource cost is $57.00 per hour, and each work day is eight hours per day Monday through Friday, by day three in the schedule for this activity the Project Manager would have the expectation that EV would equal $2736.00 worth of work had been completed according to the plan.

Actual Cost (AC)

The Actual Cost (AC), sometimes referred to as the Actual Cost of Work Performed (ACWP), is determined by the number of hours multiplied by the blended rate of $57.00 per hour. As each resource completes the day’s work they’re required to clock their time into PlanWell against whatever project they were working that day. The time entered is in hourly units.

For example, let’s take our aforementioned work activity or work package that we determined would take two resources five days to accomplish. With each resource costing $57.00 per hour, and each work day is eight hours Monday through Friday, we know our PV should come to a total of $4560.00 (80 hours x $57.00). By day three in the schedule for this activity the Project Manager would have the expectation that $2736.00 PV of work has been completed according to the plan. But our AC came in at $3648.00, and they only accomplished two days of planned work.

According to the above scenario the project is overspending and behind schedule. In fact it was expected, by day three, to have cost the project a total of $2736.00 for 48 hours of work. The two resources have accomplished only two days of work at a cost of $3648.00. Using the Cost Variance (CV) formula we can determine where we stand at this point:

CV = EV – AC

Cost Variance (CV) is a way to determine cost performance on a project. It is equal to the Earned Value (EV) minus the Actual Costs (AC). This measurement is critical as it indicates the relationship of physical performance to actual costs.

In our examples case the formula would look like:

CV = $2736.00 – $3648.00 = -$912.00

Another way to look at the same relationship is through the Cost Performance Index (CPI). It is considered the more critical of the Earned Value Metrics. A value of less than 1.0 would mean you’re spending more then you’re getting, while a value greater than one means you’re spending less and getting more.

In our example the formula would look like:

CPI = EV/AC

CPI = $2736.00/$3648.00 = .75

As you can see, the project CPI is less than 1.0. Basically, the project is spending more than is getting done. The project is getting $.75 worth of work for every $1.00 spent.

Part of the monthly financial report is to show the department and the business what is needed to complete the project as far as cost is concerned. We use the Estimate-to-Complete (ETC) and the Estimate-at-Completion to indicate what is needed to complete the project.

We use the following formula to determine ETC:

ETC = BAC – EV

ETC = $4560.00 – $2736.00 = $1824.00

The above formula is used if we expect everything to be on time and on budget.

If we expect, as in the case of our example, that we’re neither on time nor within budget and we expect this track to continue then we would use the following formula to determine ETC:

ETC = (BAC – EV)/CPI

ETC = ($4560.00 – $2736.00)/.75 = $2432.00

Estimate-to-Complete is the amount of funds that will be needed to complete the project (Subramanian, V., & Ramachandran, R., 2010). The method used to calculate the amount depends on the circumstances. In our example it was expected that the variance we experienced would continue for the remainder of the project.

We will use the same logic for determining our Estimated-at-Completion costs in that the variances we have experienced will continue. Our formula we will use is as follows:

EAC = AC + [(BAC – EV) ÷ CPI]

EAC = $3648.00 + [($4560.00 – $2736.00))/.75)] = $6080.00

My EAC is equal to $6080.00 and my Variance-at-Completion (VAC) would be equal to:

VAC = BAC – EAC

VAC = $4560.00 – $6080.00 = -$1520.00

The report I would have to deliver to the business would like this:

Approved Budget (PV) Total Budget Actual Spent FY15 (AC) Remaining Budget Needed (ETC) Total Estimated Cost (EAC) Est. Variance (VAC)
$4680.00 $4680.00 $3648.00 $2432.00 $6080.00 ($1520.00)

Conclusion:

As I’ve shown, the use of these metrics in EVPM gives us a fairly accurate picture of the status of the project on a monthly basis. Part of the problem we have at Walgreens is that the Project Manager is not given the previous month’s financial status of their project until the second week of the current month. What this means is that we’re basically a month behind when we learn of the bad news given in our example above. It can be very tough to fix the problem in our example when we don’t learn about it until six weeks later.

The object of EVPM is to give the Project Manager an accurate picture of the status of their project at any given moment so they can make corrections before matters get worse. By depriving them of basic information the company risks a successful conclusion to many of their projects. As you can see from our example, the numbers give us a pretty accurate picture of the status of the project. Using these metrics, in a timely fashion, gives the Project Manager the ability to control events quickly so that they can keep the project moving forward.

References:

Archibald, R. D., & Villoria, R. L. (1966). Network-based management systems (PERT/CPM). New York: Wiley.
Christensen, D. S., & Heise, S. R. (1993). Cost performance index stability. National Contract Management Association Journal.
Fleming, Q. W., & Koppelman, J. M. (2010). Earned value project management. Newtown Square, PA: Project Management Institute.
Garling, R. (2015). project metrics week 7 paper. AMU
Lipke, W. H. (2009). Earned schedule: An extension to earned value management– for managing schedule performance. Raleigh, N.C.: Lulu Pub.
Project Management Institute. (2013). A guide to the project management body of knowledge (PMBOK guide), fifth edition. Newtown Square, PA: Author.
Subramanian, V., & Ramachandran, R. (2010). McGraw-Hill’s PMP certification mathematics: project management professional exam preparation. New York, NY: McGraw-Hill.
Verzuh, E. (2012). The fast forward MBA in project management, fourth edition. Hoboken, NJ: John Wiley & Sons.

The effects of activity time variance on critical path planning

A Critique of

Lanny A. Karns and Lloyd A. Swanson

Article

“The effects of activity time variance on critical path planning”

Table of Contents

Abstract

Introduction

Network Analysis: CPM & PERT

Conclusion

Abstract

Critical Path Method (CPM) and Program Evaluation and Review Technique (PERT) are the two most commonly used networking techniques for defining the duration of project tasks. While they have much in common, they’re based on different concepts and both were independently developed. PERT defines a probabilistic distribution of activity time defined using three time estimates which emphasizes minimum project duration while downgrading cost restraints. CPM uses one deterministic time estimate emphasizes cost over time restraints. CPM is the most popular of the two methods as it is deemed easier. Lanny Karnes and Lloyd Swanson in their article “The effects of activity time variance on critical path planning“ advocate combining the two methods asserting they cannot be totally independent due to an obvious relationship between time and cost ( Karnes, 2007).

Introduction

It is well known that there are many techniques Project Managers can use to support better project planning. Critical Path Methodology (CPM) and Program Evaluation and Review Technique (PERT) are two such tools that ae used by many Project Managers. These two techniques, while derived independently of one another, cannot be totally independent due to an obvious relationship between time and cost. While CPM emphasizes cost over time restraints and PERT emphasizes time over costs restraints, perhaps there is a way to bring the two together. Karnes believes the best way to combine these two would be to put CPM’s crashing strategy together with PERT’s probability distribution of activity times come out with the best possible duration and cost for the project (Karnes, 2007).

The three estimates of PERT; optimistic, most likely, pessimistic, are combined to determine an expected duration and variance for each activity. These expected times are used to create the critical path and the variances are added to determine the project duration variance. From these numbers we can develop a probability distribution showing project completion times. The problem here is that if the activity variances lie outside the critical path then they’re not considered when determining the project variance. The fact that they’re not considered can lead to errors in determining total project duration. A similar issue can happen when using CPM’s crashing strategy where multiple paths through the network have similar or close lengths. If we drop the assumption of deterministic activity times and the duration is allowed to vary, a decrease in the length of the critical path may not result in a similar decrease in project duration because of variances inherent in parallel paths. Simply allowing activity times to vary; which inevitably they will do in real life, can result in serious problems with CPM’s crashing strategy leading to wasted time and money (Karnes, 2007).

Network Analysis: CPM & PERT

Using CPM and PERT for network analysis can provide invaluable information for planning, scheduling and executing projects. The main purpose of network planning is to avoid crisis management by using picture representations (graphs) showing the total project activities in a logical order. This aids in determining sequencing and duration of activities and the project. The following information can obtained from such a graphical picture (Kerzner, 2009):

Interdependencies of activities
Project completion time
Impact of late starts
Impact of early starts
Trade-offs between resources and time
Supposing exercises
Cost of a crashing
Performance Slippages
Performance Evaluation

CPM was mainly worried with creating activity prerequisites and determining simple network solutions. It was primarily useful for keeping track of activities and identifying activity conflicts or sequencing flexibilities which could affect project completion. Later on, cost slope analysis was developed as a way to calculate the shortest project time within the constraints of costs and time constraints. This technique was used to determine effective savings in time when it is possible to “crash” or shorten the individual activity times. The time actually saved is divided into the cost increase from compressing the activity to define the net cost slope. The slopes are compared to the costs to determine if reducing project duration will result in cost savings.

PERT was designed to overcome inherent problems in assuming activity time estimates deterministically. By coming up with three activity time estimates it allows the user to develop a probability distribution for the length of each activity. Once this is accomplished the user can calculate sequencing and network solutions in a manner similar to CPM. PERT is a management planning tool that can be used as road map where the activities have been identified along with interdependencies. A PERT chart is usually designed from back to front with the end date in mind (PMBOK, 2013).

Using both CPM and PERT, a Project Manager (PM) is able to determine, with some degree of accuracy, the overall length of the project by determining the duration of each activity. From this analysis the PM can also determine the interdependencies of each activity and thus is able to sequence these activities in a logical order. From this information the PM can determine the Critical Path of the project seeing those activities that have no slack in comparison to those that do have slack (lags and leads). Through network analysis the PM can determine how to better utilize resources more effectively and to track how the project progresses thus keeping effective control on time and costs.

Conclusion:

Combining the best of CPM and PERT can make it so that the PM can accurately estimate the amount of time and cost for each activity in the project. But, we have to keep in mind that these are still estimates. One can reasonably assume, through probabilistic analysis, how accurate these estimates are; it still needs to be taken with a grain of salt by keeping a watchful eye on the projects progress. PM’s have to keep in mind how difficult it is to get PERT’s three activity estimates from the subject matter experts or those who will perform the work. Probably part of the reason why many PM’s choose to use CPM over PERT is due to it being easier to determine duration from past history then to wrangle it out of software programmer.

References:

Karns, L. A., & Swanson, L. A. (2007). The effects of activity time variance on critical path planning. PMI. Retrieved from http://www.pmi.org/learning/time-variance-critical-path-planning-1959

Kerzner, H. (2009). Project management: A systems approach to planning, scheduling, and controlling. Hoboken, NJ: John Wiley & Sons.

Project Management Institute. (2013). A guide to the project management body of knowledge (PMBOK guide), fifth edition. Newtown Square, PA: Author.

Project Planning: Improved approach incorporating uncertainty

A Critique of

Vahid Khodakarami, Norman E. Fenton, and Martin Neil

Article

“Project Planning: Improved approach incorporating uncertainty”

Table of Contents

Abstract

Introduction

CPM and Uncertainty

Bayesian Network

Conclusion

Abstract

Because of the unique nature of projects, there may be uncertainties or differences in the products, services, or results that the project creates. By its very definition a project and its activities can be new to members of a project team, generally necessitates more out-and-out planning than other routine work. It inevitably involves uncertainty. The basic inputs of time, cost, resources for planning are not deterministic and can be affected by uncertainty. Vahid Khodakarami, Norman E. Fenton, and Martin Neil feel there is a causal relationship between these uncertainty sources and project parameters and this causality isn’t considered in current project planning methodologies. In their paper they present an approach, using Bayesian network modelling that they feel addresses both uncertainty and causality in project management. And they show this using the Critical Path Method (CPM) to handle uncertainty and how you can manage different sources and parameters of uncertainty in project planning.

Introduction

It is well known that there are many techniques Project Managers can use to support better project planning. Critical Path Methodology (CPM) is one such tool that is used by many Project Managers. There are many ways to consider uncertainty in project planning. Group Creativity Techniques such as brainstorming, nominal group technique, idea/mind mapping, and affinity diagram, and multicriteria decision analysis all help to take uncertainty into consideration when planning a project. Khodakarami feels that these techniques rarely quantify uncertainty effectively. Their paper focuses on project scheduling and in risk management.

Risk management, while it includes identifying, analyzing and responding to potential risks by using mediation planning, it was felt that it pays too much attention to the positive events while minimizing the adverse events since the term risk is associated with events instead of uncertainty(Khodakarami, 2007). In their article the authors point out that using Bayesian Networks in conjunction with CPM helps to address uncertainty in scheduling because it allows you to take into consideration many different knowns rather than speculating on unknowns.

CPM and Uncertainty

Risk management is highly important to project planning. If the PM doesn’t consider and plan for risks they’re only planning to fail. The current view of risk is restrictive when it comes to uncertainty because it looks at events rather than sources of uncertainty. One source of uncertainty is activity duration. Normally duration is determined by looking at past history and by talking with subject matter experts (SME). Much uncertainty comes from not knowing exactly how long it could take to actually complete a task. This uncertainty arises from not knowing resource availability, possible occurrence of identified risks, lack of prior experience and the subject nature of the data such as expert judgement.

Critical Path Methodology is a deterministic technique for determining scheduling. It calculates the critical path (CP) by outlining the network of dependencies between tasks and determines duration for each arriving at what the earliest time is the project could be completed. It has a starting task and determines the order of the tasks using dependency between the tasks drawing out a network diagram that shows the tasks and their dependencies. Using the estimated durations for each task the PM can determine the earliest and latest start times and finish times for each task. From this calculation the PM would be able to draw out the critical path because he would be able to see which set of tasks have no slack time between them. This is the critical path of all tasks that have to be completed with their given timeframe, all other tasks have flexible amount of time between them that should they start earlier or later it will have no effect on the overall project schedule.

The critical path can be calculated using the following formulas:

D – Duration

ES – earliest start time

EF – earliest finish time

LF – latest finish time

LS – latest start time

The earliest start and finish times are determined by working forward through the network diagram, determining the earliest time a task can start and finish using the start and finish time of its predecessors. The first task always starts with zero. The latest start and finish times can be determined by working backwards through the diagram.

Bayesian Network

Bayesian Networks provide decision-support for a wide range of problems involving uncertainty and probabilistic reasoning. It is a probabilistic graphical model that represents a set of random variables and their conditional dependencies. For example, it could represent the probabilistic relationships between diseases and symptoms. If symptoms are known, the network can be used to determine the probabilities of other various diseases (Wikipedia, 2015).

An example of a Bayesian Network could be:

Sprinkler < – > Rain

Wet grass

The main use of Bayesian Networks (BNs) would be for statistical probability outcomes. The idea is that the PM has a set of known events and they want to determine potential outcomes. BNs can explicitly quantify uncertainty, reason from effect to cause as well as vice-versa, make predictions from incomplete data, and combine objective and subjective data arriving at decisions based on visible auditable reasoning. resources’.

As the project advances duration of an activity becomes a known and by equating actual with predicted durations, the BNs can update the probable estimations for risks and resource usage and as such, this distribution can be used for later for estimating more accurately other activities with similar dependencies.

Conclusion:

Using BNs to help improve the planning process makes sense. It is better able to determine the probability of events occurring. Many current methods are too deterministic in their evaluations; CPM for example. But by combining CPM and BNs the PM can bring the power of BNs so that their plans schedules are more realistic and they’re better able to make an informed decision based on better information. But one has keep in mind from decision making under uncertainty is the risk that the project manager wishes to incur (Kerzner, 2009). Even with BNs being a better tool to use to narrow down uncertainty, it is still uncertainty.

References:

Bayesian network – Wikipedia, the free encyclopedia. (n.d.). Retrieved October 8, 2015, from https://en.wikipedia.org/wiki/Bayesian_network

Kerzner, H. (2009). Project management: A systems approach to planning, scheduling, and controlling. Hoboken, NJ: John Wiley & Sons.

Khodakarami, V., & Fenton, N. (2007). Title: “Project Scheduling: Improved approach to incorporate uncertainty using Bayesian Networks. Project Management Journal, 38(2), 39-49.

Project Management Institute. (2013). A guide to the project management body of knowledge (PMBOK guide), fifth edition. Newtown Square, PA: Author.

Effective Management of Project Change Orders

A Critique of

Edward E. Douglas’s

Article

“Effective Management of Project Change Orders”

Table of Contents

Abstract

Introduction

Planning for Change

Planning and Design

Change during Application Build

Closeout

Conclusion

Abstract

Scope is the total sums of all the products/services that are required to complete a project (PMBOK, 2013). But even when the scope has been completed and a freeze is agreed upon, change occurs. Edward Douglas’s article “Effective management of project change orders” discusses how to effectively manage any requested changes that may come up during the life of the project. And while he concentrates considerably on the construction industry, much of what he suggests is applicable to any project. Could these concepts be used in another industry such as IT applications development projects? This paper will explore that possibility.

Introduction

Scope is the total sums all the products/services that are required to complete a project (PMBOK, 2013). But even when the scope has been completed and a freeze is agreed upon, change occurs. Edward Douglas’s article “Effective management of project change orders” discusses how to effectively manage any requested changes that may come up during the life of the project. And while he concentrates considerably on the construction industry, much of what he suggests is applicable to any project.

In this paper I will apply what Mr. Douglas suggests to Information Technology (IT) projects as there are a lot of similarities in the methodology Edwards advocates. For instance, we can all agree that the earlier we can identify a change the easier it would be to implement that change and the less costly it would be to implement. Further into the life of the project, the harder it will be to implement and the cost goes up. For example, it is much easier to change the foundation of a house before you pour it then it is to do so after the roof has been installed. In the programming world, it is much easier to make changes to the user interface while it is still in design then it is when you’re ready to push it out to production. There are many different methods and processes that can be put into place to help ensure that changes are identified and considered early in the process rather than later. Are these 100% effective? No, but it does help to eliminate many a costly error or change.

Planning for Change

Before any planning of what the project is actually to do begin, the project leadership needs to develop a project change management plan. The object is to put into place an agreed upon process for managing change should it occur.

The change management plan needs to plan who has the authority to approve changes. One has to take into consideration the threshold in which a change, such as a simple one, can be made by the project team, or if it is of such impact to the project that it needs to be approved by a higher authority. The plan has to outline the process for approval and everything that is needed for approving changes.

This plan needs to consider the process for submitting the requested change. Questions to be answered are who can make the change request? Who does a change request need to be submitted to? These are not easy to answer questions. Usually it’s the Project Manager who should initially receive the initial request for change. But sometimes one of the lead managers can receive a change request and then submit it to the Project manager. But, a change request should always go through the Project Manager since they oversee the entire project and can see impact where others are not aware (PMBOK, 2013).

The change management plan needs to consider how a change will be analyzed for impact to the project. What will be the impact to the schedule? Will it require overtime or extra resources or specialized help (availability)? Once the change request goes through impact analysis it will need to go through the approval process. The analysis process needs to outline what information is required and in what format should it be delivered and to whom it should be delivered in order to get approval. Should all change requests go through a steering committee for consideration, or can the PM decide that a requested change is too far outside the scope of the project for it to proceed (Verzuh, 2012)? Perhaps consideration of the change will take away resources from work underway and will have an adverse effect on the project timeline and budget; should the project budget money towards considering change requests?

Planning and Design

The most appropriate phase in which to take on change would have to be during the planning and design phase. It is best to consider and implement change as early as possible in the project as it is easier to and more cost efficient than it would be in later phases (Douglas, 2003). It is recommended that the PM and the sponsors freeze the scope of the project as early as possible in the planning or design phase. This holds true in construction as well as in IT projects; IT projects will find it a little easier to make changes to the scope even while in the execution phase. The master schedule should also be completed and approved during this period so that any requested changes can take into consideration impacts to it. Early completion of the design of the application will allow for build reviews and to catch any possible changes before construction of the application even begins.

By determining the scope, the work required, like through a Work Breakdown Structure (WBS) and completing the design of the application before even beginning to execution a build the project team can identify any changes that may be needed and to determine if implementation is needed. If the change identified is needed then the steering committee can determine if it wants to approve the impact the change will have to the project.

Change during Application Build

Since the project leadership team created a change management plan early in the project it would seem reasonable to say that any changes to the scope would go through this process before any change occurs.

The team would have to be thoroughly knowledgeable on the project plan and scope and understand the impact any change could have on its outcome. When a change is requested the team would have to put together an analysis of the impact that change may have. The PM would have to determine if he even wants to commit resources to doing the analysis of a requested change. The first questions to be answered are whether there is time and money in the project to consider changes. Another concern would be the impact of cumulative changes to the project. The danger here would be scope creep and budget overruns leading to financial failure of the project (Douglas, 2003).

Closeout

The concern here is that if the project is not properly closed; have all changes been completed; have all changes been properly documented, even those not approved? Subcontractor and vendor claims have to be closed before usage of the projects product and/or service is used. Potential problems include changes that were not completed properly or just simply not done. If the project is not properly closed problems could crop up. Too often closing the project is given little notice. The project team and leadership have often moved on to other projects leaving the PM to try to clean up the pieces.

Conclusion:

Douglas points out that it is best to develop and to put into place a proper change management plan. PMI points out that it is best to develop a number of management plans that help to guide the different processes of the project; a plan for each phase, so to speak. Many of the suggestions and guidance given by Douglas can be used in projects in other industries, too.

References:

Douglas, E. E. (2003). Effective management of project change orders. AACE International Transactions; ABI/INFORM Global, PM111.

Kerzner, H. (2009). Project management: A systems approach to planning, scheduling, and controlling. Hoboken, NJ: John Wiley & Sons.

Project Management Institute. (2013). A guide to the project management body of knowledge (PMBOK guide), fifth edition. Newtown Square, PA: Author.

Verzuh, E. (2012). The fast forward MBA in project management, fourth edition. Hoboken, NJ: John Wiley & Sons.

Applying the work breakdown structure to the project management lifecycle

A Critique of

Shelly A. Brotherton, PMP

Robert T. Fried, PMP

Eric S. Norman, PMP, PgMP

Article

“Applying the work breakdown structure to the project management lifecycle”

Table of Contents

Abstract

Introduction

WBS Structure

Work Packages

Aligning with Scope

Going from WBS to Scheduling

Conclusion

Abstract

To some the Work Breakdown Structure (WBS) can be a burdensome chore. To others it is a necessary tool in which to define the tasks, and only the tasks needed, to complete a project successfully. Today, project managers are discovering the high value associated with creating work breakdown structures (WBS) early in the course of project management and a projects success may be attributed specifically to use of a WBS.

Project Managers know that many things can and do go wrong with projects. Much of the failures can be attributed directly to poor planning, and especially with poor development of a WBS. Ms. Brotherton, Mr. Fried, and Mr. Berman article discusses in detail the concepts and usage of a deliverable-oriented WBS in project management. This paper discusses their views on using a WBS in a project, its development and usage throughout the project, and compares their analysis with the goals of the class syllabus.

Introduction

The Work Breakdown Structure (WBS) is used in project management to identify and organize the tasks needed in which to complete a project successfully. It only calls for those tasks needed, and only those tasks needed, in which to reach a successful outcome (PMBOK, 2013).

The WBS can be very basic or it can be very sophisticated. WBS’s can be simple, perhaps too simple. The Project Manager (PM) has to be careful not to create a WBS that is too simple that it fails to adequately identify and describe the tasks needed to complete the project. This poorly developed WBS causes misunderstanding, rework, and leads to costly delays. It can also make it difficult to identify when problems arise due to an inability to identify what needs to be done and in what order.

The WBS can also be over-complicated, from decomposing work packages too much so that it over defines how the work is to be done, to having so many work packages with short durations it makes it difficult, if not impossible, to manage.

Ms. Brotherton, Mr. Fried, and Mr. Berman article, “Applying the work breakdown structure to the project management lifecycle” discuss in detail how a deliverable-oriented WBS is applied to a project and focuses on why the WBS is needed while also pointing out some of the pitfalls to be aware of. They point out that project success can be directly attributed to creating a well thought out WBS (Brotherton, 2008). Poorly developed or planned WBS can result in detrimental project outcomes including re-planning, rework, unclear work assignments, scope creep, increasing budget costs, missed target dates, unusable products and/or delivery features. Even worse, you have a very unhappy project sponsor.

WBS Structure

When planning a project the project manager needs to determine the work that needs to be done to complete the project successfully. He does this by creating a Work Breakdown Structure (WBS). A WBS is the process of subdividing the project deliverables and project work into smaller and smaller elements commonly referred to as work packages (PMBOK, 2013).

The WBS provides a common framework from which to organize all the work needed to complete the project. A WBS can be made up of different levels with the number of levels determined by the project needs. The first three levels will usually reflect the integrated efforts of the project. Level one, sometimes called the “home” level, concerns the authorization and release of work. Another rule to keep in mind is the 100% rule (Kerzner, 2009). The 100% rule represents 100% of the total work of the project. Each level below the previous level has to add up to 100% of the level above it. Level two is reserved for budgetary information; level three usually involves scheduling. Levels four and lower make up the work packages of the project. The sum of the work of the child level must equal 100% of the work at the parent level. Each level is planned in sequential order identifying dependencies and order of completion keeping in mind that some tasks can be done in parallel to others.

Work Packages

Each of these work packages need to be manageable, independent or have minimal interface with other ongoing elements, be Integratable and measureable. It has to have clearly defined start and end dates. All objectives must be linked to company goals. Responsibilities for each element is determined and assigned using a responsibilities assignment matrix (RAM). The focus should be on deliverables deriving tasks and organizing those tasks into work packages (Brotherton, 2008).

A work package represents a decomposition of the upper level deliverables into fundamental elements where the components are verifiable and measurable. Verifying the level of decomposition only requires doing the amount of work that is necessary and sufficient to complete the deliverable required by the project. Ideal packages are usually 80 hours or two to four weeks in length (PMBOK, 2013).

Aligning with Scope

One important aspect of a WBS is to ensure that each of the deliverables and associated tasks align with the goals of the project and the company. The PM can do this using a scope sequencing process to show dependencies between different elements identified in the WBS. Like in building a house, you need to show the sequence of the different parts of the deliverables identified in the scope of the project; first you need the foundation, then the walls, than the roof. The PM can show this relationship by using a dependency diagram (Brotherton, 2008):

Going from WBS to Scheduling

One issue bothersome to PM’s has always been taking the various levels of the WBS from definition to actual scheduling. Brotherton points out the PMBOK guide shows the PM specifically how to go from a deliverable-oriented WBS to scheduling in five easy steps (Brotherton, 2008).

First: The PM defines the activities. The tools used here are decomposition, rolling wave planning, and expert judgment (PMBOK, 2013)

Second: Sequencing the activities. As just stated, you need to set the order in which the activities are to be done. You do this by identifying the relationships and the dependencies between elements.

Third: Estimating the resources needed. How many people are needed for which task. This part of the process will help with determining the budget for the project.

Fourth: Estimating project durations. Here the PM, using tools like past history and expert judgment, determines how long each task should take. Combined with number three above a total budget can be estimated.

Fifth: Develop the project schedule. With all of the above information, a project schedule can be determined thus documenting the total time it should take to complete the execution portion of the project. Add in a start date and a completion date can be determined.

Conclusion:

The WBS is a very important piece of a project. It further defines the scope of the project so that by its completion the sponsor, the steering committee and the project team will have a fully approved understanding of what their project entails. It will provide a detailed description of all the tasks needed to complete the required deliverables within the scope of the project. It will show the sequence in which the work needs to be done. It will be a useful tool in determining the scheduling of the project and for being able to track those activities to ensure the project is on schedule and within the scope and cost of the project since everything within the WBS is trackable (Fleming, 2010).

References:

Brotherton, S. A., Fried, R. T., & Norman, E. S. (2008). Applying the work breakdown structure to the project management lifecycle. PMI. Retrieved from http://www.pmi.org/learning/applying-work-breakdown-structure-project-lifecycle-6979

Fleming, Q. W., & Koppelman, J. M. (2010). Earned value project management. Newtown Square, PA: Project Management Institute.

Kerzner, H. (2009). Project management: A systems approach to planning, scheduling, and controlling. Hoboken, NJ: John Wiley & Sons.

Project Management Institute. (2013). A guide to the project management body of knowledge (PMBOK guide), fifth edition. Newtown Square, PA: Author.