Manage Project Performance

Learning Objectives

 After completing this unit, you will be able to:

• Assess the performance of a project.
  
• Report the performance of a project to sponsors and stakeholders.
  

Are We Winning? How Much Time Is Left?

One of the great things about team sports is the suspense that the unpredictable nature of the competition brings. Athletes train and coaches plan. But on game day, anything can happen, much to the delight of scoreboard-watching fans.

Project managers are not big fans of suspense. They do, however, like to keep an eye on the project’s scoreboard to determine how well the project plan is being executed and what corrective actions are necessary.

Firstly, the project manager gathers performance reporting requirements from stakeholders and documents them at the start of a project to clearly define what information needs to be distributed to whom, when, and how.

Then, the project manager typically reports on performance via project status meetings and distribution of written reports. As Walden University explains, project performance report should be comprehensive and include:

• Status on project tasks
  
• Accomplishments for the reporting period
  
• Plans for the next reporting period
  
• Earned value analysis data
  
• Management information
  
• The most current issues, action items, and risks
  

Have Tough Conversations Early

Most projects encounter some performance issues along the way. When a project is really in trouble, though, key stakeholders must be informed as soon as possible. At the same time, it's important to gather and analyze the relevant facts so that your stakeholders can make informed decisions about the project’s direction. It’s never pleasant to deliver bad news, but it's important to present the facts and offer possible alternatives or solutions. 

So how are you communicating value and getting to the heart of whether a project is on track or not?

What Do We Measure?

Let’s talk about earned value analysis. At a high level, it’s the calculation of what’s been done at a given point in time, relative to the project cost. Depending on your project, it can become complex, especially in industries such as construction and engineering that require a significant level of precision. Let’s define the most commonly used metrics.

• Planned value (PV): The amount of the project budget that was planned to be used for project work scheduled during a given reporting period.
  
• Earned value (EV): The amount of the project budget that was actually used for project work authorized during a given reporting period.
  
• Actual cost (AC): The total cost of project work that was completed during a given reporting period.
  
• Cost variance (CV): The difference between the expected cost and the actual cost of work that was completed during a given reporting period.
  
• Schedule variance (SV): The difference between project work that was scheduled and project work that was actually completed during a given reporting period.
  
• Cost performance index (CPI): The rate at which the project is meeting cost expectations during a given reporting period.
  
• Schedule performance index (SPI): The rate at which the project is meeting schedule expectations during a given reporting period.
  

How Do We Measure?

The earned value calculations are simple. The complexity is more about learning the names and acronyms for the metrics, what each one means, and then how to analyze and interpret the results.  

Let’s use an example to demonstrate the concepts.

Your organization has hired a contractor to build a small shed to house athletic equipment. The project is expected to take 3.5 months and the budget is $13,000. The first month has passed, and it looks like good progress is being made. You’d like to know how the project is performing relative to cost and schedule so that you can report back to your stakeholders.

The first thing that needs to be done is to collect specific data points—planned value, earned value, and actual cost. Where the data comes from will depend on the organization. For example, if the company has a Project Management Office, then the PMO will likely be the record keeper for the project. A more likely scenario is that the project manager maintains the project plan.  

Here is the project data that was collected. 

What Does It Mean?

The two things a project stakeholder will always want to know are whether the project is on time and whether it’s on budget. This is where the formulas are used. 

• Cost Variance (CV) = Earned Value (EV) – Actual Cost (AC)
  

• For the shed project: CV = $5,200 – $6,000 = ($800)
  
  

• Schedule Variance (SV) = Earned Value (EV) – Planned Value (PV)
  

• For the shed project: SV = $5,200 – $7,000 = ($1,800)
  

 Since both calculations resulted in negative variances, the stakeholder will want to know why. The cost performance index and the schedule performance index may provide the answer. 

• Cost Performance Index (CPI) = Earned Value (EV)/Actual Cost (AC)
  

• For the shed project: CPI = $5,200/$6,000 = 0.87
  
  

• Schedule Performance Index (SPI) = Earned Value (EV)/Planned Value (PV)
  

• For the shed project: SPI = $5,200/$7,000 = 0.74
  

Now that the data have been collected and the calculations performed, what does it tell us about the performance of the project?  

• Cost variance is negative, so the project is behind budget.
  
• Schedule variance is negative, so the project is behind schedule.
  
• The schedule performance index is below 1.0, which means that less work was performed than was planned.
  
• The cost performance index is below 1.0, which means that there are cost overruns on the project.
  

From all appearances, this project is in trouble. This is where the project sponsor and key stakeholders will be called on to make decisions on the direction of the project. As mentioned, it’s never easy to break bad news to your stakeholders. But after working with your stakeholders to identify all the activities, develop the schedule and cost, and planning for the risks, the entire team is aligned and everyone is focused on getting the project back on track.

After a quick brainstorming session and level setting with the contractor, the project gets back on track and runs smoothly over the final couple of months.

Key Takeaways

 This module covered a lot about project management. Here are some of the key points. 

• Everyone involved in a project—from the project manager to the team to the stakeholders—are responsible for developing and agreeing upon the scope, schedule, and cost. Projects are a team activity.
  
• Scope, schedule, and cost all influence one another. Project managers can use a well-defined plan to avoid scope creep and preserve schedule and cost in the process.
  
• Risks should be identified early in a risk register and continuously reviewed and updated as the project moves forward.
  
• The earned value metrics, presented in the project performance report, will tell stakeholders whether the project is on time and on budget.
  

Risks and problems are part of the project lifecycle. Having everyone aligned on the project plan, a clear view of the constraints and risks, and regular updates on the performance help make difficult conversations more productive. Good luck on your next project!

Want to Learn More?

The modules in this trail were developed in collaboration with Walden University to introduce you to the fundamentals of project management. If you want to learn more, explore Walden’s MBA Project Management specialization and offerings in the university’s School of Lifelong Learning.

Resources

• Walden University: Master of Business Administration (MBA) Project Management
  
• Walden University: School of Lifelong Learning