Benefits of Quantifying the Triple Constraint Model with the DIPP and AI

There is a fascinating thread on LinkedIn that was started by Adrian Dooley . It discusses the Triple Constraint (Iron Triangle?) Lots of great comments, and suggestions of different modules.

Jean-Charles SAVORNIN, MGP, PMP accurately and succinctly commented about the Triple Constraint: “It’s about WHAT, WHEN, HOW MUCH. It’s about project management.”

Michael Küsters wrote: “Unfortunately, this ‘Triple Constraint’ is, in practice, often provided to the Project Manager (‘deliver this scope by this date within this budget’) without any discussion on whether it makes sense, is achievable or valuable. The consequence of casting it in iron is usually project failure.”

I concur with both comments. But I think the Triple Constraint can be much more: a model that quantifies the ultimate goal of every project investment: to create maximum value for minimum cost! After all, isn’t that the goal of ALL investments (modified by risk, of course!)?

And in doing so, the quantified Triple Constraint model also provides numerous techniques that allow better managing and tracking projects and portfolios. I will list a dozen of these PM benefits in a moment.

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Project management has many models, and metrics that often attempt to quantify a model into a useful planning/tracking tool. CPI & SPI are examples (and in my book “Managing Projects as Investments: Earned Value to Business Value” I criticize both—but still think they’re both useful!).

CPI quantifies cost projections & allows tracking/adjustments. Ditto with SPI for schedule. But both have flaws. And neither addresses Scope (the raison d’etre of every project) or its value above cost (THE crucial consideration in designing Scope!).

I first wrote of the metric called “The DIPP” 34 yrs ago. “When the DIPP Dips: A P&L Index for Project Decisions” was published in Project Management Journal in 1992:

At the time, I had NO idea I was quantifying the Triple Constraint! I saw it only as a metric to determine if to abort or continue funding a project. I didn’t refer to Scope, but to Total Project Contribution Margin (TPCM). And I made what I now see as a common mistake (especially by senior managers!): assuming that Time is fixed and will not vary in such a way as to impact value of Scope as completion is delayed/accelerated. ?

By 1999, when it was reprinted in Jeff Pinto 's and Jeffrey Trailer’s book “Essentials of Project Controls” (cover shown above), I’d recognized that a simpler form of the DIPP would quantify the Triple Constraint. I created the Tracking DIPP and incorporated the Time variable as a ± (for accel/delay) against the value of Scope.

To paraphrase George Box’s aphorism: “All metrics are wrong, but some are useful.” John von Neumann phrased a similar thought: “Truth is much too complicated to allow anything but approximations.”

So models and metrics can be useful despite flaws and simplifications. And they can be VERY useful if they provide benefits not otherwise available!

The Tracking DIPP is:

Expected project profit (EPP) = (SCOPE’s Expected monetary value (EMV) ± TIME’s acceleration/delay value/cost) divided by COST estimate-to-complete

By using Cost ETC as the denominator, it factors out sunk cost and is useful throughout project performance.

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So What are Twelve Benefits?

Quite apart from the DIPP’s original purpose for the go/no go decision on projects, here are some of its potential benefits (probably to be expanded by AI into an “Expert System” for resource allocation, something I foresaw in my first book a quarter century ago):

1.?????? Forecasting, during the planning process, the expected profit of a project investment through the VBS for Scope, taking into account the variables of Time (i.e., estimated completion date) & Cost (i.e., budget for resources).

2.?????? Allowing expected ROI comparison w/ other possible investments (project & other types) in determining funding (e.g., seeing how LOWER funding might change the VBS OR the critical path & REDUCE expected project profit!). {This SHOULD be a great boon to organizational CFOs and is a reason why I believe PMOs should report to CFOs!}

3.?????? Creating a tracking metric called the DIPP Progress Index:

????? ?DPI = Actual DIPP divided by Planned DIPP as of any date

This predicts overall EPP during project performance which (a) incorporates the 3 sides of the Triangle; (b) factors out sunk costs: and (c) could/would use CPI & SPI as inputs.

4.?????? The DPI as a tracking metric serves as a warning siren when ROI on a project is decreasing, whether due to: (i) market changes for the Scope; (ii) Scope pruning (including quality, and often to meet Time/Cost goals); (iii) Time or Cost slippage (per CPI/SPI). E.g., if the DPI slips below .90, it means that the return on the Cost ETC (i.e., future investment) will only be 90% of what was expected. {Again, CFOs & PMOs should be VERY interested in this information!}

5.?????? To quote Peter Drucker: “What gets measured gets improved.” The team can seek opportunities to increase the DPI (even to greater than 1.00!) through VBS/Critical path/Resource adjustments. You know—instead of just working to a fixed scope/deadline/budget “Iron Triangle”? (Wouldn’t it be just awful if project teams had the knowledge to seek ways to make their projects more valuable and their organizations more profitable?)

6.?????? Senior management (including the CFO!) can make decisions at the portfolio level to redirect critical resources, or increase resources and availability, so that the project’s DPI goes back up (provided the Portfolio DIPP—which is all-important!—doesn’t go DOWN as a result!)

7.?????? At the portfolio level, it’s very important to ensure that resources are most profitably engaged. We don’t want a resource working on an activity with 30 days of float on Project A if they are needed on a critical path activity in Project B that has drag of 10 days and drag cost of $20,000 per day! The Portfolio DIPP and the DIPPs/DPIs of all the projects in the portfolio allow senior management (and a future AI system!) to see these data, adjust wisely, and use the DIPPs as barometers of profitability.

8.?????? So far we have looked at the Triple Constraint at the portfolio and project levels. But the fractal relationship of activities to projects means the Scope/Time/Cost triangle also is relevant at the detail level. Knowing the impact of Time on Scope value is an input to the DIPP and DPI at the project (and portfolio) levels—but it’s also an input to critical path analysis in the form of (9) drag cost; (10) resource availability drag (RAD) cost; (11) True Cost of Work (TCW); and, when combined with the VBS, (12) negative net value-added (NVA), where work is done on projects where the TCW is greater than the value-added.

9.?????? Drag cost is the amount of time by which an activity, a constraint or other delay is reducing the project’s EPP. It is derived by combining the project-level accel/delay value/cost with critical path analysis’s critical metric: critical path drag. The CP determines every project’s duration, and CP activities/constraints/delays extend ?the project duration by the amount of their drag. To shorten the project, one must compress/remove the drags on the CP. If Activity M has CP drag of 10 days, and each day of project duration reduces its EPP by $20,000, that Activity M has $200,000 of drag cost. That in turn provides the project manager with the data to do one of the most difficult things in project management: justify additional resources! If spending an extra $50,000 for resources would reduce Activity M’s drag from 10 days to 8 days, it would also reduce its drag cost from $200,000 to $40,000. And the project’s EPP would increase by $110,000: $160,000 - $50,000 for the added resources. Seems like it might be worth it!

10.? Resource availability drag (RAD) cost is drag cost being caused by a resource constraint on the critical path of the resource-leveled schedule. Again, the amount of the drag cost justifies spending that amount to alleviate the constraint by either increasing overall availability or redirecting the critical constraint from another project.

11.? True Cost of Work (TCW) is a concept unfamiliar to most corporate Finance Departments. The TCW of a critical path activity is the sum of its drag cost plus its resource costs. Often, an increase in resource costs will reduce an optional activity’s TCW by reducing its drag cost by more than the cost of the additional resources, thus increasing the project EPP.

12.? Negative net value-added (NVA) is the situation where the TCW of an activity is greater than its NVA (from the VBS). This happens quite frequently when the critical path changes during project performance, suddenly loading drag cost onto activities that originally weren’t critical and therefore had neither drag nor drag cost. PM software packages should notify the user whenever an activity with negative NVA crops up. Either the way it is scheduled and performed must be changed, or it should be jettisoned, since as it exists, it is reducing the project’s EPP.

But since most PM software does not support the expected value of the Scope, the VBS, the value/cost of time, the Portfolio DIPP, the project DIPP, the DPI, critical path drag, drag cost, resource availability drag and drag cost, the TCW or the net value-added, none of this happens. ??

I suspect that is about to change. AI-directed project management will surely try to make Scope/Schedule/Cost decisions that increased the projects’ and portfolios’ expected value above cost.

Steve the Bajan