The DIPP and the DPI
Stephen Devaux
President, Analytic Project Management; Author, Instructor, & Consultant
Last week I did an interview/webinar with Jan Willem Tromp and Epicflow Multi-Project Resource Management Software on "Optimizing Resource Allocation In a Multi-Project Environment with AI and Metrics to Maximize Profitability". You can find it here.
The basic idea behind the webinar is the use of the DIPP as the prime metric for resource allocation across a multiproject portfolio. It's an idea I've been toying with for a quarter century--but now AI is making it practical!
Since the webinar, a number of people have asked me for further explanation of the DIPP. It began around 1990. After playing in a backgammon tournament in the same week that I had read a number of articles about how to know if a project should be aborted, I realized a parallel between a project and a decision point in backgammon (i.e., whether to concede the original bet or play for double the stakes). The principle is the same: which way will let us make or lose more?
The original DIPP was only about the fund-or-abort decision. Later, I modified it to the Simple DIPP, which is:
Simple DIPP = ($EMV ± $Accel premium or Delay cost) ÷ Cost ETC
where:
As shown in the Figure at the top of this article, the DIPP provides a target based in the expected project ROI (or expected project profit [EPP]!), the raison d'être of the project investment (project funders expect more value than cost!).
One of the great aspects of the Simple DIPP is its ability to act as a tracking metric that stimulates the project team to seek ways to increase the project's value to the investor. In the above diagram, if at the 18-week mark the baseline DIPP is expected to be 6.03 (i.e., EMV = 603% of the planned Cost ETC), they can be seeking ways all along to increase that value: accelerating schedule; cutting cost; retiring risk; or even considering (and adding, with the sponsor/client's approval!) scope that will outweigh its cost.
Now the DPI works like a Cost Performance Index [CPI] and, we hope, better than the typical Schedule Performance Index [SPI] if it takes the critical path into account in estimating acceleration or delay!
Yes, at the 18-week mark, the DPI may have fallen to 5.00, just 83% of what we expected it to be at that stage. And then the sponsor should want to know why: Delays? Cost overruns? Why? Because the market (or "mission" if you prefer) value has deteriorated!
BUT if the team knows that it's being measured (and perhaps remunerated!) based on the DIPP and DPI, it will seek ways to do better than the baseline! It will look for critical path activities with lots of drag (and drag cost!) and try to compress them (without sacrificing scope/quality!). Maybe get the DPI up to 1.49!
That extra value goes to the investor! That's why it should be incorporated in the project contract.
领英推荐
And wouldn't it be awful if the contractor/project team were incentivized to increase value to the investor? What a terrible idea!
Steve the Bajan
Jan Willem Tromp Jan van den Berg Alex Lyaschenko Alexander Apostolov Mohammed Azharuddin Ray Brousseau J. Alexis Kevan Kivlan Prasad Velaga, PhD Joe Sopko Joe Russell - MS, PMP, LSSGB Marc O'Brien
Helping organisations make critical decisions, and achieve significant and lasting improvements in project delivery performance.
9 个月Steve, I'd never heard of the DIPP before, but having read the article and comments I really like it. A few years ago I developed a methodology called Time Averaged Capability (TAC) intended to account for the Time dimension of the Iron Triangle in the government-approved methodology for choosing between investment options, known in the UK as Combined Operational Effectiveness and Investment Appraisal (COEIA) - which normally only considers Performance and Cost. If you're interested here's a link to the presentation where it read first aired: https://ismor.com/ismor_archives/34ismor_archive/presentations/20_thursday/34ismor_seasman_mccormack.pdf My thinking was very focused on the initial decision about what to invest in. It never occurred to me to think about that on an ongoing basis, as your DIPP concept does. A lot of my early career was spent in environments where projects that go wrong turn into "zombie projects" that are unkillkable because no-one wants to write off the sunk cost. A DIPP-like metric would have been an excellent governance tool for helping senior decision-makers (up to government level) decide to - and defend their deciding to - cut their losses.
Interim Programme Manager and Consultant at ITARO
9 个月(3/3) I do not see the relationship between a portfolio level parameter like the DIPP and operational resource management. I see the use of the DIPP in decisions on the composition of the set?of WIP projects. These are decisions on project level. Operational resource management is dynamically allocation resources on the tasks that are (almost) ready to run. I fail to see how to bridge the gap. If you use the DIPP for portfolio compositions decisions, I have questions on the feasibility and cost of effectuating these decisions. Big projects are like big oil carriers. Stopping, accelerating or slowing them down is difficult and always costly. Furthermore, in a common resource pool there are many side effects on seemingly unrelated project. Jan-Willem can tell you all about this. All parameters in the DIPP calculation are not only time dependent, but also have significant error bars. They are stochastical functions of time. Is there enough empirical data on these functions to justify trusting the DIPP for making far-reaching portfolio decisions?
Interim Programme Manager and Consultant at ITARO
9 个月(2/3) Another important parameter is the Cost ETC. The cost of resources needed to finish the project. In most portfolio management practices we use rate cards and other tools to compute budgets and actual cost. For the DIPP to work, the Cost ETC should be as realistic as possible. This means, as close as possible to the actual Financial Accounting cost of using a resource. For a human resource this means that the rate should include ALL cost needed to ‘run’ the resource. Not only things like salary, but also all the overhead cost. I’ve been doing this for 25 years and have seen only one (1) organisation that actually does this. Most use some simplified hybrid rate calculation. Do you agree that a so called full costing rate calculation is necessary for the DIPP to be useful??
Interim Programme Manager and Consultant at ITARO
9 个月(1/3) Hi Stephan, I was one of the participants in last week’s seminar you did with Jan-Willem. And I am left with some serious reservations about using the DIPP. An important input for the DIPP is the $EMV, expected value of the scope. Hoe do you handle projects with negative, zero or no EMV at all? In many heavily regulated industries (e.g. banking) the majority of the project are run to comply with existing and new regulations and reporting requirements. How is the DIPP applicable here? And what about a portfolio that is a mix between unavoidable projects and commercial projects? Also, what about maintenance projects? These projects are necessary as part of the life cycle management of an asset and have no or very sketchy expected value. What is the EMC for these projects??