Performance Measurement, Continuous Improvement & Bench-marking
The purpose of performance measurement, Continues improvement & Benchmarking is to help organizations understand how decision-making processes or practices led to success or failure in the past and how that understanding can lead to future improvements. Key components of an effective performance measurement system include these:
- Clearly defined, actionable, and measurable goals that cascade from organizational objective to management and program levels;
- Cascading performance measures that can be used to measure how well objective, management, and program goals are being met,
- Established baselines from which progress toward the attainment of goals can be measured;
- Accurate, repeatable, and verifiable data; and Feedback systems to support continuous improvement of an organization’s processes, practices, and results.
When a successful company invests time, money, and other resources in a project, its primary concern is always what it is getting in return for its investment. It is the responsibility of the project manager, and the PMO to ensure these projects stay on schedule and within their approved budget. Performance measurement provides the project manager with visibility to make sure he is operating within the approved time and cost constraints and that the project is performing according to plan. It also alerts management if a project begins to run over budget or behind schedule so actions can quickly be taken to get the project back on track.
It is the responsibility of a Project Manager to ensure that project performance is being captured and reported. It is also the PM’s responsibility to ensure that the level of reporting is achievable and doesn’t unnecessarily overburden.
It is important the PM defines the size of the work packages in the work breakdown structure (WBS).
Additionally PMO should have a standard for applying credit for work performed. There are three common approaches to this.
1. One rule is to apply a percent complete to work packages; however, this is somewhat subjective and leads to percent completes of 99.5, then 99.6, then 99.7 – we’ve all either been in this situation or seen it.
2. A second rule is only giving credit when 100% of the work is completed on a work package, this is called the 0/100. The work package receives no credit even if it’s 3/4 complete. This solves the problem with the previous rule; however, it leads to less accuracy when performing earned value calculations.
3. The third option is to give 50% credit when work on a work package is started and 100% when the work is completed.
Next, is to determine what earned value metrics you want to track and present to management. For most project, it is important to track the Schedule Variance (SV), Cost Variance (CV), Schedule Performance Index (SPI) and Cost Performance Index (CPI). These four values provide a reliable measurement of the project’s performance.
Schedule Variance (SV): If SV is zero, then the project is perfectly on schedule. If SV is greater than zero, the project is earning more value than planned thus it’s ahead of schedule. If SV is less than zero, the project is earning less value than planned thus it’s behind schedule.
Cost Variance (CV): If CV is zero, then the project is perfectly on budget. If CV is greater than zero, the project is earning more value than planned thus it’s under budget. If CV is less than zero, the project is earning less value than planned thus it’s over budget.
Schedule Performance Index (SPI): If SPI is one, then the project is perfectly on schedule. If SPI is less than 1 then the project is behind schedule. If SPI is greater than one then the project is ahead of schedule. A well performing project should have its SPI as close to one as possible.
Cost Performance Index (CPI): If CPI is one, then the project is perfectly on budget. If CPI is less than 1 then the project is over budget. If CPI is greater than one then the project is under budget. A well performing project should have its SPI as close to one as possible.
It is important to set thresholds for these values at which their status will change to an alert. For example, if the SPI falls below 0.9 then the project’s schedule should change to a yellow status. If the SPI falls further and dips below 0.8 then the project’s schedule should change to a red status. Additional earned value calculations can be performed if there is a problem with the project’s cost or schedule – this will give the project manager a better understanding of the problem and determining a path for correction.
Measuring project performance is an important part of project and program management. It allows the PMO and project manager to identify cost and schedule problems early and take steps for remediation quickly. It starts with setting the standards for the size of work packages, applying credit for work performed, and which earned value metrics to track, which should be included in the project’s Cost Management Plan. Measuring project performance provides the organization with a clear picture of the health of its projects and can instill confidence in the project teams. Additionally, these performance measures can help the PMO establish continuous improvement initiatives in areas where projects commonly perform at lower levels. The usefulness of measuring project performance is evident and as long as organizations do not become overwhelmed with them, these measures will remain important contributors to organizational success.