Steve’s Complete Requirements for Investment Project Techniques (A SCRIPT Manifesto!) ***

1.?????? All projects are investments and should be defined as such! Doing so will lead to improved techniques for generating more value from them. It will also increase the willingness of organizations (and CFOs!) to adopt project management techniques, and it will increase the standing (and salaries!) of trained project managers.

2.?????? The scope delivers the investment value. All projects are undertaken and funded only if the scope is expected to generate or add more value than the project costs.

3.?????? The goal of all project management should be to deliver the greatest value of scope for the lowest cost, other considerations (legal, moral, cash flow, opportunity cost, etc.) being equal.

4.?????? ALL projects are precisely as long as their longest path of activities, constraints and other critical path delays (see below for critical path drag). Therefore critical path planning, a project management technique for well over a half century, MUST be utilized if project duration is of any importance.

5.?????? Project duration impacts investment value, and sometimes project cost, through acceleration/delay of the critical path to value generation through scope delivery. The value of the project should be estimated based on a targeted completion date, and the added value of completing the scope earlier, or lost value due to completing it later, should be specified.

6.?????? All three sides of the Triple Constraint Triangle (Scope/Time/Cost) should therefore be monetized, as value or cost, thus allowing decisions and trade-offs.

7.?????? The project-level value breakdown structure (VBS) specifies which activities are mandatory (M) and which optional (O) (not unlike the MoSCoW technique) but also takes it the further step of estimating the value-added of each work package of optional scope. This helps to ensure that no work is preformed that adds less than its True Cost (a situation that occurs all too frequently!). See TCW and NVA below.

8.?????? The program(me)-level value breakdown structure (PgVBS) is far more important than the project-level VBS. In addition to other benefits, a PgVBS that is developed at initiation by the key stakeholders establishes, through negotiation, a unified vision of scope benefits and priorities for future decision-making. Additionally, sequencing projects at the program level is much more discretionary and should be based on maximizing the value of the whole program by (a) designating each project as value-generating [G], value-enabling [E], value-kindling [K] or any combination of the three, and (b) estimating the value to be generated, enabled and/or kindled. The sequence of projects should be optimized on the basis of maximized program profit or the program DIPP through the interactions of the projects’ contributions to program value.

9.?????? The Complex DIPP is based on the original DIPP formula from 1992: DIPP = (TPCM – OC – SW) ÷ (Cost ETC – PTC), where TPCM is the total project contribution margin from all sources, OC is opportunity costs, CW is cannibalization worth (salvage value), Cost ETC is the future cost needed to generate the TPCM, and PTC is project termination cost. Although all these data need not be tracked throughout the project, it is essential that they be analyzed if project problems ever lead to consideration of aborting the project (i.e., the Tracking DIPP approaches 1.0). ?

10.? The Tracking DIPP = ($expected value of scope ± $value/cost of acceleration/delay) ÷ ($Cost ETC). ?This is a simplified form of the DIPP which excludes terms like PTC that would become significant if project termination is being considered. The denominator of the Planned DIPP Baseline (Planned $Cost ETC) is the complement of EVM’s PV (BCWS). The Planned DIPP Baseline will rise during the project’s duration as the denominator ($Cost ETC) shrinks. (Yes, projects usually become better and better investments of future costs as they near completion—which is one reason why it is usually wise to complete them, and quickly, rather than terminating them.) The DIPP Baseline provides the project team with a periodic target to meet or exceed planned work performance based on overall value generation. ?

11.? The DIPP Progress Index (DPI) = Actual DIPP ± Planned DIPP. Inputs from EVM of CPI- and SPI-based estimates-to-complete can be used for computing the Actual DIPP.

12.? The Portfolio DIPP is the combined DIPP of all the projects across the portfolio. This should be the basis for evaluation of the organization’s project/program portfolio, as well as multiproject resource allocation across all the projects based on optimizing the portfolio DIPP.

13.? Critical path drag is the amount of time by which any activity, constraint, or other delay on the critical path is delaying project completion (and thus scope value generation, enabling and/or kindling). Although only computed by a very few project management software packages (four are PlanLab 's new Drag Calculator add-on to Primavera, Spider Project Team , Asta Powerproject and Structured Solutions, Inc. ), it is an invaluable metric for compressing project duration, either upfront or during performance when slippage occurs.

14.? Drag cost is the amount of project profit (ROI) that is lost due to the critical path drag of an activity, constraint, or other delaying factor. It is a very valuable tool for project managers to justify additional resources to reduce drag cost. (Alex Lyaschenko has made the useful suggestion that drag cost should be broken down into separate categories of [a] loss of value and [b] increased cost.)

15.? True Cost of Work (TCW) = an activity’s drag cost + its cost of resources. Frequently, the TCW of an activity can be lowered by increasing the resource costs by less than the drag cost is decreased. (Most corporate finance departments, being unaware of the concept of drag cost, are also unaware of TCW, and thus prone to wrong judgements regarding critical path activities and their need for resources.)

16.? Net value-added (NVA) = the value-added of an optional activity (from the VBS) minus its TCW. Activities with a negative NVA should either be jettisoned or performed differently, in a way that gives them a positive NVA.? Activities often acquire a negative NVA as a result of the critical path changing during project performance and suddenly giving a new set of optional activities drag and drag cost. It is vital for project managers (and PM software!) to check for this whenever the critical path changes!

17.? The doubled resources estimated duration (the DRED) is a simple measure of an activity duration’s elasticity in response to added resources. It’s the answer to the question: “What would the duration of this activity become if we doubled the resources on it?” (Or perhaps its budget?) The DRED becomes a useful tool for assessing the impact of allocating more resources to critical path activities.

18.? Resource availability drag (RAD) is the amount of critical path delay caused by a specific resource constraint.

19.? RAD cost is the amount of project profit (ROI) that is likely to be lost due to the resource availability drag of a constraining resource. (Jan Willem Tromp of EpicFlow Software points out that RAD cost should be a key metric for resource leveling.)

20.? The cost of leveling with unresolved bottlenecks (the CLUB) is the RAD cost of a specific resource over one of more projects in a given time period. It is the tool to assess staffing levels based on lost profit across projects and to justify acquiring more of those specific resources. CLUBs are of greatest value when they reflect future work, based on project schedules. HR departments should maintain Pareto charts and recruit those resources with the greatest differences between cumulative RAD costs and the cost of increased resource acquisition. ??

21.? The ALAP SPI is the schedule performance index (SPI) with the milestones moved to the late finish of the schedule, where there is zero total float (TF) to distort the importance of on-schedule completion. (The TF of activities tracked for the ASAP SPI can suffer from a major distortion: an activity with a $50,000 budget and 20 days of TF has five times more schedule weight than a critical path activity with a budget of $10,000. But for which activity is timely completion more important for the schedule?) If using the ALAP SPI, it is important to (a) give no credit for milestones completed until their scheduled reporting period UNLESS (b) they are on the current critical path!

22.? The float burn index (the FBI) is a measure of how quickly a path is consuming its free float (FF) compared to how fast it can do so WITHOUT becoming critical. E.g., if a path of 80 days duration has FF of 20 days, its allowable FF consumption rate (AFFCR) = .20 (20 ÷ 100). If after 40 days, the path has consumed 12 days of FF, it has a FFCR of .30 (12 ÷ 40). Its FBI = 30 ÷ 20, or 1.50 and the path is therefore trending toward becoming critical.

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So that’s it—a list of techniques (some traditional, some enhancements that I’ve developed based on traditional methods) listed in a way that tries to lead naturally from one concept to the next. I feel sure that others will develop further concepts—but based on the fundamental recognition that all projects are investments, and must be planned, managed and tracked as such!

If you have questions, or further concepts you feel deserve including, I’d be delighted to discuss them.

Meanwhile, I’d suggest that PMOs consider using the above (or selected items from the above) as a project manager’s checklist for the programs and projects in their organization that could benefit from these approaches.

Steve the Bajan

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