Management in Practice

Beyond the alphabet soup of PRINCE2, MSP, MoP, PMBOK, ITIL, Agile

Tag Archives: budget

Building PMO metrics


The Christmas and New Year is always a good time to take some time off the hurly burly of daily grind and reflect on how things are going. Towards the end of the year I did some work on what metrics would help us run our PMO more efficiently. Metrics are always difficult to establish, especially as they only tell a story once you have a baseline to measure against. This is probably a heavy topic for the first post of the year. Apologies for that.

Building-PMO-Metrics

While I see a pressing need for making decisions on evidence, I am also cautious against spurious interpretations of metrics, which can easily happen if taken out of context. You only have to look at statistics driven sports such as baseball or cricket where fans and officials will take diametrically opposing views of players or tactics using different statistics. Numbers are just that. What you interpret from them is what gives them meaning.

The first task was to explore what type of metrics would be useful for our business. I work for a IT professional services firm. It has unique challenges from other types of businesses. I did some research on what other similar organisations are doing. I found this compilation from OpenAir and excellent resource. There are three articles in this and the first one by Thomas Loh is by far the best. This was an excellent start. The key is not to go chasing every metric under the sun, but the ones that you need to measure. That is even more crucial when your PMO is lean and you are in the process of building its maturity. Capturing metrics and analysing them takes effort and time. You cannot afford to be spending either frivolously.

The standard metrics of utilisation, profitability, billing rate etc are quite easy to measure after the effect. We were looking at getting at least one forward looking metric that can help validate our decision making. We decided to invest in our effort in an area that is most challenging for a services business like ours – that is the pull between resource and demand.

Resource-vs-DemandIn services business you either have too much work or too many people. It is crucial to have a good handle of this to maximise profitability. The cycle of winning new business always takes time. If you have left your efforts to bring in new work too late, you will inevitably have periods of low revenue. Unlike products which you can sell at a later time and recoup some revenue, if not all, lost consulting time cannot be archived and sold. That is effectively lost.

To ensure an optimum work pipeline, we can use the charge rate to either stick to our margins, because work is plentiful or use discounting effectively to be more competitive than usual in tough market times. We want to be making a decision on them at the correct times (i.e., not stick to higher margins when market is tough or give away margins when not necessary). We are looking at using Backlog (total value of contracts yet to be executed) as a forward measurement for that.

The aim is to look at recording the backlog value three months out and updating the actuals at the end of the month. As we currently do not have a baseline, I do not expect us to be able to use this effectively in the next year. However, once we have built a picture, we should be able to predict with some confidence what it means to be at a certain point in our backlog and what that is likely to mean in terms of likely actual income.

Because we are looking at it three months out, we’re likely to have enough time to win new business to fill up the pipeline if it is looking less than promising. If pipeline is strong, we know we do not need to compromise on margins. There is likely a follow up on this topic this time next year on how this measurement plays out. Hopefully my challenge is not unique to me and the process is helpful for others to reflect on.

I am keen to understand what predictive measurements you have successfully implemented.

Image credit: communicationstuff.com

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Light at the end of the tunnel


Ever feel like there is too much to do and not enough hours in the day? I have just had a couple of weeks like that. Each day I worried how I’m going to get through the tasks at hand without dropping the ball on something else. It is not uncommon in professional services. Work is lumpy in nature and you have to ride the rough with the smooth.

Light at the end of the tunnel - Project Resource Management

I have made the statement of the lumpy nature of professional services work several times, but seldom put any thought to why that is the case. The most obvious reason I have seen is the fiscal year and budget allocations. In many organisations, unused budget is lost from future budgets and there is incentive for customers to hold on to budget until the last possible moment and only commit to projects once all their other costs have been accounted for. That leads to a stream of projects at the end of the fiscal year, as organisations are more confident that they do not need this budget to cover for risks in other areas.

There are holiday seasons which traditionally see a lot of staff leave. From an IT perspective this includes a lot of change freezes at various organisations both suppliers and customers. That automatically means less activities, because of system constraints. I find this is not a bad constraint, as inevitably our capacity to provide services is also low because of high leave demands.

The risk element is during school vacations, where a lot of staff want to take leave but is harder to adjust customer expectations around delivery timeframes. It is a good practice to ask for early visibility of leave requests during these times and to have a record of previous leave taken. This would allow a services company to be fair in allowing leave to staff over the course of the year. A bit of flexibility is required from everyone here. The services company itself is also obliged to set the expectation with the customer about delivery based on staff availability. It is a hard discussion to have with key customers, who have a lot of influence.

A lot of the challenges identified are quite common to most organisations and not necessarily specific to services companies. The challenge comes in the sales cycle and the desire to maximise the utilisation of resources. Higher utilisation, more profitable the company. By definition, there is less slack and less agility. A particularly efficient few months sets management expectation that high utilisation is manageable for the duration of the year, when it is not necessarily the case. Revenue expectations therefore needs to be balanced with reality of resource management.

From my point of view, It appears that the particular wave of new work may be getting to a manageable point now. However, there is a conference that is nearly here. I am presenting a day long workshop on project management in our particular industry sector, which takes a lot of effort to prepare for. In today’s environment no one has the luxury of complain about being busy. That is a sign that the company is doing better than most. We are also hiring, so my challenges on agility may be relieved somewhat.

It now looks like there is light at the end of the tunnel. Hopefully it is not a freight train heading my way.

Image Credit: lindsredding.com

How do I know if my project is going well?


Cost Variance

What is the main job as a project manager? If you go by the PRINCE2 manual, it will tell you my job is to control the 6 parameters in a project – time, cost, quality, scope, risk and benefit. Let’s look a bit deeper.

Schedule Variance

In most cases, unless you are part of a portfolio of projects, most likely you as a project manager won’t be responsible for the benefits realisation. This is there to ensure the project is always concerned with delivering to the business case as closely as possible. With risks you can plan and have management strategies and specific budgets. If it is outside your tolerance levels, you have the project board to get direction from. You can tightly control scope through the mechanism set out for your project – either the project board itself or a designated change authority. Quality management is one area where PRINCE2 is quite prescriptive and actually provides a mechanism.

When you think about it closely, the two things that will set you apart as a project manager is on time, on budget delivery. Usually most project boards are willing to consider some amount of off-specification or compromise on quality. When time is impacted, you cannot bring the project back to equilibrium without compromising one of cost, quality, scope or quality.

Cost Performance Indicator (CPI)

Schedule Performance Indicator (SPI)

Where you or the project board may need to compromise may depend on how far the project is likely to be delayed and what the projected cost will be under the current scope and quality. It is very easy to know that the project is 2 weeks behind. Does that mean that the project will be delivered only 2 weeks later than scheduled? If you delve down into the reasons for the delay, the most likely causes are underestimating efforts or risks. It is more likely rest of the project will follow the delay pattern you’re seeing than what you had originally planned. So how do you measure the most likely completion date and cost?

Project Health

This is where Earned Value Analysis (EVA) plays a huge role. In your role in monitoring project progress, reviewing this pattern is critical. Say you are part of the way through a project. So far you have completed work that you had planned 758.55 hours to complete. In fact it has taken you an additional 34.70 hours to achieve this. This is your schedule variance. It is obvious that you’re spending more than what you planned. This on its own does not necessarily indicate the project is in trouble. In fact, the reason you may be producing the additional output may be because you are significantly ahead of schedule. Using less hours is also not necessarily an indication of being on track. You may be burning less hours than planned and as a result falling further behind in your project.

Project Health Over Time

To get a better sense of this, compare how much of the schedule you expected to be through at the current date. In the project I am using to illustrate, I had expected to complete about 786 hours of earned value (completed tasks). This tells me I am also behind on schedule. How far ahead or behind schedule and cost I am can easily be calculated by calculating the SPI and CPI indicators. If you multiply the two, you get an accurate reflection of where your project is. In my case here, I’m slightly behind on both cost and schedule.

CPI is critical to forecast what your likely final cost would be, based on current status of the projects. The fact that the estimates in the project so far has been slightly less than what it has taken to implement them, means the other estimates are also out. Plot the project health indicators each time you monitor progress. It will very quickly give you a feel for the status. Any single week’s assessment may not give you an accurate reflection of where you are.

Estimated Final Cost

Project estimates, especially in software development, is an art rather than science. If you get within 5% of time and cost, I think you have been successful. Therefore, I consider anything around 0.95 x 0.95 = 0.9 to be around the low side of acceptable result. Ideally you are not out by 5% on both counts. A project health score of 0.95 would be an outstanding achievement. How do I calculate what the likely final cost is? Divide the original planned cost by the current CPI. Based on current rate, this is what the final cost will be. Estimating final scheduled delivery is slightly more complex, as you have to consider the critical path. If the progress is ahead of schedule in tasks outside the critical path, in reality you won’t gain any schedule reduction.

The most crucial part of a project manager’s job is to ensure professional management of the project itself. The key to achieving this is ensuring anyone responsible for making decisions about the project is fully aware of how the project is progressing. Something running behind schedule and cost should not come as a surprise near the end of the project.

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