Prudent project managers will want early warning of poor project performance if corrective action is to have an impact. Regular project performance measurement gives them the heads up they are looking for. There are a number of essential ingredients for making this work.
Project Metrics
Without realistic plans and estimates, successful project execution is unlikely. The planning process needs to accurately scope the project and develop sound estimates of the work levels required so that realistic budgets can be set. Without these, the expectations set for project costs and delivery dates could be unattainable, and project performance is likely to disappoint.
This is why project metrics are so important; they are the essential source for developing sound estimates.
Measuring Progress
Project performance is measured by comparing, at each month end:
(a) Budget in work hours, based on the project plan.
(b) Effort spent to date, generally from timesheets
(c) Earned value, i.e., what’s been achieved for the effort spent.
These Schedule and Cost Variances indicate the performance to date and can be applied to show the forecast at project completion. Applying cost rates can be used to forecast project performance in financial terms.
Early warning of such variances can give sufficient time for corrective action to be taken, which is a major benefit of project performance measurement.
Based on performance so far, this project could be a month late and require 40 more days pf effort!
Effort can easily be converted into financial costs by applying relevant rates.
Dealing with Scope Change
As soon as a project starts, pressure to increase its scope can emerge. No matter how carefully the project has been scoped, as the client understands the implications of what’s been agreed, change requests can arise.
For project performance measurement to remain meaningful, the effects of each change in scope need to be reflected in the project budget – otherwise the calculated variances and revised Estimate to Completion, will lose their credibility.
To show the impact of agreed changes, snapshots of the project plans (baselines) can be stored, as each change is agreed. Comparison reports will then help to justify both cost overrun and delays to key delivery dates.
How the project baseline alters as each change is agreed
As project tasks and phases are completed, the cost variance calculations can be gathered as project metrics, to show quite clearly how good the estimates and budgets really were. Where each type of project has a consistent structure, this feedback enables future estimates to be refined with confidence.
The collection and analysis of project metrics in this way enables the organization to learn from its collective experience and gain real competitive advantage in future projects.
Cost and Billable Rates
Rates management can be quite complex, particularly where billable rates need to be handled.
(a) Cost Rates. Most internal departments manage cost rates by associating staff with a relevant grade or role and storing rates accordingly. This avoids the need for the software to maintain more confidential personal cost rates. Standard cost rates are often reviewed annually, based on median salaries and overhead allowances.
(b) Billable Rates. Billable rates need to be much more versatile, particularly where the work is for external clients. For time and material contracts, where the billing will be based on hours booked on the timesheet, each project can have different rates negotiated and these could be role based as well.
Role based billable rates require the system to know what role each person is acting as, for each time element booked. For example, an IT resource may book time on a project where he is both a developer and tester. The rate for each role is likely to be different. This is often referred to as activity based costing. Rates can also change over time and such changes need to be stored so that the correct rate is always applied.
Rates Management
Innate software provides comprehensive rates management for project costing and billable work. Any number of rate tables can be handled, so that billable rates can be specific to each project, if required.
Activity based costing enables billable rates to be specified at task level and also by role; should an individual undertake various tasks with different billable rates, the appropriate rate will be applied. We do this by defining that person’s role for specific tasks.
Innate’s rates management enables the appropriate cost and/or billable rates to be applied to both the booked and planned hours, so that:
- Cost performance and profitability can be measured across projects, tasks and teams.
- Billable amounts can be computed for internal or external invoicing.
- A detailed history of departmental, grade and rate changes can be tracked for each individual, so that costs will be accurately allocated over time.
Where data is used for billing, or is fed into payroll or other systems, a secure timesheets system automates the process and gives a comprehensive audit trail. This improves reliability, accuracy and operational efficiency.
Effective project performance measurement is key to sound project financial control.