The best way to gauge the "health" of a project is to review a concise set of project metrics known as Key Performance Indicators (KPI's)

The project manager needs to know if the project is going to plan, and if not, what corrections are needed to get back on course (or plan a different course).

There are numerous Key Performance Indicators that could be used to determine the health of a project. As a minimum, the Project Manager needs KPIs that answer the following questions:

• Cost. Is the project spending in line with the baseline cost?

• Schedule. Is the project on track with the baseline schedule?

• Resources. Are the internal/external customer and supplier resources  available as shown in the project plan

• Business Case.  Is the project still on track to deliver the right products that have the potential to realize the business benefits

• Quality. Is the project creating products/deliverables that meet their quality criteria

• Safety. Is the project adhering to the safety plan and/or other regulatory compliance requirements?

• Risk. Is the risk management strategy working and are risks being managed. Is the level of risk still acceptable.

As these metrics are captured and updated at key points, they will give the information needed to manage and control the project.
 
Using Earned Value Analysis for Performance Control and Reporting

The 'Earned Value' will be used to Calculate the Cost Performance Index (CPI), and Schedule Performance Index (SPI)

CPI is Earned Value divided by Actual Cost.  CPI shows how efficiently project resources are performing in relation  to the project budget.

SPI is Earned Value divided by Planned Value.

SPI measures the performance of resources relative to the project schedule.

Let me give you a simple example here...

James Dean is allocated to a critical path task that is planned to use 200 hours over 10 weeks (20 hours a week on average). After Week One, although James put in 20 hours, he only contributed 15 hours of earned value. This means his effectively ( and hence both CPI and SPI) is only 15/20 = 3/4 or 75%

So for each 10 days work, the task will slip by 2.5 days, and an labor cost for 2.5 days will be incurred.

So if James is given, say a task that takes 4 weeks, and 80 hours work, using the CPI and SPI of 75%, the task will actually take 5.33 weeks and 106 hours to complete. Assuming some labor rate, this will have a knock-on effect of over-spending. Bad News - but it is a basis for the project manager to take corrective action.

Possible actions could include:

• budgeting more hours work per week to keep on track (although this will increase the costs) 
• getting more people to work on the task (again more cost) 
• finding a higher skilled person than James 
• re-planning the task so that it is not on the critical path 
• outsourcing the task

The Business Case and its financial metrics give further information on the 'health' of the project. I will not go into them in detail, but examples are:

• Internal Rate of Return/Return on Investment 
• GAP Analysis (, Good, Average, Poor) calculations - a form of sensitivity analysis. 
• Cost Benefit Analysis - giving the investment and costs needed against the expected revenue stream over a given time period. 
• Net Present Value - a calculation derived from CBA above 
• The time taken from project completion to the realization of business benefits (as outlined in the Business Case)

Usually a monthly report will give the key performance indicators against the original agreed plan. These include Planned, Actual, Variance, and Forecast values for both time and cost, and give management the key data to make their decisions.

Earned Value

The PM Body Of Knowledge (PMBOK), defines Earned Value as the physical work accomplished plus the authorized budget for this work (PMBOK 10.3.2.4).

Earned value analysis is also defined as a method of performance measurement integrating scope cost and schedule measures.

To use Earned Value during a project, there are several metrics that are needed:

Planned Value (PV) - is the planned (or budgeted) labor units (and
their associated costs) for project activities over a given period.

Actual Cost (AC) - is the actual labor units spent (and their associated costs)
on project activities completed over a given period.

Remaining Cost (RC) - is the forecast labor units remaining (and their associated
costs) on project activities over a given period.

When no actual labor units have been spent, this will likely equal planned (or budgeted) labor units. When actual labor units have been recorded but the activity is not yet complete this will need to be estimated.

Percent spent is calculated by dividing Actual Cost by the sum of Actual
and Remaining Costs.

The formula for this is Percent Spent = AC / (AC + RC).

Earned Value (EV) can be calculated by multiplying the Planned Value and the
Percent Spent.

Let's go back to James Dean. He has a task that was planned to take ten days and 100 hours work. He is paid $10/hour. You have just found out his progress to date.

After 4 days you find he has put in 3 days on the task, and it is 50% complete. You would know that he is ahead of schedule and underspending - right?

Say, after 5 days, he has spent 60 hours of work and is 30% complete, then he must be overspending and behind schedule.

For example, a task has a Planned Value of 10 labor units. The
most recent status indicates that 4 actual labor units have been spent and
the task is 50% complete. Multiplying the Actual Cost (4 labor units) by the
Percent Spent (0.5) provides a current Earned Value metric of 5 labor units.

By tracking earned value at a task level in the project schedule you will
be able to determine the level of contribution relative to budgeted costs of
each team and resource.

Project managers can use this information to make necessary adjustments to ensure that projects are delivered on-time and on-budget.

Okay, so this was a simple example to illustrate the principles. For more detailed information on this and how to fast-track your PM career, check out this link:

http://www.howtomanageprojects.com

Good Luck

Dave Litten