the project management sextant

Summer 2005 1

Consider:

A reduction in a tight Schedule, bynecessity, increases the Cost.

(fig2)

Likewise, if the Scope remains con-stant, a reduction in Cost typically ex-tends the Schedule.

(fig3)

Time

Cost

Scope

The Measurable NewsThe Magazine of the Project Management Institute’s College of Performance Management

Summer 2 • 0 • 0 • 5

The Project Management Sextant

By Steve VanArsdale

Introduction

"Triple Constraint"Earned Value

There is a Force that binds allprojects. It is as relentless as gravity,and equally impossible to workagainst. But like gravity, one can sensewhen it might hurt you. The force thatshapes projects, and careers, is knownas the Triple Constraint.

In every project, Cost and Timeare immutably linked by the Scope.

(fig1)

The law of the Triple Constraint iseasily demonstrated.

The Project Management SextantBy Steve VanArsdale.................pg 1

Letter to the EditorBy Richard Nimon ................... pg 3

A Re-Examination of ProjectOutcome PredictionBy Walt Lipke.........................pg 14

Applying Earned Value Metricsto Analyze, Forecast and ReportSchedule Performanceby Dave Jacob .......................pg 21

C O N T E N T S

Continued on page 6

PMI-CPM FallConferenceDetails p. 28

CPM President’sStatement

p.5

Summer 20056

ProjectManagementExcellencesince

Project Management Process DesignEarned Value Management Implementation

Independent Data AnalysisIntegrated Baseline ReviewsInformation Systems Integration

Software Evaluations & TrainingOperational Support

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Moreover, an expansion in Scope will have a directeffect on Cost or Schedule, or both.

(fig4)

Knowledge of the Constraint, and how to use it isthe key to project success. While the link between Cost,Schedule, and Scope is fixed, it is often flexible. Ex-perienced project managers claim to have seen theirSchedule stretched to accommodate an expandedScope.

(fig5)

Moreover, it is not unusual to see Costs stretched alittle to cover an extended Schedule…

(fig6)

…especially past the cut-off into the next account-ing period.

(fig7)

Continued from page 1

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The Triple Constraint is not "dark science". Ithas been known and practiced for decades.The con-cept of the Triple Constraint led to the U.S. Govern-ment's supplier Cost/Schedule Control Systems Cri-teria in the 1960's. C/SCSC focused on two of the con-straints, Cost and Time, and led to the technique knownas Earned Value, now considered a standard of projectmanagement. However, while EV is widely practicedin government and private industry, studies show that70% of all projects exceed cost budgets or time sched-ules or both. Moreover, industry satisfaction surveyssuggest that sponsors and stakeholders are rarely get-ting what they expected.

Part of the problem is thought to be the volume oftabular data in the EV calculations for a project. An-other problem is that there is a "dark" or hidden fac-tor, the Scope. The following paper suggests that a newmetric is needed. The benefit is that all three funda-mental factors can then be controlled. Another benefitis that all three Constraints are revealed, the projectsnaps into sharp focus, and a simple graphic can be anextraordinarily effective project control and even pre-dictive tool.

The "Big Three"

Scope, Time, and Cost are the big three factors ofWhat, When, and How Much. From time to time therehave been debates about more "constraints", notablyrisk and quality. IMHO, in most cases these additionalfactors are simply attributes of Scope.

All three Constraints have unique attributes. Costhas attributes: fixed, variable, regular, recurring,phased, and of course, the accountant's favorite, op-portunity cost. Time has even more: person-hours,clock-time, overtime, full-time, part-time, downtime,discrete, recurring, lag and slack, chargeable, billable,probable, imbedded, hidden, and recorded time… notto mention the schedule-rescuing "off-the-clock" time.So Scope also has attributes. In addition to the at-tributes of specified, requested, and expected, thereare risk attributes associated with each deliverable:risk type, likelihood, and impact. And there are qual-ity attributes for each deliverable: unit tested, beta-tested, integration-tested, stress-tested, and user-ac-ceptance-tested… as opposed to the unfortunate Not-

Tested. At the other extreme, there are attributes ofexpanded Scope: super-tested deliverables, "gold-plated" deliverables, and even deliverables that evolveinto "delighters" (to borrow a delightful Six Sigmaterm). But recognizing these attributes, and measur-ing the changes, is simply part of effective Scope defi-nition.

In practice a "five-way" Constraint is totally unwork-able; a triangle is inherently more stable. Moreover,it's not necessary; risk and quality are always con-trolled as attributes of Scope. The project cost is HowMuch, time is When, while Scope is the What andrisk and quality are simply the How and How Wellattributes of Scope.

The Elusive Earned ValueScope Metric

Let's consider the situ-ation. The Triple Con-straint concept is decep-tively easy to understand.It appears just as easy tomaster. However, master-ing the"3C" calls for thepractice of Earned Value.

Earned Value is a series of calculations that measuretwo of the three Constraints. First one calculates theCost Variance, or the difference between what wasplanned expenditure and the actual. Then one calcu-lates the Schedule Variance, or the difference betweenthe time planned and expended. Comparing the CostVariance and the Schedule Variance to the original planpurports to show how well the project is doing. Orperhaps, how well the project managers are doing withthe project. (see italics following)

Volumes have been written, upon these "projectmetrics". Yet studies have determined that mostprojects fail to meet their budgets, or schedules, orboth. Not just some projects, or even a lot of them,but most (70% reported in the 1995 and 1997 StandishGroup CHAOS reports). This is disconcerting. EarnedValue has been practiced for forty years. Yet some-thing in Earned Value has been missing. Poor per-formance goes undetected, and worse yet, good per-formance can go unrecognized. Perhaps this is becauseif and when there is a shift in the third Constraint, the

Continued on page 8

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Scope, there usually is no corresponding adjustmentin any of the other project metrics.

Oh, to be sure, there is usually a scope document.And sometimes a rigorous control procedure. Ormaybe even a stern scope committee, or perhaps thedreaded Scope Change Control Board. Yet the elusiveScope remains the project manager's most commonescape clause:

"Well, yes, of course, the SPI indicates that we'rebehind schedule, which isn't exactly true, and the CPIsuggests we're over-budget, although we're really not…because we're not actually going to do all that stuff inexactly that way."

Now there is a method to retire this lame defense.That method is a simple calculation, depicted in an

even simpler graphic. The ProjectSextant is a precision instrumentdesigned to reveal a project's truecourse, using the tools and tech-niques of Earned Value within thecontext of the Triple Constraint.

Earned Value rules dictate that the Cost Perform-ance Index, or CPI, and the Schedule PerformanceIndex, or SPI, are calculated as percentages such thata number larger than 1.00 is ahead of plan (desirable),less than 1.00 is behind (bad), and an index of 1.00 ison track. The CPI and SPI can, of course, be calcu-lated precisely, but the result is not always meaning-ful. For example, if the CPI is 0.90, and the SPI is1.10, can the project be considered OK?

However, the CPI and SPI can be plotted on an X-Yline graph. When this plot is adjusted by the DPI, orDeliverables Performance Index, the succinct devia-tion in the Triple Constraint is suddenly visible. Likea ship's compass in the hands of a trained navigator, auniversal law is transformed into a manager's tool. Thisnew "triple factor" graphic shows instantly the statusof the project and the degree by which it is off-course.For this reason, this technique is called the ProjectSextant.

Like Earned Value versus the Triple Constraint, somethings are better seen than described. Following is anexample.

Let's assume that a project has ten work packages,each producing one deliverable. Here are the EarnedValue metrics, including the Deliverables Count met-ric used in the Project Sextant.

The CPI and SPI are apparently both on track at100%. The DPI, or deviation in the apparent plot byany change in the underlying deliverables, is neutral,so the project is exactly on course at the point of 10%completion, a fairly typical project status.

Project is 10% Complete

Sextant at the 10% Completion Point

By the 20% point in the progress of the project, thedeliverables are better understood, and are being re-considered in the light of what is feasible. Below youfind diagrams of the Sextant at the point that the projectis 20% complete.


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Project is 20% Complete


The small blue dot represents the plot of the CPIand SPI. It is apparently within the tolerance limit,that is, plus or minus ten percent of 100% on track.But the larger symbol to the lower right is the actualSextant course, adjusted for the deviation in thedeliverables.

Note that the deliverable for work package WBS-2 is considered complete, at only 0.9 or 90% of thespecification. The deliverables for work packagesWBS-3 has been cut back to half the original plan,perhaps for testing that is now considered unneces-sary.


Here are the Earned Value Sextant metrics at the pointthat the project is 50% completed.

Note that the Cost Performance Index, CPI, andSchedule Performance Index, SPI, indicate the projectis within the tolerance limits, ahead of schedule andbudget, as shown by the small dot at the top center.However, as shown by the large block to the left, whenthe Deliverables Performance Index or DPI is applied,the actual project course is behind schedule and overbudget. This is borne out by close examination of thetable. The work packages WBS-2 and WBS-3 are con-sidered complete (EV of 1.0) but the actual deliverableswere reduced to 0.9 and 0.5 respectively. Thesechanges may be legitimate reductions in the testingefforts required, or elimination of specified functions.In any case, since these changes in Scope are rarelyreflected in reduced Actual Costs (AC) nor in the Budg-

Continued on page 10

Project at the 50% Completion Point

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eted Cost of Work Scheduled. There should be appro-priate consideration of the Deliverables Variance andDeliverables Performance Index. When applied to theCPI and SPI, the DPI clearly indicates that the projectis off-course at the mid-point of the work.

Even at this early stage the Project Sextant shows aclear and lethal deviation for this project. According toDavid Christensen and Scott Heise in the NationalContract Management Association Journal in 1993, aproject's final CPI will not typically change by morethan 10% from the value at the 20% project comple-tion point.

Given the DPI, a calculation of Estimate at Comple-tion (BAC divided by the Sextant-corrected CPI) indi-cates this project will be at least 16% over budget.Moreover, it is known that this simple EAC calcula-tion tends to understate the actual total project costoverrun, if the factors such as rework that caused thedeviation from the baseline plan are expected to con-tinue.

Now, plotting the Sextant in series can be useful.Simple line/slope extrapolation from the 20% and 50%points produces a Sextant for this project that lookslike this.

At this point we can predict that given the project'stwenty-percent course and performance, the final

Project Sextant will be approximately 20% overbudget and 20% behind schedule.

While the small dot at the center representing CPIand SPI seems to be on track, the Sextant reveals thatthis project will end up considerably off its course.Management can be forewarned, for example, that ifthis is a million-dollar effort, there will need to be anadditional $160,000 allocated to complete all thedeliverables of this project. If this project is a spaceshuttle mission, it will miss the launch window by 16days. In either case, a "course change" is neededimmediately, before careers are at stake.

Summary:

Few of us have the luxury of working on projectswith a budget of "whatever it takes". Instead we planevery penny, predict every deliverable, and answer toevery sponsor and investor. The real benefit of theSextant approach is more than "tweaking" EarnedValue. It is the simple underlying logic. The TripleConstraint is well known, and respected in virtuallyevery business discipline. The Deliverables Varianceand Deliverables Performance Index is a simple ex-tension of widely accepted Earned Value methods.Together with the CPI and SPI, the DPI reduces com-plex Earned Value calculation spreadsheets to a sim-ple picture with the intuitive Triple Constraint per-spective. So the Project Sextant is an instantly-recog-nizable method for identifying, and demonstrating, aproject's status. Moreover, a series of Sextant plotspresents an unmistakable projection of the project'strue course. Finally, with a sufficient history ofprojects plotted with the Sextant, an organization candevelop an indicative and even predictive tool forproject performance within the organization's own


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unique constraints, as shown in the two isolated SPIvertical and CPI horizontal perspectives of the three-dimensional series example on the following page.

Note the path of the Schedule Performance Index atthe top, looking downward on the 3D history of theproject. Note the path of the Cost Performance Indexat the bottom, as seen by looking at the course of theproject directly from the front. This is representativeof the course of most good projects with a mid-projectfunding gate. There is often a sudden shift in the costreporting just before the funding gate, followed by aslight "sigh-of-relief" schedule slippage. Then nearthe end of the project there is often a flurry of reworkthat is visible in the SPI, and an accumulation of smallunanticipated costs affecting the CPI. In each projectorganization, the Sextant course plots for majorprojects will often show a distinct pattern correspond-ing to the organization's standards, policies, and prac-tices. Knowing this pattern is the means for recogniz-ing when a project team has improved upon standardpractice instead of just fudging the numbers.

(Chart Shown on page 12)

Continued on page 12

As a project manager's tool, the Project Sextant ap-proach is effective at the activity level. It is equallyeffective for the savvy business manager, at the pro-gram level, spotting characteristic behaviors affect-ing dozens of projects.

About the Author

Steve VanArsdale is a contract senior manager for IBM,Unisys, and now Computer Associates, with success-ful projects in 23 three states and seven countries. Mr.VanArsdale personally managed major complexprojects for industry leaders Allstate, Bank of America,Sears, Marriott, and TetraPak Lavel. He has also servedas a project program portfolio director, PMO manager,and OPM3 mentor, and has worked in several strate-gic projects in partnership with major consulting firmssuch as McKinney and Booz Allen Hamilton. Cur-rently, Mr. VanArsdale is working in IT auditing forproject process improvement, using CAAT tools suchas continuous Earned Value. He is a graduate of OhioState University, a PMI Project Management Profes-sional, AICPA Certified Public Accountant, and a 2005candidate for ISACA Certified Information SystemsAuditor.

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the project management sextant

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