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Managing Projects as InvestmentsEarned Value to Business Value By Stephen A. Devaux
M00002461
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Every project is an investment; however, traditional project management methodologies do not support assessment of the business value that enables senior management to maximize decision making. The next evolution in project management, therefore, will be to manage projects as investments. Managing Projects as Investments: Earned Value to Business Value provides tools and metrics to enable planning, measuring, evaluating, and optimizing projects.
This book shifts the paradigm. It builds on traditional scope-cost-schedule tools, adding a critical new focus on the expected value of projects and programs. The enhancements in processes and metrics allow senior management and PMOs to guide the entire organization on the basis of business benefits, and to ensure that decisions ranging from project selection to resource assignment facilitate those goals. The author shows how framing projects as investments enables significant improvement in project performance. He provides metrics that allow you and your team to track and maximize performance based on ROI.
Demonstrating the importance of recognizing an enabler project in a program, and why its value and cost of time are so great, the book provides the tools to determine right-sized staffing levels for project-driven organizations. It includes a comprehensive but easy-to-understand explanation of both basic and advanced earned value metrics, their shortcomings, and how they can be improved and shows you how to optimize contract terms on projects in a way that can avoid misaligned customer/contractor goals.
Table of Contents
Redefining projects
Value drivers
Planning and tracking projects as investments
Traditional project tracking
Project success and failure
Of deadlines and budgets
Procrustean bed of deadlines
Quantifying the triple constraint model
COST side of the project investment triangle
Finance departments and overhead burdens
SCOPE side of the project investment triangle
Product scope: Main generator of project value
Project scope: A secondary generator of the project value
Customer value and internal value
Implications of various contract types
Project investment metrics
Expected project profit planning formula
Expected project profit at completion formula
Examples of expected project profit calculation
Summary points
Endnotes
Of time and timing
Simple example of the complexities of managing time
Examples of impact of time on projects
Impact of time on emergency response projects
Impact of time on enabler projects
Impact of time on contractual enabler projects
Ignoring the cost of time
Time as an externality
Summary points
Endnotes
Tracking projects by investment value
Expected value versus actual value
DIPP: A formula to analyze termination of a project investment
Simple DIPP: Setting the baseline for expected project
profitability
DIPP Progress Index (DPI): Tracking project value against
baseline DIPP
Case for this new approach to planning projects
Summary points
Endnotes
Managing project time
Critical path is—uh—critical!
Activity identification and duration estimating
Hard and soft dependencies
Basics of the CPM algorithm
Critical path drag
Managing change
Riding a changing schedule
Answers and explanations
A tragic example from history
Summary points
Endnotes
Optimizing the schedule with drag and drag cost
Drag cost
True cost of project activities
Resource elasticity and the DRED
Using the DRED with true cost
Cautionary note on using the DRED
Assessing optimization of the CPM schedule
Three-point estimating
Monte Carlo systems
Summary points
Endnotes
Combining project investment tools
Step : Determine expected monetary value of the project
Kindb // : PM
Contents ix
Step : Develop a value breakdown structure (VBS)
Estimating the value-added of the training project to the
immunization program
Estimating the value-added of activities in the training project
Step : Determine value/cost of time on the project
Step : Computing drag cost of optional activities
Step : Calculating net value-added of optional activities
Uncertainty principle in schedule optimization
Final word on the schedule optimization process
Using critical path drag to recover a schedule
Computing critical path drag on a schedule subset
Summary points
Endnotes
Of resources and rightsizing
How we got to this point
Resource availability and project CPM schedule
Resource unavailability and activity duration estimates
Role of the functional manager
Utilization rate metric
Maintaining the resource library
Working around lack of a resource library
Resource leveling
Time-limited resource leveling
Resource-limited resource leveling
The cost of leveling with unresolved bottlenecks (the CLUB)
Elusive goal: Stable staffing levels for a project-driven organization
Rightsizing staffing levels for a project-driven organization
Summary points
Fundamentals of earned value
What earned value is and isn’t
Just what is earned value?
Fundamental basis of earned value tracking
Basic earned value cost tracking formulas
Basic earned value schedule tracking
Flaws in earned value schedule tracking
Gaming the SPI
Fixing the SPI
Earned schedule tracking
Tracking the DIPP through earned value
How to use the DIPP to redeem projects
Summary points
Advanced earned value
Earned value based on milestones
Tracking CPI based on labor
To complete performance index (TCPI)
Critical ratio cost index
Earned value based on milestones
Combining earned value metrics with the DIPP
Summary points
Conclusion
Appendix
Glossary
Index
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Author(s)
Biography
Stephen A. Devaux, PMP, MSPM, is president of Analytic Project Management (APM), a training and consulting company he founded in 1992. APM is a Global R.E.P. of the Project Management Institute (PMI). Their clients include BAE Systems, Siemens, Wells Fargo, Texas Instruments, Wyeth Pharmaceuticals, iRobot, L-3 Communications, American Power Conversion, Irving Oil, and Respironics.
Devaux is the author of the book, Total Project Control: A Manager’s Guide to Integrated Project Planning, Measuring, and Tracking (1999, Wiley). He has worked to develop and use new approaches and metrics in project management with clients in a wide range of industries. “When the DIPP Dips” was published in the Project Management Journal in 1992 (an article that was reprinted in PMI’s Essentials of Project Control in 1999). He has contributed chapters on his new scheduling metric, critical path drag, in two 2013 books: Project Management in the Oil and Gas Industries and Handbook of Emergency Response. He has authored numerous articles and PMI webinars, and is a frequent speaker at PMI chapter meetings throughout the United States.
He began his career at Fidelity Investments, Citicorp, and the Federal Reserve Bank of Boston and then taught and consulted in project management at Project Software and Development, Inc. (PSDI). He has taught graduate project management courses at Suffolk University, Brandeis University, and The University of the West Indies/Barbados and in executive education programs at Bentley University and University of Massachusetts/Lowell. Born in Barbados, he has been living in the United States since 1964. He is a Vietnam veteran and a naturalized US citizen. He lives with his wife, Deborah, in Swampscott, Massachusetts.
Reviews
"For first time users, this book is a valuable contribution to the project management industry. Simple, clear, concise examples ensure the understanding of the reader. … Good, clear, concise descriptions of the theory certainly make the case for project managers to use the methodology presented. [It] should help prevent cost and time overruns, which too often occur. … very chatty style! The summary points are very useful and time saving."
—Raphael M. Dua, Micro Planning International Asia Pacific Pty. Ltd., Melbourne, Australia"… easy to follow and clearly explains current project management methods and concepts in order to introduce the, now seemly obvious, benefits of new ones. … an eye opener and a career enhancer. This book challenges the project manager to step out of his comfort zone and to start thinking like a business manager who invests in value. Extremely well written with no fluff, this book should not only be on every project managers and senior managers bookshelf, but well-thumbed and ‘dog eared’ from repeated reading.
—Emily Foster, Ten Six Consulting
"I am delighted to see an author address project management from this innovative perspective. An investment is the keystone to organizational success. If a project is viewed as such, more resources and efforts will be directed at this, thereby increasing the chances for success. Project management is an investment, not an overhead. This book brings this fact to the forefront."
—Adedeji Badiru, Air Force Institute of Technology
"… approachable, clear and thought provoking. Mr. Devaux presents the reader with the tools to improve their project management maturity - tools essential to replacing intuition based decision making with quantifiable and justifiable analysis."
—Bernard Ertl, Vice President, InterPlan Systems
"… is very useful to practitioners seeking to expand their understanding on managing projects and project portfolios. The new concepts may help even the experienced project managers. The layout of the author’s rationales in driving towards the implications contained in the chapters should also allow anyone new to project management to follow and to understand the challenges and the best practices in managing projects."
—Kuo-Ting Hung, Suffolk University
"In his book Stephen Devaux promotes innovative approach to project management when project management goal is not just meeting triple constraint but maximizing project business value. He suggested new project metrics that is very useful for informed management decisions and being properly used may save a fortune to project owners."
—Vladimir Liberzon, Spider Project
"Steve Devaux identifies and illuminates the secret sauce that has been at the root of many successful projects across multiple industries. Outsiders looking in may attribute project success as being at the right place at the right time or having a unique team of superstars. However, successful project teams know the four important ingredients: having a clear vision of product value, executing the project to meet a market window, creating project methodologies to deliver the project, and assembling the team with the right skill diversity."
—Edward R Equi, Massachusetts Institute of Technology
"… sets a foundation for the value of project delivery reliability and it’s affect on the program/portfolio business case. In a greater sense, it enlightens organizations regarding the value and importance of improving their organizational project management maturity. … takes a value driven approach to organizational project management and is an enabler for Lean thinking with regards to program or portfolio management."
—Joseph A. Sopko, Joseph A. Sopko Consulting, LLC
"This new book by Mr. Stephen A. Devaux explains detailed methodology for enhancing project value with his original tools and metrics which he has been developing these years. These ingenious methodologies would surely be helpful for professionals in managing projects and programs, I do believe."
—Tomoichi Sato, JGC Corporation/Tokyo University"The book is easy to follow and clearly explains current project management methods and concepts in order to introduce the, now seemly obvious, benefits of new ones. Everything is very well presented with great examples and anecdotes used to reinforce key points. All project managers regardless of experience should read this book. It accurately captures project management and its use today and offers a great new perspective and methods to manage projects as investments and track performance based on ROI. For most in our industry, this book should be an eye opener and a career enhancer. This book challenges the reader to step out of their comfort zone and to start thinking like a business manager who invests in value. Extremely well written with no fluff, this book should not only be on every project managers and senior managers bookshelf, but well thumbed and ‘dog eared’ from repeated reading."
—Book Review by Ten Six Consulting
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