Concept: As discussed last month, the Schedule Adherence Index (SAI) and Impediments and Constraints Index (ICI) signal when problems with schedule adherence are emerging or receding. That, in combination with the identification of problem tasks (R-tasks and IC-tasks), gives project managers a head start on improving schedule performance.
What the two metrics do not do, however, is offer quantitative benchmarks to gauge urgency. For that, other metrics are required.
R-tasks and IC-tasks once again point the way forward. This time, they do so via the risks they pose to the project budget.
For R-tasks, the risk is repeating work to earn the same value. For IC-tasks, the risk is not earning value in the first place.
Repeating work to earn the same value means adding expense, and that’s an incremental cost. Failing to deliver value when it’s first scheduled means losing a benefit, and that’s an opportunity cost. [1]
In both cases, ES quantifies the cost impacts. The incremental cost of Rework tasks is labelled as R$tot, and the opportunity cost of Impeded or Constrained tasks is labelled as IC$tot.
R$tot and IC$tot can then be compared to allowances for uncertainty, which act as benchmarks for urgency.
Practice: R$tot depends on the periodic amount of Rework (Rp) and the rate at which it is expected to occur (SAI). Similarly, IC$tot, depends on the periodic amount that is Impeded or Constrained (ICp) and the rate at which it is expected to occur (ICI).
Derivation of the periodic amounts is complex, although the reasons for complexity vary between the two metrics (for more, click here). Once derived, the periodic amounts are used in new formulas that resemble familiar ones from EVM (which EVM formulas? To find out, check Note 8 here): The new formulas follow:
- R$tot = Total Rp + (SAI * (BAC – EV))
- IC$tot = Total ICp + (ICI * (BAC – EV).
In words, the formulas can be explained as follows: the expected cost equals the total of periodic amounts plus the rate times the remaining budget.
Pro: A key benefit of both costs is that they represent risk in terms of dollars. Such terms are familiar to the project owners, who are often financially aware.
The monetary quantification is also beneficial because it can be compared directly to amounts allocated for risk management. On projects, these amounts are expressed as Contingency and Reserve.
The allowances offer quantitative trigger points for the urgency of problems. In general, the project is “Green” unless performance issues invoke Contingency. If the project is still within Reserve, it is “Yellow” but once it crosses that threshold, it becomes “Red”. Each status carries well-defined response steps. [2]
Given that the two metrics offer insights into the cost impact of adherence failures, they nicely balance other ES metrics. The EACt, for instance, offers insights into the time impact of schedule performance failures.
Con: The derivation of R$tot and IC$tot is complicated, requiring an understanding of mathematics. While powerful as a rationale, the derivations put off many project managers, who feel that they have neither the time nor the inclination to understand the math.
Similarly, the complexity of calculations makes tool support a virtual necessity. That further inhibits adoption.
As well, there are some aspects of the theory that appear to be too abstract.
For one, the impact of rework is not readily visible. Increases in work are automatically reflected as increases in duration by scheduling tools like MS Project. Extensions of finish date do not distinguish between ones caused by rework and others caused by simple overruns. One symptom of rework is an increase in actual cost, but schedules do not explicitly portray costs, nor is rework the sole reason for cost increases. So, the amount and impact of rework is difficult to see through the schedule alone.
For another, the notion of opportunity cost is not as tangible as incremental cost. A benefit that is missed seems to be less real than a cost that is added. [3]
Finally, allowances for uncertainty rarely segregate the cost impact of rework and impediments/constraints from other factors, making it difficult to isolate benchmarks specifically for rework and impediments/constraints. [4]
Notes:
[1] Opportunity cost has been described as a fancy way to say “trade off”. You trade off one option for another, realizing that you’re giving up one benefit for another. The benefit missed represents a loss, and that is the opportunity cost. For
details, click here.
[2] For details on action steps, click here.
[3] As a counter to this concern, consider this: the absence of someone can be as keenly felt as the presence of someone. Maybe, it’s just an attitude adjustment that needs to be made.
[4] If R$tot and IC$tot alone trigger Contingency and Reserve, then the fact that there are other factors in the uncertainty allowances is irrelevant--action is required.
|
