Saturday, March 19, 2011

CPM and Earned Value


Objective Achievement Comparison
We may assume that Xrider has formal methods for project management and reporting in place to manage each of these departments including formal methods of Gantt Charting[i] and project cost tracking; these charts would include costs and milestone tracking and would be managed by the assigned project managers for each of the departments. To develop any formal method of achievement analysis and comparison we would first require data and methods to be documented and available within a database. With respect to Xrider we would be using the total cost of development and the project burn rates for comparison. The daily project burn rate for a given software project will be defined as the total project development cost per day. This may be calculated with the following formula:
1/CPI
Where CPI equals the Cost performance Index.
Documenting Software Projects
Projects may be documented by Mile-stones and by using requirements to function maps. These maps would be rolled into the project management suite of software such as MS Project or Rational. These tools have built in functions to associate costs to timelines which are critical when using objective or formal methods of project cost analysis.  EVM is an ANSI Standard EIA-748A and is used widely by the DoD in the united states and was popularized in the 70’s.[ii] Once costs and timelines exist in a database they may be subject to formal analysis.  


Project Management Methods
Earned Value Management
Earned value management is a formal technique for measuring performance and progress within a given project in an objective manner[iii]. EVM is an ANSI standard available directly from them[iv]. EVM consists of the following three components:
1.      A project plan that identifies the work to be done.
2.      Valuation of planned work (called PV), or budgeted cost of work scheduled (BCWS).
3.      Predefined earning rules or metrics used to quantify the amount of completed work (Earned Value or Budgeted Cost of Work Preformed).
The following formula issued to track a project according to earned value:
Figure 1
This equation allows us to determine whether or not a project is over or under-budget[v] this equation may also directly determine the financial risk of a given project.
Figure 2
This chart is for illustrative purposes used to demonstrate how the above function may determine project budget status the value on the X-axis is the number of weeks, the value of the Y-axis is the amount of money spent in $1000’s.  As seen here the actual cost is running at less than the projected value of work, this is an example of a project delivering under-budget.
Earned Value Management in Depth:
Budget at Completion (BAC)
This is the total planned budget for the project, how much will it all cost?
Cost Variance (CV)
Figure 3
If the cost variance is greater than 0 it’s considered good. If it’s less than 0 the project is over budget.
Cost Performance Index (CPI)
Figure 4
If the cost performance index is greater than 1; the project is under budget; less than 1 the cost of competition is too high and greater than 1 the cost may be too low and quality may suffer.
Estiamte of Completion (EAC)
Figure 5
The Estimated Cost of Completion (EAC) is the projected total cost to complete the project.
Estimate To Complete
Figure 6
The estimate to complete the project is the amount required from the present to the completion of the project; ie; how much is left?
To Complete Performance Index (TCPI)
The To-complete performance index is designed to provide a projection of the anticipated performance required to achieve either the Estimated At Completion or Budget At Competition.
TCPI (BAC)
Figure 7
TCPI(EAC)
Figure 8
Independent Estimate At Completion
The IEAC is a metric used to determine the performance of a project to date to be compared to the EAC.
Figure 9
All earned value formula are provided within the standard by ANSI and are cited here for discussion.
Critical Path Methods
Other formal methods apart from Earned Value that may be used include the Critical Path Method.[vi] CPM was used by the United States government to manage the Manhattan Project.
The critical path method is designed to use PERT Charts to continuously monitor project milestones and to alert the project manager if any critical component risks project delay[vii].
The basic functionality of CPM is as follows:
1.      List all activities required to complete the project
2.      List the time taken for each activity
3.      Link each activity by it’s dependency.
Here is an example of a PERT Chart[viii]:
Figure 10
Pert charts are a good way to offer an illustrative estimate of project completion dates and can be used with CPM estimates to develop project costs.
Limitations
Critical path and Earned Value management are both formal fiscal and time methods and measure only the quantitative data available for a given project; they do not include Culture of the organization or any qualitative methods such as Errors or Defects in the software projects as released and therefore offer no considerations to project quality. These are good methods to evaluate the return on investment for a given project do not make any guarantees on project quality at delivery. Thus by only considering financial and time domain data when utilized effectively they may still result in a software product that has insufficient quality.
PERT is also subject to a large judgment bias of the project manager, and assumes that all datasets are of equal value thus it may not work with unusual development cases.
EAV is not compatible with AGILE driven software development methodologies as it requires a project plan; Both CPM and EVM require that project accounting and project network schedule management are in place at Xrider and without either neither would be useable.

References


[i] H.L. Gantt, (The Engineering Magazine, New York, 1910; Easton, Republished by Hive Publishing Company, 1974) Work, Wages and Profit, ISBN 0879600489
[ii] N.A. (NDIA, PMSC, 2005) ANSI/EIA-748-A Standard for Earned Value Management Systems [Online] PDF Document, Available from: http://www.srs.gov/general/EFCOG/02GovtReferences/03NDIAANSI/NDIAIntentGuide.pdf (Accessed on March 18th 2011)
[iii] N.A. (NDIA, PMSC, 2005) ANSI/EIA-748-A Standard for Earned Value Management Systems [Online] PDF Document, Available from: http://www.srs.gov/general/EFCOG/02GovtReferences/03NDIAANSI/NDIAIntentGuide.pdf (Accessed on March 18th 2011)
[iv] N.A. (ANSI, EIA, 2007 ) Earned Value Management Systems  ANSI/EIA 748B [Online] PDF Document, Avaialble from: http://webstore.ansi.org/RecordDetail.aspx?sku=ANSI%2FEIA-748-B (Accessed on March 18th 2011)
[v]N.A. (Defense Systems Management College, 1997). Earned Value Management Textbook, Chapter 2. Defense Systems Management College, EVM Dept., 9820 Belvoir Road, Fort Belvoir, VA 22060-5565.
[vi] Kelley, James; Walker, Morgan. (Eastern Joint Computer Confrence, 1959) Critical-Path Planning and Scheduling.  [Online] PDF Document, Available from: http://portal.acm.org/citation.cfm?id=1460318 (Accessed on March 18th 2011)
[vii] Kelley, James; Walker, Morgan.(Institute of Radio Engineers, Professional Group on Electronic Computers, 1959)  Critical-Path Planning and Scheduling. [Online] PDF Document, Available from: http://portal.acm.org/citation.cfm?id=1460318  (Accessed on March 18th 2011)
[viii] N.A. (NetMBA, PERT, ND) PERT CHARTS [Online] World Wide Web, Available form: http://www.netmba.com/operations/project/pert/  (Accessed on March 18th 2011)

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