Recently, we have been talking about project management as a discipline and its contemporary scientific approach, and we also peeked a little bit on KPIs, trying to understand from where they come, their purposes and their usefulness.
Today, KPIs are widely used across different industries, making a couple of things clear:
Leaving aside the last one (because we all know you have strong processes, right?) there are a lot of KPIs you can borrow to measure your projects performance, the issue is how to know if a KPI is good enough, on that, I think you have to look for the following attributes:
Given than there are so many KPIs roaming free in the world of management, it makes sense to group them into categories, and one of the most important metrics category in project management is budget (everybody knows than everything can be counted in terms of money). Thinking about this, and how to use them in project management, let’s check some KPIs I highly recommend to implement for this category.
Every project costs resources -mainly money, but it also can be measured in time, materials or other things- and has a budget (if yours has neither, you’re doing things the wrong way). This KPI aims to give a birds eye overview on how much of those resources you have spent up to the day you are reporting that spending, and can be calculated by any of these two formulas:
Planned value = (the hours left scheduled on the project) X (project worker’s hourly rate)
Planned Value = (Planned % of tasks left to complete) X (project budget)
For clarity, let’s make an example: if you have a one-year project with a total planned budget of US$10000, the Planned Value after 9 months is 25% of US$10000 which makes US$2500 (if you’re on schedule, you’ve completed 75% of the project activities and you’ve got 25% to go). What this means is than the project planned value at this point is US$2500, and a quick conclusion would be, if you’ve actually spent more to date, it means that your Actual Cost has been higher than the Planned Value.
This is more of the kind of an accounting KPI. It indicates how much money you have spent on a project up to the date you are measuring the KPI. Given that this is a money value taken from the project books, there’s no formula for calculating the project’s actual cost, you just have to add up all the project-related expenses you’ve used to date.
A project budget is calculated considering all the hours planned for the project, so use the time spent on tasks to calculate the Actual Cost spent on salaries, resources, etc.
Earned Value is a comprehensive trend analysis technique, using current performance as an indicator of future performance, as a way to forecast cost or schedule overruns at an early stage in a project. With this approach you monitor the project plan, actual work, and work completed value to see if a project is on track, showing how much of the budget and time should have been spent, considering the amount of work done so far.
Earned Value differs from the general budget versus actual costs incurred model, in that it requires the cost of work in progress to be quantified. Earned Value allows the project manager to compare how much work has been completed, against how much he expected to be finished at a given point in time.
ROI reflects on the project’s profitability, showing whether the benefits of the project exceed its cost. Constituting itself in a KPI useful measure the financial savings/gain (or loss) of a project in relation to its cost.
As a KPI, it is used to determine whether a project will yield positive financial benefits in the short term and in a condition where there are not multiple cash flows. The formula calculate ROI:
ROI = [(Financial value – Project cost) / Project cost] x 100
Given the relevance of this metric, there are a couple of considerations to keep in mind:
Project’s cost variance reflects the project expenses of the completed work cost when compared to the planned cost (budget) of said project, and it can be computed by calculating the difference between the earned value and the actual cost, i.e. EV – AC.
As you can deduce from the formula, it indicates whether the estimated cost of your project is below or above the planned baseline, and it will be negative for projects that are over-budget.
This KPI is a measure of the financial effectiveness and efficiency of a project and represents the amount of completed work for every unit of cost spent, presented as a ratio and calculated by dividing the budgeted cost of work completed, or the earned value, by the actual cost of the work performed, what makes it a good indicator of the project’s cost efficiency
If the ratio has a value higher than 1 then it indicates the project is performing well against the budget. A CPI of 1 means that the project is performing on budget. A CPI of less than 1 means that the project is over budget. This project KPI helps you approximate how much time you’re behind or ahead of the approved project schedule, making evident the relative value of work done.
Up to now I went through just some KPIs, because there are a lot of standardized KPIs. This list here is based solely on my own criteria and experience about what to measure when I want to keep an eye on budget and at the same time being able to communicate that information in a form that is clear to whoever reads it. But make no mistake, there are more categories to be watched on, something we should talk about them in the near future.