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Implementing Earned Value Side by Side With Critical Chain

Anyone who has experienced implementing the Critical Chain (CC) Method, a new and revolutionary method for managing projects in an organization, has

probably heard this type of message before.If your organization follows this rule, you’ve

probably dealt with the question of how to control the project budget and how to report budget consumption to management.

This article focuses on an easy-to-use implementation of earned value management (EVM) and, specifically, cost performance index (CPI) and estimation at completion – Cost (EACC) side by side with the CC Method using Concerto®1. The EVM implementation gives a comprehensive answer for budget management and budget report requested by the project sponsor.

The assumption behind using EVM for budget management in a CC Method project is that budget consumed does not follow the same rule as time does. Project budget is impacted by budget consumption by noncritical tasks as well as budget consumption by critical tasks. Budget consumed does not differ between critical and noncritical tasks; it consolidates everything!

Imagine crossing a road with a traffic light. When the light turns green, before crossing you had still better take another

By Gershon Ben-Israel, PMP, BSc

look to the left and to the right to ensure that the road is clear and safe. For the same reason, you should use the EVM indicator to make sure that buffer management is “green” and also to make certain that the project EACC is on target.

BackgroundThe crucial need to reduce labor costs in IT

development projects as well as the need to improve project performance in terms of delivery on

time, within budget, and within scope while attaining the required quality led to the idea

of implementing new methods of project management in the organization.

The set of measures in use •was misleading management in the

decision-making process. Executives assumed that the •size of organization staff

caused waste and needed to be reduced to meet

project volume. Management had to act on stakeholders’ demand for cost •reductionCC Method theory was chosen to assist organizations •with this challenge and to bring about the desired results.

Pilot ProjectThe implementation started with a pilot project. Although the project scope spanned from requirement analysis to deployment to production, the pilot was limited only to software development and software system test phases.

Since

the Theory Of

Constraints (TOC)®

focuses on the project’s Critical

Chain, any other E2E measurement

of the project contradicts the theory. ”

1 Product by Realization, Inc

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Baseline DataBudget• Originalbudgetwas965personmonths–FixedPrice

contract.• AfterCCMethodplanningandsettingbudgetreduction

target of 20%, the budget was revised to 770 person months.

Schedule• Twenty-fourweeks.Although,theCCMethoddeclares

areductionof25%intimetocomplete,thedecisionwas to keep the original timeline, as committed to the customer. The assumption was that as a result of using the CC Method, the project team would deliver the project on time, in scope, and within the aggressive budget target as mentioned above. In addition, project complexity was considered as a factor to maintain the original timeline in the pilot.

After two weeks of planning sessions with the project management team, a project plan was established in accordance to the CC Method and was loaded into the planning tool (Concerto®).

The declaration of the executive manager in charge was as follows:

“This pilot’s success is highly important to the company. Management is fully committed to the success of this project. As such, the pilot will be executed with the best experts from the CC Method team, and if any expert within the company is needed to join the project, the request will be fulfilled.

Ontopofthis,sinceaCCMethodassumptionis that this is the best way to execute projects and that the project team is doing its best to complete the work, budget control should not concern management.”

Nevertheless, the project sponsor required ongoing budget estimation at completion.

The ChallengeThe request of the project sponsor raised the need for a creative solution. The rules were changed dramatically:

The traditional budget structure based on the project •WBS was scrapped.Budget per suborganization team (involved in the •project) was not assigned, only one budget for the entire project.Traditionally, each work unit was easily identified by a •separate reporting code. Now, a single reporting code for the entire project life cycle was used. Previously, the company controlled budget and schedule •per project, with budget data coming from internal management information systems and schedule data coming from MS Project. Although the data provided from both systems enabled management to get into the details (per requirement, team, reporting code, etc.) as needed, it was impossible to obtain an integrated picture of both schedule and budget in one report. In addition, these reports were variance reports; therefore, they did not use historical data and trend as tools to predict “at completion” numbers.

In this pilot, we were unable to use the traditional tools to solve this budget puzzle, yet a solution for the request was needed.

At the time that the change was done and the challenge was raised, it also became a chance for innovation such as implementing EV analysis aligned with the CC Method time report regarding buffer consumption.

The SolutionThe planning session took place in the first two weeks of the project. At the end of the session, project budget, scope, and schedule were determined. Budget numbers, in terms of Persons per Month, were put into an MS-Excel sheet as shown in Figure 1.

Figure 1: Budget baseline numbers and data table ready to use

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Work breakdown structure was defined through the scope session. Budget numbers per unit were extracted from Concerto® and entered into a table (Figure 2). The table was updatedonaweeklybasiswithPMOmonitorscopechangesas needed. This work was highly important, as it enabled managers to control the scope.

Every week the project officer took two numbers from Concerto®—Work Complete and Remaining Work—and from these calculated the progress number. The progress was used to calculate the EV (EV=Progress × Total budget).These numbers were maintained as shown in Figure 3.

Every week, the data was manipulated and entered as EV analysis tables as shown in Figure 4.

A graphical report to management was produced weekly tomanagement.ThisreportisdetailedinFigure5.

Every week, the Estimate at Completion – Time (EACT) number from the EV analysis was compared with the Concerto® prediction in order to ascertain that both numbers were acting similarly and that there was no contradiction. The numbers did not match only during the first 4 weeks of the project, when both systems were not stable and the project team was in the learning curve of

Figure 2: Baseline and scope changes monitoring table

Figure 3: Actual numbers from Concerto®

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Figure 4: Cumulative EV analysis table

Figure 5: Weekly report data

working under the new method of CC. During the rest of the project execution, these two predictions fit.

Summary of the PilotThe benefit of using an EV report parallel to a CC Method buffer consumption report was huge. The main gains were:

Oncetheprojectbudgetwasfrozenandthetargetwasclear to all (aggressive target after cost reduction and project budget as approved by management) it became easy to monitor project ability to meet its budget target as well.Executives and project management could use CPI and EACC as valid information for decision making in real-time.

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Verification of EAC T as given by CC Method tool.Scope management process was determined and executed by the project office. It helped managers to get immediate indication of scope changes. This information turned into an ability to:•Analyzethequalityofscopedefinition•ApproachthecustomerforCRsastheywerecreated•Raiseriskstoprojectbudget•Achievebetterresourcemanagementoftheproject

Implementing CC and the use of Concerto ® forced the project team to perform detailed planning sessions that were beneficial throughout the project life cycle.Concerto ® helps a manager focus on critical tasks and brings all project members in line.

ConclusionThe ability of the CC Method to serve as a sole method for project management is limited. CC Method

Figure 6: Estimate at Completion – Cost (EACC) weekly chart

Figure 7: Estimate at Completion – Time (EACT) weekly chart

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implementation has great value to project ability to meet its target dates, yet it refers to the knowledge area of time management only. Therefore, there is a need to support the CC Method by using other tools and techniques to cover all project knowledge areas. The use of EVM “side by side” with the CC Method can be implemented easily in a way that will enable project managers to get reliable predictions on EACC.Executive management is interested in the “bottom line” and needs to periodically review project budget reports. EVM via EACC and CPI are common tools that serve this purpose. Any project management method should take into account the need of all project stakeholders and supply proper solutions to their needs. Implementation of new methods can definitely improve project performance. However, we should always use our creativity during the implementation in order to utilize our previous knowledge in maintaining a safe and reliable project management environment.Againof25%intheprojectscheduledoesnotnecessarily lead to a gain in project budget.

ReferencesFleming, Q. W., & Koppelman, J. M. (2000). Earned value

management (2nd ed.). Newtown Square, PA: Project Management Institute.

Goldratt, E. M. (1997). Critical chain: A business novel. The North River Press Publishing.

Project Management Institute (PMI). (2008). Chapter 7 – Project cost management, Section 7.3 – Control costs In A guide to the project management body of knowledge (PMBOK® guide) (4th ed.), (pp. 179–188). Newtown Square, PA: Project Management Institute.

Project Management Institute (PMI) (2004). Practice standard for earned value management (EVM). Newtown Square, PA: Project Management Institute.

About the AuthorGershon Ben-Israel, PMP, has 20 years’ experience as a PMOandprojectmanager.InadditiontohisProjectManagement Professional (PMP) credential, he holds a BSc degree in Industrial Management Engineering from Technion – Israel Institute of Technology. He is a team member in projects from a variety of industries, including: expanding production capacity at Soda-Club; software development and implementation, at Amdocs; and at the new Dry-Line Cement Plant, Nesher, Magnesium Plant, Dead Sea Works. HeiscurrentlyactingonafreelancebasisinPMOandproject management.