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Earned Value Management Versus Traditional Management

Earned Value Management Versus Traditional Management
By Atul Gaur

Earned Value Management (EVM): is a technique used to track the progress and status of a project and to forecast its future performance. EVM systematically integrates measurement of cost, schedule, and scope accomplishments on a project. EVM was developed in 1960’s by Department of Defense (DOD) to keep track of defense projects and currently is most preferred Project Management technique world over. EVM provides organizations with methodology needed to integrate the management of project scope, schedule and cost.

How Management Can Benefit? EVM can play a crucial role in answering the following management questions that are crucial to success of every project.

  1. Are we ahead or behind schedule?
  2. How efficiently are we using our time?
  3. When is the project likely to be completed?
  4. Are we currently over or under budget?
  5. How efficiently are we using our resources?
  6. What is the remaining work likely to cost?
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The Financial Soup in Project Management: DCF, EVA, IRR, and NPV

The Financial Soup in Project Management: DCF, EVA, IRR, and NPV
By John C. Goodpasture

Is your project being held hostage to the financial alphabet of the CFO’s office? Is there anything you can do to break it loose and get on with managing the project? Yes, certainly, if you have some understanding and familiarity with the concepts and the ways in which you can influence the outcomes of financial analysis. We are talking about the arcane acronyms of DCF, NPF, EVA, and IRR. The important idea embodied in all of these financial measures is risk management. As project managers, we know a fair amount about risk management. By applying the skills we have and adding a measure of extra knowledge about these risk-adjusted calculations we as project managers can greatly help the CFO and the Controller make good business decisions.

DCF is the root of the system. DCF stands for “discounted cash flow”. Read the Complete Article

How Accurate Is Your Actual vs. Planned Time and Costs?

How Accurate Is Your Actual vs. Planned Time and Costs?
By Peter Collins

With cost and efficiency dominating the corporate agenda in today’s constrained operating environment, the ability to compare and contrast planned versus actual time and costs provides professional services firms with greater visibility and tighter control of performance in billable markets where time is money.
By Peter Collins, director, Retain International

The ability to plan effectively is crucial for professional services firms operating in billable markets such as accounting, consultancy and law. But being able to allocate time and cost (of resources) with absolute confidence that financial and project targets will be met is difficult if resource planning tools and timesheet systems are being used in isolation, as they typically are today.

Timesheets provide an accurate view of the hours being billed at the end of each week or month, making it relatively straightforward to calculate the actual cost of resourcing a project and the revenue generated as a result. Read the Complete Article

Simple Guide to Quickly Sizing/Costing a Project Up Front

Simple Guide to Quickly Sizing/Costing a Project Up Front
By Neil Killick

  1. Identify high level requirements (epics and stories) and size them XS, S, M, L or XL (T-shirt sizes) so that each story in each category is roughly the same size (in terms of effort) as the other stories in that category
  2. Ensure that the XS stories are extremely small pieces of work that cannot be broken down any further (like a 5 minute change to the system) – if you do not have any of these, break down the S stories to ensure you have both XS and S stories

  3. Now have the project implementation team (i.e. developers, testers, analysts, etc. – not product/project managers) perform Fibonacci Planning Poker estimates (1,2,3,5,8) for 5 stories in each of the S, M, L and XL categories (we will assume all XS requirements are 1 point)

  4. If there are less than 5 stories in a category, or not many more, simply estimate all the cards for that category

  5. L or XL stories that are larger than 8 points should be made XXL and re-estimated including the 13, 21, 34, 55 and 89 point cards

  6. If you have estimated all stories in a category, simply total the points for that category, otherwise total the points for the 5 stories you have estimated, divide by 5 and then multiply by the total number of stories in the category (we can do this because we determined that the stories in a given category are roughly the same size)

    e.g.

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Estimating the Unknown: Dates or Budgets – Part 1

Estimating the Unknown: Dates or Budgets – Part 1
By Johanna Rothman

Almost every manager I know wants to know when a project will be done. Some managers decree when a project will be done. Some managers think they can decree both the date and the feature set. There is one other tiny small subset, those managers who ask, “When can you finish this set of ranked features?”

And, some managers want you to estimate the budget as well as the date. And now, you’re off into la-la land. Look, if you had any predictive power, you’d be off somewhere gambling, making a ton of money. But, you do have options. All of them require iterating on the estimates and the project.

First, a couple of cautions:

  1. Never, ever, ever provide a single date for a project or a single point for a budget without a range or a confidence level.
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Project Schedule and Cost Estimating – Part 1

Project Schedule and Cost Estimating – Part 1
By Martin Webster

There can’t be a crisis next week. My schedule is full. – Henry Kissinger

Project schedule and cost estimating are very important activities. Among other things the schedule tells the project manager how long it will take to complete the project (or any part of it.) It’s also the basis for preparing cost and resource plans. But the problem with estimating is this. When formulating plans at the beginning of a project there is usually insufficient information to estimate with any degree of accuracy. Yet the project manager will face demands to know how long the project will take and how much the project will cost. Worse still the project manager is almost certainly expected to meet publicized delivery dates regardless of their legitimacy.

What do you do? Perhaps you stick a finger in the air and hope for the best or base your estimate on past performance and experience. Read the Complete Article

Avoiding Potholes on the Road to Earned Value Management

Avoiding Potholes on the Road to Earned Value Management
By Kiron D. Bondale

You will be hard pressed to find a person that has taken some project management training who has not drunk the purple Kool Aid called Earned Value Management (EVM). You may have run into EVM “evangelists” at project management conferences or symposiums. You can recognize them by that glassy stare that comes from rolling up one too many work package cost calculations and you may have even learned to run for the hills when they have cornered some neophyte who expresses ignorance about the whole concept or (worse) challenges its practical applicability.

All joking aside, with the emphasis placed on EVM’s benefits, you may be inclined (or coerced) to apply it to your next project. To help you avoid some of the more common beginner pitfalls with use of EVM practices, here are three tips:

  1. Consistent progress reporting on tasks or work packages is crucial.
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Project Estimation: Two Conflicting Trends

Project Estimation: Two Conflicting Trends
By Jed Simms

In a number of organizations I have noticed two conflicting trends:

  • Organizations want business cases produced earlier (to prevent wastage of funds)
  • Organizations want increased estimation accuracy – typically ± 10%.

While the objectives are totally understandable, they are unrealistic.

If you insist on a business case too early in the project lifecycle you incur a high level of uncertainty — there are many things that you don’t know or don’t know well enough to accurately estimate. Often business cases are generated based on “high level requirements” – but, as we all know, the devil is in the detail and when the ‘detailed requirements’ are later defined they will often blow the budget.

We need to remember what we’re trying to achieve – ie not waste money, not allocate money to poor projects (however you want to define that) and not have big cost blow-outs. Read the Complete Article

Net Present Value of the Project

Net Present Value of the Project
By Shyamala Sankaranrayanan

One method of deciding or not a firm should accept an investment project is to determine the net present value of the project. The net present value (NPV) of a project is equal to the present value of the expected stream of net cash flows from the project, discounted at the firm’s cost of capital, minus the initial cost of the project. The value of the firm will increase if the NPV of the project is positive and decline if the NPV is negative. Thus, the firm should undertake the project if the net present value is positive and reject proposals whose values are negative. This method is considered the best, as it takes into account the initial investment, and cost of capital and cash inflow over a period.

One of the most important and difficult aspects of capital budgeting is the estimation of the net cash flow from the project. Read the Complete Article

Project Management Foundations – Creating a Meaningful Project Budget

Project Management Foundations – Creating a Meaningful Project Budget
By Steve Hart

As a person who had both project and cost center budgeting responsibilities for many years, I must admit this was an effort that I did not necessarily enjoy and usually procrastinated (much like those of us that procrastinate filing our taxes). Ironically, now that I am on the other side of the fence as a consultant, I work very hard to establish the credibility and trust of my client that is required to be assigned responsibility for the project budget.

Best practices associated with the project budget are focused on efficiently leveraging the planning assets created to that point in the process, and performing the appropriate level of analysis to develop a project budget that will be understood and approved by the client, and just as importantly can be managed throughout the project life cycle. Therefore, the best practices shared in this column represent areas that should be considered during the project budgeting process, not a step by step instruction on creating and maintaining a project budget. Read the Complete Article

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