CPI: Earned Value (EV) Can Never Exceed Planned Value (PV)

Al succeeded with his very first project!  He was so proud of his project.  The customer was delighted and the Costs Performance Index was 1.1.  Yet, the program manager only graded the project as Satisfactory.  Al is so discouraged.  What was wrong with that program manager?

My new friend Bay -- an old friend of Allen, the new Project Manager -- clearly wanted me to be sympathetic toward his friend.  And he wanted me to share his negative feelings toward the program manager.

That is a shame, I replied.  Bay was studying for PMI's CAPM exam, so I decided to turn the moaning session into a project management lesson.  But you can help Al improve his project management skills if he will learn from this.

What do you mean? asked Bay.

What do you think the CPI of 1.1 means? I asked.

Bay thought a moment and replied, Al delivered more than required?

Why? I aked.

A CPI over 1 is good, and the customer is delighted, so Al delivered even more that what was required.

I baited Bay.  Those are all good things, but too much of a good thing can be bad.

How can that be?  Bay asked.

Delivering too much value might not mean you're efficient.  It might mean you're incompetent or even unethical. I wouldn't worry about that, though.  It's impossible to create a high CPI by delivering extra value.

That doesn't make sense, Bay protested.

Do you know what gold plating means in project management?

Uh-oh.  I see what you mean, he said.  I hoped I had him hooked and ready for the lesson.

The Dangers of a High CPI

Each organization has its own expectation for accuracy in estimating.  10% is a common tolerance, but a former employer of mine expected the final estimate to be accurate within +/- 5%.

• Since a CPI of 1.1 represents a 10% deviation from the estimate, the PM's estimating skills come into question.
• A CPI at or above the upper control limit of 1.1 means that planned resources have gone unused.  Managers scramble to find work for their employees.  People could lose their jobs.
• A CPI above the upper control limit means that the company set aside funds for the project that it could have used to support other investments.
• As you will see below, plenty of reasons exist for avoiding an excessive CPI.

Extra "Earned Value" Is Hidden

Al's CPI was 1.1.  If AC at completion equaled a Budget At Completion (BAC) of $1 M, then EV must have been $1.1 M because CPI = EV/AC.  That would mean that the PV at completion was $1 M.

While EV>PV is mathematically possible, it is not practically possible.  You will see that a CPI of 1.1 at project completion can only mean that the project underspent by 9.1%.

Suppose the scope says, deliver widgets A1 through A10.  When you create the Scope Management Plan, you schedule reviews to ensure that widgets A1 - A10 get delivered. Delivery of each has a pre-assigned value that is measured in the EV.

Suppose the team delivers widget A11, as well.  The Scope Management Plan assigned Earned Value to A1 - A10.  The customer paid for them.  However, the estimate did not include A11, so the customer did not pay for it and it was not included in the cost baseline. 

Since the Scope Management Plan did not include A11, the Quality Management Plan will not check to see whether it was delivered and the Cost Management Plan has no value estimate to assign to it.  Without assigning value, you cannot measure it or include it in the EV.

EV can precede PV during the project, but it cannot exceed PV at end of project.

For a CPI of 1 at end of project, EV = AC = BAC = PV.  If EV = PV = BAC, the only way to achieve CPI = 1.1 is if AC = (0.9090... x BAC).  This is because

CPI = EV/AC = PV/(0.9091 PV) = 1.1

 Thus, a high CPI at end of project can only result from spending less than planned.

The Dangers of Too Much Value

Gold plating refers to extra value given to a customer.  A company's policy may allow delivering extra value as an investment in future business.  For example, the phone company may sell you a $200 cell phone for 99 cents so you will sign a $100/month contract for the service that goes with it.  They expect to earn back the cost of the cell phone during the life of the contract and the following contracts.

In general, however, gold plating has a negative meaning.

• Gold plating represents areas in which the project delivers value that the customer did not pay for.  Therefore, it represents a loss to the company.
• If the estimate did not include the gold plating, then the PM's estimating skills come into question.
• If the Scope, Cost, and Quality Management Plans do not prevent production and delivery of gold plating, then the PM's project planning and control skills come into question.
• Even if the project stays within budget, gold plating represents missed opportunities to cut costs and increase the company's return on investment.
• If the PM delivers significantly extra value, it not only raises an issue of an inaccurate cost estimate, it also raises an issue of whether the Seller overcharged the customer.  This raises an issue of the PM's ethics. 

Assigning planned value to A11 could cause major problems:  Suppose the PM anticipated that the team might deliver A11, assigned value to it, and included it in the EV.

• The team fails to provide A10 but provides A11. The Cost Management Plan will indicate an EV of 100%, even though the project only delivered 90% of the authorized scope.
• The team provides A1 - A11.  The customer can say, "your bid included A1 - A10. Since you were able to provide A11, as well, your bid was too high. We are reducing our payment accordingly."  The FFP contract provides the Buyer no protection from this if the Buyer feels he has good evidence that he was overcharged.
• By stopping the team from delivering A11, the PM could have cut costs and increased profits.  This represents waste and lost profits.
• Delivering A11 might be nice for the Buyer, but it could also be a white elephant.  Suppose the Buyer is a crop duster and A1-A11 are barrels of insecticide.  If the farmers only need ten barrels of spraying done, the pilot will be stuck with the expense of storing, guarding, and disposing of the extra barrel of poison.  That represents extra liabilities to the crop duster, as well as an extra burden on the environment.  If the Buyer refuses delivery of the extra barrel, you will be stuck with it.  If the barrel gets delivered, the Buyer may sue your company for his losses.

Conclusion

PM's view the CPI the same way you look at any other measurement done as part of statistical process control.  They work to prevent high CPIs by striving to accurately estimate expenses.

PM's also view gold plating as an issue and prevent it through careful project management planning and control.


Copyright 2013, Richard Wheeler -- Permission granted for non-profit or personal use with a link to this post.

 

IT Metrics and Productivity Institute (ITMPI) Premium membership gives members free access to 400 PDU-accredited webinar recordings and waives the PDU processing fees when you attend the live session. The library is growing at about 100 webinars per year. Check it out: http://mbsy.co/dPHm?s=e

Transferring Domains between Domain Registrars

When Microsoft abandoned its web site service, my daughter and I had to find another provider.  The new provider wanted us to get an EPP code from the old registrar.  Microsoft had used the registrar Melbourne IT.  I obtained a code that sounded like what the new registrar wanted and sent it to them. 

The new registrar did not reply, so I interpreted that as a success.

A year later, the Melbourne IT began sending notices that our registration was about to expire.  This was unsettling, but I assigned the issue a low priority because I "knew" the new registrar had transferred the domain.  I was wrong.

Eventually, just to verify what I "knew," I checked.  The old registrar still held the registration.

Through some back-and-forth with the new registrar, I found that they had failed to notify me that the code I sent was not the correct code.

Back at Melbourne IT's site, I could not find an EPP code.  I finally left them a message asking for it.  Later, I found that they called it by a different name.

This was the short version of the story.  Most of it had repeated elements.  I am not happy with the new registrar's service.

Here are some hints to save you headaches.

• You can learn about EPP codes under Transfer Secret on Wikipedia.
• The Extensible Provisioning Protocol (hence "EPP"), which defines Transfer Secrets, is maintained by ICANN (Internet Corporation for Assigned Names and Numbers). 
• The correct term is AuthInfo Code or Auth-Info code.
• Your registrar service may call it
• Auth code
• Authinfo
• AuthInfo
• Auth-Info
• Authorization code
• Domain auth code
• Domain name password
• Domain password
• EPP authentication code
• EPP authorization code
• EPP code
• EPP Key
• EPP Password
• Transfer key
• Transfer secret

Copyright 2013, Richard Wheeler -- Permission granted for non-profit or personal use with a link to this post.

 

IT Metrics and Productivity Institute (ITMPI) Premium membership gives members free access to 400 PDU-accredited webinar recordings and waives the PDU processing fees when you attend the live session. The library is growing at about 100 webinars per year. Check it out: http://mbsy.co/dPHm?s=e

So You Failed PMI's CAPM Test?

This is your first practical lesson in Project Risk Management. When your customer (PMI) specifies a parameter (x%), determine a safety margin so that, if you take the test on a bad day, you will still pass.

How many times did you read Rita's book? Most people read it AND the PMBOK Guide at least twice.

How many practice test questions did you take? Many people take thousands. (You can easily find thousands of free PMP practice questions on the web, although many are outdated and few will be up-to-date after July 31. CAPM questions are much harder to find.)

When you took the practice tests, did you research the answers you got wrong? Did you research the answers you had to guess at? Memorizing will only get you part way through PMI's tests; you need to dig and understand the material.

If you are taking the CAPM, you must want to become a PMP. Consider studying for the PMP exam. The deeper knowledge will give you understanding that goes beyond mere memorization for the CAPM exam. Also, for the PMP exam, you need to have 35 contact hours. Again, the extra effort would help you with the CAPM exam.

The two books I've heard the best reports about are Rita's books and the Head First books. You can also find many free podcasts on the web and on iTunes.

Two names to look for are Oliver Lehmann and Cornelius Fitchner. Oliver has some free apps and the best sample question on the web. Cornelius has some great 'casts, some of which are free.

Finally, when you have a tough time with some concept or a sample exam question, feel free to ask about it in the Google+ group, "Project Management, PMI, PMP Certification." Ask under the tab "PMP preparation questions." (Out of respect for copyrights, please identify the source of quotes.)

Other than that, I suppose there's not much you can do.

See Also

• How to Memorize PMP Formulas
• Study Plan for PMP Certification (Early June 2013)

Copyright 2013, Richard Wheeler -- Permission granted for non-profit or personal use with a link to this post.

 

IT Metrics and Productivity Institute (ITMPI) Premium membership gives members free access to 400 PDU-accredited webinar recordings and waives the PDU processing fees when you attend the live session. The library is growing at about 100 webinars per year. Check it out: http://mbsy.co/dPHm?s=e

Make Lessons Learned a Part of Your Culture

An organization with process maturity will close the loop on Lessons Learned.

By closing the loop, I mean that the organization will ensure the capture, distribution, and institutionalization of the lessons taught by the school of hard knocks.

While the Project Manager should identify and collect Lessons Learned, Quality Assurance should categorize and preserve them.  QA should take further steps to communicate the lessons.

First, leaving it to everybody to go searching the LL database does not work.  Like that will ever happen! Ha!

Instead, QA should sort the LLs by function and subject and distribute the information to affected functional managers across the organization.  This ensures that, for example, the Integration Engineers in different programs and at different locations receive the expensively acquired knowledge.  If the functional managers fail to communicate the lessons to their people, upper management should give QA the authority to do so.

Second, QA should incorporate applicable improvements to the Organizational Process Assets.  This way, QA does not merely deposit critical knowledge into the Tribal Knowledge Bank, but actually institutionalizes it.  This introduces accountability when QA audits process compliance.  It also allows the lesson to be moved to a section of the database that lists rationales for historical purposes.  Not every Lesson Learned needs to be researched for normal operations.

Note that this involves Change Control at both the project level and at the organizational level.

As an example, engineers delivered documents to a customer without the necessary review and approval of the Chief Engineer.  The incident led to rework and incorrect customer expectations.

Tribal knowledge had established a channel that would have ensured proper review before release.  However, new employees did not know it, and management had nothing in writing that allowed them to discipline experienced employees who knew better.

Engineering stepped in where corporate management had left a gap.  They instituted processes for document review and approval and for an engineering communications manager to coordinate release of documents to clients.

Thus, an incident led to a Lesson Learned.  The Lesson Learned led to policy and procedural changes.  The new practice became part of the formal procedures and did not get lost in a database that ever researched.

Copyright 2013, Richard Wheeler -- Permission granted for non-profit or personal use with a link to this post.

IT Metrics and Productivity Institute (ITMPI) Premium membership gives members free access to 400 PDU-accredited webinar recordings and waives the PDU processing fees. The library is growing at about 100 webinars per year. Check it out: http://mbsy.co/dPHm?s=e

Agile, Waterfall, and PMI Project Differences

I've been asking about the differences between Agile projects and traditional project management.  Many explanations err by answering the question only from a software or Information Systems perspective.  While Agile primarily appears in the software industry, the different approaches appear in many industries and product areas.

Since the Project Management Institute (PMI) offers both Project Management Professional (PMP)^® and PMI Agile Certified Practitioner (PMI-ACP)^® certifications, it would seem that Agile contrasts against traditional project management. 

However, it would be more instructive to contrast the Agile approach against the "traditional waterfall approach" of Systems Engineering.  (Refer to the International Counsel on Systems Engineering (INCOSE) for details.)

Agile uses a highly iterative approach that works better when requirements are vague and must be defined over the course of the project.  It is more appropriate for, as an example, the next set of security updates to Windows or the next year's model of the Ford Mustang.

The waterfall approach assumes progressive or phased elaboration of a fixed set of requirements that can be defined, validated, and turned into a design architecture or solution, from top to bottom.

However, Agile methods can still be used for portions of the system, particularly peripheral functions of the software. It is more appropriate for, as an example, the core of MS Project 2015 or a new hybrid squirrel-electric vehicle.

 

Copyright 2013, Richard Wheeler -- Permission granted for non-profit or personal use with a link to this post.

IT Metrics and Productivity Institute (ITMPI) Premium membership gives members free access to 400 PDU-accredited webinar recordings and waives the PDU processing fees. The library is growing at about 100 webinars per year. Check it out: http://mbsy.co/dPHm?s=e

Study Plan for PMP Certification (Early June 2013)

It's a little late to start studying for the PMBOK Guide, 4th edition, test. First, you have less than two months to join PMI, apply for the exam, prep for it, and arrange a test date, and pass the exam.   Second, the 5th edition is out, so a significant portion of knowledge based on the 4th edition is already obsolete.  Third, lots of people need to retake the exam; so if you need to retake the exam, you will have to re-study for the 5th edition test.

 

Classroom interaction is great, but online training has a lot of advantages, too. With my budget, schedule, and remote location, distance learning is an absolute must.  If I had the budget, I would take the training offered by Cornelius Fitchner at PM-Prepcast. Cornelius is also on Facebook at Project Management Prepcast.

 

I would add some warnings.  Preparing for the PMP exam should not be about learning to take the exam.  Boot camps teach to the exam.   That's alright, as long as you understand that a boot camp is just an orientation.  The learning takes place when you

 - Read the PMBOK Guide at least twice.
 - Master the material in one of the great reference books out there. (1)
 - Research the answers to a thousand or so practice questions. (2)

Finally, join the Project Management, PMI, PMP Certification community on Google+.  When you get stumped by a topic or a sample question, share your question.  We LIKE helping each other because, if something stumps one person, others probably have difficulty with it, too.  Besides, it drives us to learn the material. (3)

Studying for the PMP exam is just a starting point.  Getting a piece of wallpaper may help you get a job, but if you want a career, use your certification as a springboard to deeper studies of PM topics and further certifications.

Footnotes

(1) Rita Mulcahey's PMP Exam Prep has a wealth of information, and the Head First PMP book has gotten a lot of recommendations, too.

 

(2) Cornelius Fitchner has listed a number of free exam question sources on one of his sites. Make sure the questions correspond to the edition of the PMBOK Guide for which you plan to take the test.

 

(3) "Fair Use" allows sharing a limited number of questions for critique or discussion. To be fair to the person who wrote the question, cite the source; and to help the rest of us, provide a link.

 

Copyright 2011, 2013, Richard Wheeler -- Permission granted for non-profit or personal use with a link to this post.

IT Metrics and Productivity Institute (ITMPI) Premium membership gives members free access to 400 PDU-accredited webinar recordings and waives the PDU processing fees. The library is growing at about 100 webinars per year. Check it out: http://mbsy.co/dPHm?s=e

What to Call Risk and Opportunity Management

Many writings lump risk management and opportunity management together under the label, Risk Management.  Risks and opportunities are left-pointing and right-pointing rays on the same line.

Many equate risk with probability, so they drop opportunity from the label. They think of risk as an abbreviation for risk and opportunity. Others worry, then, that opportunity will be forgotten -- as it usually is!

When one speaks of risk [and opportunity], one speaks of the probability that something will happen. That is,

Risk = Probability x Impact, where Impact is a loss

and

Opportunity = Probability x Impact, where Impact is a gain

If risks and opportunities are rays pointing left and right, then opportunities are negative risks. If you deal with them in the same matrix, pay extra attention to your negative signs.

Risk and opportunity management can result in influencing the probability, influencing the impact, or other strategies such as accepting a potential loss or waiting to deal with situations when and if they become an issues.

(Remember that a situation is a risk if the probability lies between zero and one.  A situation is an issue if the probability is one.)

Uncertainty Management

Could we simply call it Uncertainty Management?  Uncertainty would only deal with influencing the probability that something will occur. The face-value of the term fails to imply the other strategies for dealing with risks or opportunities. The name of this knowledge area should reflect the highest-level concepts, not a component concept.

Opportunities and Threats

Another pairing of terms comes from SWOT analysis - Strengths, Weaknesses, Opportunities, and Threats. SWOT analysis is one technique for identifying risks and opportunities.

Opportunities and threats, as a pair, emphasizes the influences or situations that affect or can be affected by a person or project. (In fact, threat implies that the risk event comes from outside, whereas risks can be either internal or external.)  SWOT analysis emphasizes identification of risks. It makes up only a fraction of the whole set of risk and opportunity management processes.

A Common Risk:  Failing to Deal with Opportunities

Many people forget to manage opportunities with the same vigor that they apply to managing risks.  Exploiting opportunities can mitigate the potential impact of risks. The reasoning goes, Risk A may set us back a week, but Opportunity B may save us a week.

PMs have other reasons to exploit opportunities.   Exploited opportunities cut costs, relieve schedule pressure, and improve quality. In short, they maximize profit.

Failure to exploit opportunities wastes resources, causes product lines to stagnate, erodes market share, and results in lost jobs (perhaps your job!) when the company withers.

The failure to exploit opportunities is itself a fundamental risk.

Therefore, referring to the practice as Risk and Opportunity Management calls attention to the oft-forgotten second half of the discipline. 

Remember that semantics is about communicating, not about winning arguments.  If somebody refers to risk management, you know what they mean.  Adjust.

Copyright 2011, 2013, Richard Wheeler -- Permission granted for non-profit or personal use with a link to this post.

IT Metrics and Productivity Institute (ITMPI) Premium membership gives members free access to 400 PDU-accredited webinar recordings and waives the PDU processing fees. The library is growing at about 100 webinars per year. Check it out: http://mbsy.co/dPHm?s=e