Managing Projects As Investments: The Benefits Of Computing Critical Path Drag And Drag Cost

Transcription

1 Managing Projects As Investments: The Benefits Of Computing Critical Path Drag And Drag Cost ***** A Presentation for PMI Westchester County Chapter by Stephen A. Devaux 6/13/2017 1

2 The History of PM and Critical Path Google Ngrams Viewer

3 Patrick Weaver blog at Mosaic Projects An from Chris Fostel, an Engineering Planning Analyst with Northrop Grumman: I was told this story in 1978 by a retired quartermaster who founded his own company after the War I do not wish to minimize the work of Kelly and Walker. They introduced critical path scheduling to the world and formalized the algorithms. They did not develop or invent the technique. The origin of critical path scheduling was the planning of the US Pacific Island hopping campaign during World War II. The Quartermaster Corps coordinated orders to dozens if not hundreds of ships for each assault... If any ships arrived early it would alert the Japanese of an imminent attack The travel times were drawn as arrows on the map The quartermasters would then calculate shortest and longest travel times to the destination for all ships

4 The goal was to have all ships arrive at the same time They started drawing the islands as identical bubbles with identification codes and no particular geographical order on the bubble and arrow charts. These were the first activity on arrow critical path charts; circa Float was the amount of time a particular ship could float at anchor before getting underway for the rendezvous. Later when the US quartermasters introduced the technique to the British for planning the D-Day invasion the British changed float to Slack, to broaden the term to include air force and army units which did not float, but could slack off for the designated period of time. Critical path scheduling was a military secret until declassification in 1956.

5 What Is Critical Path Drag? Critical path drag is a critical (literally!) new CPM metric that was introduced in my 1999 book Total Project Control (TPC). It is NOT the only, or even the most important technique or metric of TPC. But it IS the one whose value is most intuitively obvious. 5

6 What Critical Path Drag is NOT! It is NOT Steve Devaux s invention! It s not an invention at all! EVERY project has a critical path and therefore EVERY project has activities with drag! I just identified the importance of critical path drag and how to compute it. 6

7 All Projects Are Investments. An investment in work to create a unique product, service or result. Value: n; relative worth, merit or importance. ( In any investment, value means value to the investor! 7

8 Externalities (A)n externality is a cost or benefit incurred by a party who did not agree to the action causing the cost or benefit (P)rices do not reflect the full costs or benefits of producing or consuming a product or service. Items which are left as externalities are measured at zero! 8

9 The Two Externalities in Projects TIME COST SCOPE Externalities! If two sides of the project investment triangle are left unmonetized, and the third side is COST, is it any wonder that justifying additional resources is almost impossible? 9

10 Integrating the Project Investment If invested resources are measured in dollars, the other sides of the triangle should be, too. TIME SCOPE COST $ Invested for Resources Otherwise, how can we justify spending even one dollar on resources? SCOPE generates the project s value! 10

11 Every Project is an investment of the resources needed and which is modified by TIME and TIME project duration. SCOPE COST to create SCOPE that is expected to generate greater value than the budget All three sides of the Triple Constraint should be integrated into a single metric. 11

12 SCOPE Generates the Project s Value If a project is an investment, then every project is performed for the difference between its expected value and its cost. TIME also can impact resource usage and COST. $BUDGET What about TIME? TIME modifies the value of the SCOPE. TIME SCOPE COST $Expected Monetary Value (EMV) EXP. PROJECT PROFIT = $EMV of SCOPE - $COST of resources 12

13 The Impact of TIME on EMV Delivering the product generates almost all the value. TIME ($+ or $- per time unit against...) COST $BUDGET SCOPE $EMV (as of a given completion date.) Typically, the sooner the delivery, the greater the $EMV. The later the delivery, the lower the $EMV. 13

14 Planning Value thru the DIPP ($+ or $- per time unit against...) TIME COST $BUDGET SCOPE $Expected Monetary Value (EMV) PROJECT PROFIT = ($EMV of SCOPE ± $Accel/Delay) ($BUDGET ± COST Variance) $EMV of SCOPE Planned Simple DIPP * = $Planned Cost ETC * See When the DIPP Dips, Project Management Journal, Sep-Oct

15 Tracking Value thru the DIPP ($+ or $- per time unit against...) TIME COST $BUDGET SCOPE $EMV $EMV of SCOPE Planned Simple DIPP = $Planned Cost ETC ($EMV of SCOPE ± $Accel/Delay) Actual Simple DIPP = ($BUDGET ± COST Variance) DIPP Progress Index (DPI) = Actual DIPP Planned DIPP 15

16 The DIPP and the DPI The following 26 week project has an EMV of $240,000 and an initial budget of $90,560: * DIPP Progress Index (DPI) = Actual DIPP Planned DIPP If Actual DIPP at Week 18 = 5.00, DIPP Progress Index (DPI) = = 0.83 If Actual DIPP at Week 18 = 9.00, DIPP Progress Index (DPI) = = 1.49

17 Estimating the Cost/Value of Time is ESSENTIAL to Good Project Management! Otherwise it will be an externality worth zero! In many project schedules, the cost of resources is often less than the cost of the time that they would save! This is especially true on enabler projects within a program, i.e., projects that enable other valuable projects. 17

18 And So To Critical Path Drag The Drag Efficient Every project is as long as its longest path of activities. We can choose to plan and optimize that path, or we can ignore it. But the project will STILL be as long as its actual longest path! Failure to manage the critical path properly means failure to control the impact of duration on the investment. What impacts a project s delivery date? The work, delays, constraints, and bottlenecks that comprise a project s critical path (and have drag!). 18

19 The Forward & Backward Passes 1. EARLY START 2. EARLY FINISH 3. LATE START 4. LATE FINISH ES LS DUR. ACT. ID EF LF 19

20 What Does CPM Say? B A C TF= D E Total float = amount of time an activity can slip without delaying the end of the project. But what about ON the critical path? What does CP analysis say about critical activities? Answer: ZERO (Float = 0)! 20

21 Traditional CPM Quantifies TF=3.5M TF=2M TF=3M Off the critical path On the critical path Total Float Total Float = 0 Free Float But about stuff that s ON the critical path, traditional CPM (and CPM software) says ZERO! 21

22 Where to Shorten? 1 15 A 1 15 C 22 B TF=6 D E Suppose each unit of duration cuts ROI by $5,000? Of the four activities on the CP (A, C, D, E), which TWO should we look at first to shorten? 1. A & C? 2. A & D? 3. A & E? 4. C & D? 5. C & E? 22

23 Computing Drag in a Simple Network Drag is ONLY on the critical path. It is the amount of ime that an activity is ADDING to the project duration A 1 15 DRAG=15 C B DRAG=6 TF=6 51 D DRAG= E DRAG=20 23

24 Computing DRAG in a Simple Network (cont.) 1 15 A 1 15 DRAG=15 C B DRAG=4 TF=6 D F TF=4 DRAG= E DRAG=20

25 Computing DRAG in a Simple Network (cont.) 1 15 A 1 15 DRAG= C B C 37 DRAG= TF=6 D G 39 DRAG=2 32 F TF=4 DRAG= E DRAG=20 25

26 Formula for Computing DRAG 1. If it has no parallel path activities: DRAG of Activity X = its duration. 2. If there are parallel paths: DRAG of Activity X = whichever is LESS: Its duration OR the TF of the parallel activity with the least TF. Spider Project released a version in April 2009 that computes drag. Asta Powerproject released a version in Nov 20 that computes drag. BPC Project Filter s, an add-on to MS Project, now computes drag. 26

27 Drag Exercise

28 Computing DRAG Cost If every unit of time reduces project profit by $10,000: 1 15 A 1 15 DRAG=15 DC=$150K C B C DRAG=4 DRAG=2 DC=$40K DC=$20K D C F DRAG=4 DC=$40K The drag cost metric is what you use to justify the additional resources you need! E DRAG=20 DC=$200K 28

29 What is the True Cost of an Activity? Imagine that this project has a budget of $300,000, allotted as follows: 1 15 A 1 15 BUDG=$30,000 C 22 B BUDG=$65, C G D BUDG=$50,000 BUDG=$40,000 BUDG=$5, E BUDG=$35, F 51 BUDG=$75,000 Which two work activities TRULY cost the most? 29

30 Computing True Cost If every unit of time reduces project profit by $10,000: 1 15 A 1 15 DRAG=15 BUDG=$30,000 DC=$150K TC=$180,000 C 22 B BUDG=$65,000TC=$65, C 37 DRAG=4 BUDG=$50, D C 39 DRAG=2 BUDG=$5,000 DC=$40K DC=$20K TC=$90,000 TC=$25, F DRAG=4 51 BUDG=$40,000 DC=$40K TC=$80,000 BUDG=$75,000TC=$75, E DRAG=20 BUDG=$35,000 DC=$200K TC=$235,000 If E s budget is doubled to $70,000 and its duration thus reduced to 10: DC=$100K TC=$170,000 30

31 Adding Resources to Reduce Drag 1. Drag shows which activities will benefit the project most by being shortened both up front and when things slip! 2. Drag Cost justifies resources -- if an activity has a DRAG Cost of $10,000 per week, that justifies up to $30,000 to lessen its DRAG by three weeks. 3. If a CP activity has significant drag and is resource elastic, why does it have part-time resources? 4. Each good decision displays its worth by increasing the project ROI, DIPP and DPI, the whole reason for the project investment! 31

32 Computing Drag with SS Dependencies SS B TF=12 Lag+TF=15 SS C TF=13 Lag+TF= A DRAG=10 TF=5 SS9 SS D TF=5 E TF=3 F DRAG=3 Lag+TF=12 Lag+TF= G DRAG=10 = critical path TF = total float SS3 = start-to-start relationship with lag of 3 time units 32

33 DRAG Puts the Focus where it belongs: ON the critical path! DRAG=2M D=1.5M DRAG=2M DRAG=2M 33

34 Eight Points in Conclusion 1. All projects are investments. 2. Almost all project investments are very time sensitive shorter adds to ROI, longer subtracts. 3. We MUST start estimating the value/cost of time! 4. Project durations are driven by the critical path. 5. Traditional CPM metrics quantify non-cp work. 6. CP drag tells us what is costing how much time! 7. That time can be human lives. And pain. And MONEY! 8. That money can justify both resources, AS WELL AS the value that a good scheduler can bring to a project! 34

35 Stephen A. Devaux, MSPM, PMP President, Analytic Project Management 770 Boylston St., Unit I, Boston, MA BOOKS & CHAPTERS Managing Projects as Investments: Earned Value to Business Value, CRC Press, Total Project Control: A Practitioner s Guide to Managing Projects as Investments, CRC Press, Time is a Murderer, chapter in CRC Press s 2013 book Handbook of Emergency Response. When the DIPP Dips, Project Management Journal, September Reprinted in PMI s book Essentials of Project Control, 1999, Pinto & Trailer, ed. The Drag Efficient, article in Jan/Feb 2012 issue of Defense AT&L Magazine. Reprinted in CRC Press s book Project Management in the Oil and Gas Industry. OTHER PUBLICATIONS How Do You Strengthen a Chain, PM College of Scheduling, Six-part series on TPC methods, published in Projects@Work on-line magazine, Oct-Dec 2006: The Value-abled Project Moneyproject Time is a Crook Delay Tactics Drag Racing on the Critical Path Paving the Critical Path Scheduling is a Drag, published in Projects@Work on-line magazine, Jan 2009, (co-author with William Duncan, author of the 1996 PMBOK Guide). Moneyproject: Metrics, Baseball, and PM, webinar for PMI s Metrics SIG, Total Project Control in IS Projects: Managing Projects and Portfolios for Maximum Value, webinar for PMI s Information Systems SIG (IS-SIG),