When running a project and it’s running behind plan when should you quit and when should you carry on? Here’s a technique you can apply to the projects you’re working on to decide when to quit and when to carry on.
Earned value analysis
One way of using numbers to help support decision making is borrowing a technique from project management called earned value analysis. Basically it works on the principle that the project spend should be aligned to the value delivered by the project. If the amount of spend exceeds the amount of value created at each of the milestones, then it’s likely that the project will overspend and behind schedule.
By regularly tracking the cost of the project against the value delivered, management can track the amount of earned value of a project.
Consequently management can do something about the overspend before it becomes a big issue. In some instances it might be apparent that to deliver the project will cost far more than originally anticipated and take far longer which means that although the project is already committed, management could take steps to kill the project before it costs any more money.
For example, imagine you were building a house and the house has the following milestones over a 12 week period:
- Outside walls
- First fix
- Final fix
The £100k budget may be allocated like this:
- Foundations 30k
- Outside walls 15k
- Roof 15k
- First fix 20k
- Final fix 20k
The 12 weeks project may look something like this:
- Foundations – 3 weeks
- Outside walls – 2 weeks
- Roof – 1 week
- First fix – 3 weeks
- Final fix – 3 weeks
At the end of 3 weeks the build should have cost £30k and the foundations completed i.e. 30% of the cost and 25% of the project completed. If it was discovered that at the end of 3 weeks the foundations hadn’t been completed and £45k had been spent on the build then 45% of the budget would have been spent on the project but less than 25% completed.
[Note: there are several different ways of calculating the value of the work completed. Some methods talk about the 0/100 rule meaning that no credit is given to work completed until the work is actually completed. As in all or nothing. In a related rule called the 50/50 rule 50% of the stage value is earned on starting the project and 50% on completion. So in our example of the foundations not being completed after 3 weeks, in one method (the one I’ve illustrated) no credit would be given, but in the 50/50 rule 12.5% would have been completed – your choice]
At this point management have three options:
1) Kill the project and protect the remaining funds to invest in other projects
2) Seek ways to reduce costs in later stages
3) Invest more money
In many instances though, reducing costs in later stages tends to change the overall look feel and shape of the project. Which might mean that if it was a project for resale then the pricing might not be at the level that was first envisioned.
In option 3, management would need to ensure that the amount of money that would be required to be invested in the project to complete it justified the potential returns from that project. i.e. if the project is going to cost more to deliver, then the expected returns (or sales) would need to be higher to recover the additional cost of the investment.
But then we are back to guessing again.
What do you think? Please share your thoughts in the comments below.