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Home > Business Strategy Best Practice > Project Planning Techniques for Small and Medium Enterprises

Business Strategy Best Practice

Project Planning Techniques for Small and Medium Enterprises

by Damian Merciar

Critical Path Analysis versus Pert

A critical path is a route through a project that has no slack, and is the longest path to completion of the work. A “float” is any path shorter than the critical path; it may be shorter because it separates distinct tasks that can be done at the same time, allowing some slack in the project. Slack is essential as otherwise there is no room for contingencies or significant changes of plan. If resources allow, tasks can of course be run concurrently, or “parallel” in software terminology, thereby shortening the critical path.

A Gantt chart is a bar chart that shows progress along a given axis. The axis almost always represents time. However, the original Gantt charts did not display information relating to dependency—that is, the completion of one task of a project being dependent on the successful completion of an earlier task. Ability to display this relationship was developed in the 1950s using arrow diagrams, and resulted in the critical path method (CPM) and the performance evaluation and review technique (PERT). Both techniques determine the critical path in a project. PERT is slightly more useful as it uses considered task duration and allows probabilities of completing the work to be included. This is a measure of actual time taken, rather than only a rigid expected time given for a project. This probabilistic method allows for three time estimates: pessimistic, most likely, and optimistic. CPM only uses considered, and therefore more rigid, task duration. Both use some form of notation, either on completion of a task (“activity on node”) or on the action path (“activity on arrow”). The purpose of the arrows is to show whether a particular item of work can be begun and whether the task on which it is dependent has been completed—bar charting alone does not make this clear.

Earned Value Analysis

Earned value analysis or learned value management (EVA or EVM) is about the integration of cost and schedule tracking. For example, if a project has a budget of $1,000 and you have spent $200, from a cost perspective you are 20% through your project. However, if you have only completed 10% of the work, you are in line to double both the time required and the cost of the finished project. EVA gives three measurements that allow you to tell exactly where a project is: a measurement of what is supposed to be done, what has actually been done, and the amount of cost spent doing it.

Continuing this example, let us say that you have fully utilized your $1,000 budget. This figure is also called the budgeted cost of work scheduled (BCWS). However, you have only completed $800 worth of the work in the original planned budget schedule—this figure is called the budgeted cost of work performed (BCWP). BCWP is also known as “earned value” To finish the project therefore will require another $200—or actual cost of work performed (ACWP). From these figures we can identify:

Schedule variance = BCWP – BCWS = $800 – $1,000 = –$200

Cost variance = BCWP – ACWP = $800 – $1,200 = –$400

Budget variance = BCWS – ACWP = $1,000 – $1,200 = –$200

These figures are important. For instance, the cost variance shows that you actually have $800 worth of work completed, and that in nominal terms it will take another $400 to complete the project on the basis of this assessment of the worth of your present position. A company director might conclude from these figures that the project was running 50% over budget. In fact, in this instance it would be more accurate to use the budget variance figure of $200, which is only 20% over budget.

Most reasonable software packages allow you to show EVA in spreadsheet format.

Critical Ratio

The critical ratio (CR) is a performance index that itself is the product of two other indices. The first is the schedule performance index (SPI). The second is the cost performance index (CPI). These are given by:

SPI = BCWP ÷ BCWS

CPI = BCWP ÷ ACWP

BCWP/BCWS is the work you have actually accomplished divided by the work you were supposed to accomplish, so SPI is a measure of work, or project, efficiency. CPI is the work you have completed divided by what it actually cost, and so represents a measure of spending efficiency. If these two ratios are combined, the outcome is the critical ratio:

CR = SPI x CPI

As with all ratios that illustrate performance, the value will equal 1.0 if work is going exactly as planned. In our example this happens if you complete $1,000 worth of work for $1,000 scheduled and $1,000 actual cost. It will be less than 1.0 if the project is performing worse than planned, and greater than 1.0 if performing better.

Statistics can further refine these figures to arrive at measures of deviation. This will typically be beyond the scope of the SME project manager, and as an executive tool for reporting to directors a flag can be inserted into the software to report to management if the CR falls below a specified figure—say 0.7.

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Further reading

Books:

  • Kendall, Gerald I., and Steven C. Rollins. Advanced Project Portfolio Management and the PMO: Multiplying ROI at Warp Speed. Boca Raton, FL: Ross Publishing, 2003.
  • Kerzner, Harold. Project Management: A Systems Approach to Planning, Scheduling, and Controlling. 8th ed. Hoboken, NJ: Wiley, 2003.
  • Lewis, James P. Project Planning, Scheduling, & Control: A Hands-on Guide to Bringing Projects in On Time and On Budget. 4th ed. New York: McGraw-Hill, 2005.
  • Project Management Institute (PMI). A Guide to the Project Management Body of Knowledge (PMBOK® Guide). 3rd ed. Newtown Square, PA: PMI, 2004. Available from: www.pmi.org

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