We are currently living in the age of information technology, where we are bombarded every day with a huge amount of information and need more and more agility to understand, process and make decisions based on this information.
When we talk about project management, we also have an excessive volume of information, especially when we talk about multiple projects and companies need to have access to this information in an agile manner so that their managers can make faster and more assertive decisions.
To facilitate access and reading of information there are several project indicators, known as KPI’s (Key Performance Index), which function as a compass that points out whether the project is going in the right direction or not.
In addition to allowing managers to make more assertive decisions, these indicators enable those responsible to check the allocation of company resources and, if necessary, promote changes to ensure that the project is implemented as planned. They help make project presentations more dynamic as they allow for quick and practical visualization, optimizing the time spent in project status report meetings.
What needs to be measured?
Since the company and its employees understand the importance of the indicators, it is necessary to define what will be measured and how it will be measured so that the information generated through the indicators is relevant to the project and consequently for decision making.
The measurement frequency of the indicators may also vary according to the type of indicator. There are indicators that are used daily and no longer accompanying them can cause problems for the projects. These indicators are known as operational indicators and are usually associated with schedule and cost control and reflect whether there was a deviation of time or cost.
In project management it is essential to monitor and measure performance indicators which demonstrate the difference between what was planned and what was accomplished, and the main indicators are:
- ROI (Return of Investment);
- IDC (Cost Performance Index);
- IDP (Term Performance Index);
- VA (Aggregated Value);
Understanding the main indicators
The ROI (Return of Investment) or simply “Return on Investment” is an indicator that demonstrates the return obtained from the investment that was made in the project.
The ROI calculation is performed by applying the formula below:
ROI = (Return – Investment) / Investment
To know what was the return on investment in a project, just check the ROI value as described below:
- If the ROI is greater than 0, it means that the project had a positive return (profit);
- On the other hand, if the ROI value is less than zero, this means that the project did not achieve the expected results;
- If the result is 0, it indicates that the project paid the amount invested, there was no loss and there was also no profit for the project.
Imagine that a group of investors made an investment of R$ 1 Million in a project and that, after six months, this project yielded R $ 1.2 Million. According to the formula presented earlier, we would have the following result:
(R$ 1,200,000.00 – R$ 1,000,000.00) / 1,000,000.00 = 0,20
In this case, we consider that for R $ 1.00 invested in the project there was a return of R $ 0,20, that is, the investment in the project was paid and still generated a positive result.
The Deadline Performance Index (DPI) or simply SPI (Schedule Performance Index), indicates how is the progress of the project in relation to the planned schedule for the moment.
To calculate the IDP just divide the added value (VA) by the planned value (VP), thus:
IDP = Value added / Planned value
To follow how the IDP of projects is, just follow the rule below:
- IDP above 1 means deadline above planned, i.e. deliveries are being made before the estimated date;
- IDP below 1 means that the deadline is below planned, i.e. deliveries are being made late (after estimated date);
- IDP equals 1 means that the deadline is equal to the planned deadline, i.e. deliveries are being made according to the estimated dates on the project schedule.
Let's imagine that we have a project to build a subway line where they should be built 10km of line in 2 years, with an expected cost of R $ 1,000,000 per km, and after 1 year of project should have been built 5km of line. When measuring the project, it was found that only 4 were delivered. km from the 5 km expected until a given date. In this case then we would have:
IDP = VA / PV
IDP = 4/5
IDP=0.80
Since the IDP is less than 1, then we consider that the project is delayed.
The Cost Performance Index (CID) or simply CPI (Cost Performance Index), indicates how is the progress of the project in relation to the planned budget to date.
To follow how the IDC of the projects is, just follow the rule below:
- IDC above 1 indicates that expenses are below planned.
- IDC below 1 indicates that expenses are above planned.
- IDC equals 1 indicates that the expenditures of the project are equivalent to the planned expenses.
To calculate the IDC it is necessary to divide the added value (VA) by the cost realised (CR), as shown below:
IDC = Aggregated Value / Cost
Considering the same metro line construction project used previously we would have:
In the construction project of a subway line where 10km of line should be built in 2 years, with an expected cost of R $ 1,000,000.00 per km, and after 1 year of project should have been built 5km of line. When measuring the project, it was found that only 4 were delivered. km from the 5 km expected until a given date and the cost was R$ 4,200,000.00. In this case then we would have:
IDC = 3.200,000.00 / 4.200,000.00
IDC = 0.76
Thus, we conclude that the expenditures of the project are above what was planned.
The aggregate value (VA) it consists of measuring the performance and progress of the project (how much of the scope was delivered) up to a given time of the project.
The cost and time of a given delivery may have been lower or higher and, therefore, IDP and IDC have a direct relationship with the calculation of the aggregated value.
The calculation of the VA is performed by dividing the percentage of scope completed by the percentage of scope that was initially planned.
What are the benefits of using indicators?
Now that we have explained about the main indicators, we can mention the importance of controlling these indicators in managing the company's projects.
It would be unfeasible if companies had to manually control these indicators, however, by doing this automatedly through a management tool, in addition to facilitating the work of the project manager, they can also have greater agility and time to control the projects.
Having a tool that allows a quick visualization of the project information and its respective indicators allows the project manager to manage the projects more efficiently, acting faster by correcting any deviations to put the project on the right path.
The reports developed by MLPro allow the project manager to view the project information as well as display SPI and CPI indicators, allowing the project manager to monitor the cost and time information and their respective indicators in one Page Report reports, and may display the reports filtering by department, status, phase or project, as shown below:
Contact us and learn more about project indicators or how to implement PPM solutions in your company.
Original content from the MLPro editorial library, fully preserved and translated for the English website.