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202 RISK MANAGEMENT FOR THE SIGMAPHOBIC

some kind of weight factor for each task. If you are controlling only labor-based
tasks, you can use the planned labor hours as the weight factor. If you are using
mixed resource values, you will find that the planned task cost is the lowest com-
mon denominator, or weight factor.

To use the EV approach, identify your tasks, assign a cost (or other weight fac-
tor) to each task, and schedule all tasks (either manually or by CPM). The com-
puter will calculate the BCWS or planned accomplishment for any point in time,
by multiplying the planned percent complete of each task by the value (cost) of
the task. If you are using a work breakdown structure (WBS), the computer will
roll up the data to any level of detail. By summarizing to the highest level, you can
get a weighted planned accomplishment curve for the entire project—essentially
a cash flow or project expenditure graph.

Now, when it comes time to progress the schedule, just enter the percent com-
plete of any tasks that have started. The system will multiply the percent com-
plete by the budgeted cost, producing the earned value. This gives us a weighted
measure of accomplishment, which can be compared to the planned accomplish-
ment. If the earned value (BCWP) is less than the planned accomplishment
(BCWS), work is not being accomplished as fast as planned, and you can say that
the project is behind schedule.

Monitoring the earned value against the planned accomplishment (the Sched-
ule Performance Index) provides an early trend analysis to guard against poor
schedule performance. We can assume that if the overall production rate is below
par, then the computed project end date is in jeopardy. This technique also works
very well for monitoring the progress of subcontractors. I use a below par SPI to
convince subcontractors to put on additional crews to get back on schedule.

Tip Use the Schedule Performance Index (SPI) to plot the rate
of work accomplishment. The SPI is the earned value divided by
the planned accomplishment (BCWP/BCWS). You are looking
for an SPI of 1.0 or better. If you plot the SPI on a periodic basis,
you can see if the rate of accomplishment is improving or fal-
tering. A low SPI, which fails to improve with time, is a clear in-
dication that meeting the schedule objective is in danger.

Build In a Managed Cost Contingency

Cost contingency, also called management reserve or water, is often frowned
upon, because it is incorrectly used as a cushion for poor performance, rather