This post is in regard to “Establishing metrics for new product realization process measures”, a topic posted by Tom Holland on LinkedIn; a discussion about how to measure the cost of delay on projects. It is a great discussion and hopefully more project practitioners can participate; so Tom here are some ideas.
How to measure projects performance?
There are several ways to measure the impact of delays on projects. Earned Value (EV), for example, presents a set of indexes to measure the cost performance of the project. However, as the project is a temporal effort, these measures may not be enough for someone interested in monitoring its long-term results, even after the project has finished. Roger Burlton approached this topic and described business improvements considering not just the project life cycle, but also the product life cycle. Even if this approach is not focused on establishing cost performance measures, it provides a sufficient idea to further define project delay measures.
Burlton’s approach is based on the concept that companies start projects to develop business initiatives that will generate value in the long term. When a company begins a new initiative they expect some costs for project implementation and operational costs when the products become part of the process. These costs are represented by the Total Cost curve in the Figure No 1 below. The Time to Market (TM) is the period from the time the project starts to the time the product is integrated into the normal operation. At this point the company expects to start receiving financial contribution that will eventually reach a point when the investment is recovered (represented by Contribution Curve in the Figure No.1). That period of time is described as Time to ROI (TROI). From that point on all benefits will be received until the Product Life is complete. (See Figure No. 1)
Figure No. 1
Now, what is the effect of delays on projects?
Time delay in a project will have short term and long term effects. It usually impacts the cost of resources involved (team, infrastructure, etc), for example, a project team may need to work longer hours in order to complete the project. On the other hand, if the product is not ready by the time planned the company will not start receiving any contribution, so these lost benefits are part of the financial impact. In the same way, the Time to Market (TM) and the Time to ROI (TROI) will be effected (from ROI1 to ROI2); in the end, the final ROI will be reduced (represented by the green area). (See Figure No. 2)
Figure No. 2
The red zone represents the financial impact of delays on projects.
How are these costs measured?
There is a broad spectrum of indexes and indicators established to measure projects in different areas and industries. However, a good characteristic of an indicator is that it is relevant to the audience that will use it. For example, measures related with the Earned Value (EV) technique like Cost Performance Index (CPI) are used to measure the project performance from the initiation to the Time to Market (TM) and will be relevant for the project manager. From the perspective of a Chief Financial Officer (CFO) this measure may not be enough when interested in measuring the big picture of company investments. Measures of cost from this perspective will relate to time, contribution, and ROI; an example variable to be monitored would be the impact of 1 day of delay in the project on the expected ROI.
Now, in the same way that the Costs Performance Index (CPI) represents the relationship between the actual costs incurred in the project and the value of the work performed, and is used before the project is done; it could be possible to formulate an index that represents the relationship between the time incurred in a delay and the ROI expected in the product life cycle. This approach could relate time of delay (TD) with time to ROI (TROI) or time of delay (TD) and expected ROI that would track on a daily basis the long term impact associated to delays in the projects.
If someone else has more ideas they are more than welcome to post on the PMI Nebraska group in LinkedIn. Visit:
Establishing metrics for new product realization process measures.
Tom, this is a great topic, thanks for bringing that up!
