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The Probability of Project Recovery

FEATURED PAPER

By Walt Lipke

Oklahoma, USA


Abstract

A few years ago, a theoretical study was made of the To Complete Performance Index of Earned Value Management. The study concluded that when the value of 1.10 is exceeded recovery of the project is very unlikely. Recent analysis using real data has shown that the value 1.10 for the To Complete indexes from Earned Value Management and Earned Schedule is a reliable threshold, adding credence to the conclusion from the theory assessment. This paper describes how to use project performance measures with the established threshold to compute the probability of schedule and cost recovery. Knowing the probability provides additional and beneficial information, thereby enhancing the decision making capability of project managers.  

Introduction

Recent research, using real data from 25 projects, indicates that the value 1.10 is a reliable threshold for the To Complete Performance Index (TCPI) and the To Complete Schedule Performance Index (TSPI) [Lipke, 2016]. The research affirmed the conclusion made from a theoretical assessment that when the threshold is exceeded after 20 percent project completion, recovery is very unlikely [Lipke, 2009-1]. As well, it was shown that when the index value is equal to or less than the threshold, a successful project can be expected; i.e., the product is achieved within the total budget and delivery to the customer is made on or before the negotiated completion date.

With the establishment of the threshold value, it becomes possible to compute the probability of project recovery (PRcv) for both, cost and schedule. In turn, having knowledge of the probability is envisioned to be useful to project management. For example, when final cost is forecast to exceed the total budget, yet TCPI is less than 1.10, indicating there may be opportunity for recovery, the project manager (PM) has a decision to make: Should he/she take action to effect recovery or not? The value of PRcv is a needed component in the PM’s decision process.

Succinctly, there is need for knowing and using the PRcv. The remainder of the article is devoted to developing the method of its calculation. To create the foundation for understanding we will begin from a common point with the definitions of the To Complete Indexes, and proceed to an introduction of probability theory.

To Complete Formulas. The TCPI from Earned Value Management (EVM) describes the cost performance efficiency required for the remainder of the project to achieve the desired final cost [Project Management Institute (PMI), 2011]. The index formula is defined as follows:

TCPI = (BAC – EV) / (TC – AC)

where

BAC = Budget at Completion

EV = Earned Value

TC = Total Cost (BAC plus cost risk reserve)

AC = Actual Cost

TSPI is the time-based To Complete indicator, derived from the application of Earned Schedule [Lipke, 2009-2]. The indicator yields the schedule performance efficiency required for the remainder of the project to achieve the desired project duration [PMI, 2011]. The formula for TSPI is shown below:

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About the Author

Walt-Lipke
Walt Lipke

Oklahoma, USA

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Walt Lipke
retired in 2005 as deputy chief of the Software Division at Tinker Air Force Base, where he led the organization to the 1999 SEI/IEEE award for Software Process Achievement. He is the creator of the Earned Schedule technique, which extracts schedule information from earned value data.

Credentials & Honors:

  • Master of Science Physics
  • Licensed Professional Engineer
  • Graduate of DOD Program Management Course
  • Physics honor society – Sigma Pi Sigma (SPS)
  • Academic honors – Phi Kappa Phi (FKF)
  • PMI Metrics SIG Scholar Award (2007)
  • PMI Eric Jenett Award (2007)
  • EVM Europe Award (2013)
  • CPM Driessnack Award (2014)

Mr. Lipke can be contacted at [email protected]