Autor: Diethard Engel

This is the last part of my series on a brief introduction of KPIs relevant to any business that is building its success on performance of distinct customer projects.

1.1        Project Quality

A project quality-KPI measures the quality of deliverables and outcomes. It may include metrics like defect rates, customer satisfaction ratings, adherence to quality standards, and number of rework or corrective actions.

Project quality has a direct impact on project expense (thus profitability), and on the probability of doing repeat business with a customer. Measuring defects will also provide input to discussing supplier issues and potentially claims.

1.2         Project Scope

This KPI assesses the project’s adherence to the defined scope and its ability to manage scope changes. Metrics may include the number of scope changes, scope creep percentage, and customer change requests. In summary, it is a metric for project planning quality.

1.3         Other, Less Critical Performance Indicators

• Customer Satisfaction
  This KPI measures the satisfaction level of project stakeholders, including clients, end-users, and other relevant parties. It can be measured through surveys, feedback ratings, or other qualitative and quantitative assessments.

• Project Team Performance
  This KPI measures the effectiveness of the project team in terms of collaboration, productivity, and overall performance. It may include metrics like team satisfaction ratings, employee turnover rate, and team productivity metrics.

• Stakeholder Communication
  This KPI evaluates the effectiveness of communication within the project and with external stakeholders. Metrics may include the frequency and quality of project updates, stakeholder feedback, and communication response times.
  
  
• Resource Productivity
  Resource Productivity is used to assess the output and deliverables produced by each resource within a given timeframe. This metric focuses on the quality and efficiency of work completed by resources, providing insights into their productivity and contribution to project outcomes.

• Feedback and Performance Reviews
  Best-in class businesses regularly gather feedback from project managers, team members, and stakeholders regarding resource utilization. They conduct performance reviews to assess individual and team performance, identify strengths and weaknesses, and provide constructive feedback to enhance resource utilization for future endeavors.

This article focuses on identifying and mitigating project risks. It includes metrics such as the number of identified risks, risk severity ratings, risk mitigation actions taken, and overall risk exposure.

For effective risk management, each project has a risk register that is reviewed with management regularly. The risk register identifies project risk topics, mitigating measures and a mitigation status. Risks typically include availability of key resources, risks to the timeline, and customer financial risk.

Risk management should be an ongoing and proactive process throughout the project lifecycle focusing on risk recognition and avoidance rather than on incident management. As such, it is less of an KPI as a set of initiatives targeted to minimize the likelihood and impact of potential issues and to enhance project success rates. The business standard for risk management follows a number of steps:

• Risk Identification to recognize potential risks that could arise during the project lifecycle. This involves conducting a comprehensive risk assessment by reviewing project documentation, engaging stakeholders, and leveraging past project experiences. Brainstorming sessions, checklists, and risk templates can also aid in identifying risks.

• Risk Analysis and Assessment to analyze identified risks to determine their potential impact and likelihood of occurrence. Risk analysis assesses the severity of each risk and prioritizes risks based on their significance to focus resources and attention on high-priority risks that require proactive mitigation.

• Risk Response Planning will result in a risk response plan to address identified risks. This involves defining appropriate strategies for each risk, such as:

Avoidance: Take actions to eliminate or avoid the risk altogether, such as changing the project approach or scope.

Mitigation: Implement measures to reduce the likelihood or impact of the risk, such as additional quality checks or redundancy in resources.

Transfer: Transfer the risk to a third party, such as through insurance, subcontracting, or partnerships.

Acceptance: Acknowledge that the risk exists and determine how to effectively respond if it materializes. This can involve creating contingency plans or reserves to mitigate the impact.

• Risk Monitoring and Control to monitor identified risks throughout the project lifecycle. It tracks the status of each risk, going along with  assessing any changes in risk severity or likelihood, and ensuring that risk response strategies are implemented effectively.

• Risk Communication to keep stakeholders informed about project risks by providing regular updates on risk assessment, mitigation activities, and any changes in risk profiles. Effective communication ensures that stakeholders are aware of potential risks and their associated impacts.

• Risk Documentation to keep track of all identified risks, risk response strategies, and their outcomes.

• Centralized Risk Register to track and monitor risks systematically. This documentation serves as a reference for future projects and supports organizational learning and improvement.

• Lessons Learned or post-mortem exercises at the end of a project to feed a continuous improvement process with insights and experiences related to risk management.

Following profitability and resource utilization, schedule adherence is the third critical KPI for any project-oriented business.

Project planning usually identifies a series of milestones, plotted on a timeline. Project Schedule Adherence tracks the project’s progress in meeting scheduled milestones and deadlines. It includes metrics as percentage of tasks completed on time, variance in project schedule, and overall project timeline adherence, and is usually fed by a project management software, but might also be calculated manually.

Best practices to effectively manage project schedule adherence include:

• Detailed Project Planning
  A well-defined project plan sets a strong foundation for managing schedule adherence. Investing time and effort in thorough project planning will improve the chances of success. The project plan breaks project down into smaller tasks, estimate durations, and establish clear dependencies and milestones.

• Realistic Deadlines
  Deadlines for each task and milestone should be realistic and achievable. Overly optimistic or aggressive timelines lead to schedule slippage (and potentially to financial risk).

• Project Management Software
  Application of project management software allows for efficient scheduling, resource allocation, and tracking of tasks. These tools can provide visibility into project timelines, critical paths, and potential bottlenecks, enabling effective schedule management.

• Monitoring Progress
  Progress monitoring against the planned schedule, involving regularly tracking, and updating of task status, identification of deviations, and promptly addressing issues or delays will help in identifying schedule risks early and taking necessary corrective actions.

• Critical Path Analysis (CPA)
  CPA determines the sequence of tasks that set the overall project duration. Focusing on managing tasks on the critical path and ensuring their adherence to the schedule will avoid delays, which would directly affect the overall project timeline.

• Communication and Collaboration
  Maintaining open and effective communication channels with the project team and stakeholders drives transparency and team commitment. Project schedules, deadlines, and expectations should be regularly communicated to team and stakeholders. Fostering collaboration among team members to address schedule-related challenges will improve the quality of identified solutions in many cases.

• Change Management
  Successful project managers deploy a structured change management process to manage scope changes effectively. They evaluate the impact of requested changes on the project schedule and assess their feasibility before making adjustments. Changes require proper documentation and approval.

Next to project profitability, resource utilization is generally viewed as the most important KPI for project-oriented businesses.

Resource utilization-metrics track the efficiency of resource allocation and utilization in the project, but also across the entire business. They include KPIs like resource utilization rate (identifying “the bench”), availability of key resources, and resource allocation balance.

Measuring resource utilization is an ongoing process. Month-end visibility is helpful to assess overall performance – project work, however, is executed concurrently. Therefore, it is important to establish clear metrics, track them consistently, and analyze the data to identify trends, patterns, and areas for improvement regularly (at least weekly if not daily). Effective resource utilization metrics can optimize resource allocation, improve project performance, and maximize the efficiency and productivity. In the following, I am taking a closer look at some important related aspects of resource allocation – bread-and-butter for any project-driven business.

Time Tracking
Implementation of a time tracking system or software allows project team members to record the time spent on different tasks and activities. Effective time tracking will help identify how resources allocate their time across projects and specific tasks, providing insights into their utilization. Activity buckets should reflect the nature of the project and its breakdown into meaningful task-subsets. They usually include direct time spent on

o Project Management,
o Contract Management,
o (Pre-) Engineering and Planning,
o Software development and PLC programming,
o Installation,
o Testing,
o Other relevant activities like Procurement (if linked to a project directly).

Resource Allocation Rate
RAR measures the percentage of time that resources spend on project-related activities compared to their total available time. This metric indicates how effectively resources are allocated to projects and helps identify any potential over or underutilization on individual basis.
Individuality is particularly important if project success hinges on availability of one or just a few key people with specific skills or capabilities, for example in project management or in specific IT environments.

Resource Availability
Resource availability defines the availability of key resources and their capacity to take on additional work. This can be done through a resource management system or even spreadsheet where you maintain information about resource availability, including vacations, training, and other non-project-related activities.

Utilization Ratio
This metric compares the actual time spent on project work to the available time. For example, if a resource worked 30 hours on project-related tasks out of a total available time of 40 hours, the utilization ratio would be 75%. This metric helps assess the efficiency of resource allocation, past and future.

Projection of utilization rates is essential for planning timelines for new projects. Creating cross-business visibility of actual and projected resource utilization could systematically identify underutilized resource, thus unlock further benefits.

Utilization ratios allow for several secondary KPIs, for example:

– Resource Over-allocation identifies instances where resources are allocated more work than they can handle within the given timeframe. Over-allocation can lead to project delays, decreased productivity, and increased stress for team members.
– Bench Time measures the time when resources are idle or not actively engaged in project work. Bench time indicates under-utilization and can be costly for the business.
– Workload Balance: Resource allocation rates and resource availability enable a business to analyze the workload distribution among resources to ensure a balanced allocation. Uneven workloads can lead to resource bottlenecks, burnout, or under-utilization. Workload balances support assessing the distribution of tasks and workload across team members to optimize resource utilization by entity or across the group.

Any project-driven business should consider a few key metrics related to resource allocation and resource balancing to increase efficiencies, manage project risk and thus improve profitability.

Identification of the right Key Performance Indicators (KPIs) is essential for measuring success and progress of projects, for management and the shareholder. The industry typically assesses various aspects of project performance to provide valuable insights for decision-making and improvement. In a series of contributions on the subject, I discuss a set of typical KPIs used in project-driven businesses, with a focus on resource utilization, schedule adherence and risk management.

Project Profitability & Cash Flow

In measuring the financial success of a project, several KPIs such as gross margin, net profit margin, return on investment (ROI), and cash flow specific to individual projects, hinge on accuracy and availability of relevant data. Relevant data will be sourced from financial systems, but also include a project manager’s assessment of future project expense.

Project Profitability routinely also evaluates how well the project is managing its budget. It includes metrics such as actual project costs compared to the budgeted costs and calculates a cost variance.

Diligence and effectiveness of these KPIs might vary across entities, locations, or groups, unless governed by a strict process that would describe how to measure and assess risk. Common understanding of the corporate approach to estimate future cost and resource needs is essential for a weighted and balanced presentation of a project’s outlook. The result of the process drives PoC (Percentage of Completion), thus is relevant (and auditable) input for the business’ financial results.