Financial Metrics Used In Project Management

Important Financial Metrics for Project Managers

The main objective of any organization is to continue to improve profit margin. Continuous improvement process (CIP) also known as continuous improvement (CI) involves the process of product and service improvement.

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To determine whether there are improvements and tracking these improvements requires standard of measures called metrics. Financial metrics for project management helps organizations focus on the right directions though building predictability and improving the process of decision making.

 

Financial metrics for project management helps project managers to:

a)    Access the status of an outgoing project based on schedule, cost and profitability.
b)    Forecast on any potential financial risks.
c)    Identify and resolve any problems before they become severe.
d)    Keep track on the profitability of the projects.
e)    Assess the project management team productivity.
f)    Asses the quality of the project work products to be delivered.

 

The following are financial metrics for project management

 

project management financial metrics

 

Schedule effort or cost variance metric

The aim of this metric is to measure performance and progress of a project as per given baselines. This metric is basic for profitability of the project. The Earned Value Management (EVM) concept tracks this metric. It integrates scope, cost and schedule measures of a project. Project performance is used to elaborate the expected costs and duration for project completion. It uses actuals from past performance to forecast more accurately future performance.

 

The EVM develops and monitors three key dimensions:

1.    Planned Value (PV) which tries to ascertain the total expenditure you expect for a given project. PV contains authorized budget for the work to be accomplished. Total PV is also referred to as Budget at Completion (BAC) and is equal to (Planned % Complete project) × (BAC)

2.    Earned Value (EV) is the value of performed work expressed in terms of approved budget assigned to that work. It represents completed authorized work against authorized budget. Therefore EV also known as the Budgeted Cost of Work Performed (BCWP) is how much you intended to spend for the work you actually did.

3.    Actual Cost (AC) is the total cost incurred and documented in accomplishing work performed. AC also known as Actual Cost of Work Performed (ACWP) is the actual amount spent for the actual work accomplished.

 

Productivity and resource utilization metric

This metric aims at measuring productivity of resources involved in the project. It helps project manager asses the over-utilization and under-utilization cases.

Budgeted effort involves the billable work of resource. Over or under-utilization if any indicated by this metric, impacts greatly on the profitability of the project.

 

Change requests to scope of work metric

The entire project planning and development is based on signed scope baseline with customer. Any change has to be done in controlled manner. The change request have to be approved by internal Change Control Board (CCB) and the impact on cost established.

 

Quality and customer satisfaction metric

Quality assurance is a very significant consideration in any project management. Quality consists of the number of severe, medium or low defects delivered during the project actualization. Customer satisfaction depends on the quality of work delivered and how fast reported defects are resolved.

 

Gross margin metric

Gross margin metric is the major metric in determining success of a business. Given that the main objective of project execution is to bring revenue to the organization, establishing total expenditure against your revenue is very important. The gross margin is the difference between revenue and expenditure on the project.

 

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