Projects fail for many reasons – budget overruns, schedule delays, supply chain issues, and scope drift, among others. If you don’t track project health in all key areas, your projects are likely to fall prey to these types of issues and fail. About 54% of all organizations working on projects fail to effectively track their key performance indicators (KPIs) in real time. Understanding KPIs and their value is critical to project success.
When used correctly, KPIs provide valuable insight into the progress of projects against intended goals. But not all metrics are relevant for every project. The trick is knowing which of the many KPIs is most important for your particular project – from those used to measure progress over time, to those that monitor budget, performance, quality of deliverables, etc. Although KPIs are used once your project is underway, establishing the most suitable KPIs for your project should be undertaken during the planning phase before work actually begins.
Here are some important KPIs and when to use them to monitor the health of your projects:
- Budget variance: This KPI measures whether and how much a project’s actual budget differs from its planned budget by determining the distance between baseline expenses or revenue and expected value.
- Cost Variance (CV) (planned vs. actual budget): The CV determines whether the estimated cost of the project is above or below the planned baseline, allowing you to see when you are outside of approved budgets.
- Cost Performance Index (CPI): This compares the budgeted work costs completed with the actual costs spent to measure the effectiveness of project spending.
- Earned Value (EV): EV captures the approved project budget for all executed activities completed on a given date to determine the amount of planned work that was completed versus the budgeted work.
- Number of errors: This KPI identifies when and how often tasks need to be reworked or the number of times a task needs to be redone in a project, which can have a significant impact on project budgets and timelines.
- Percentage of tasks completed: This measures the performance of the project in terms of the number of tasks completed against deadlines as a percentage of the total number of tasks in the project.
- Planned Value (PV): PV estimates the total cost of the remaining scheduled project activities based on a specific reporting date.
- Planned hours vs actual hours: This KPI refers to the estimated duration of a project versus the actual hours it took to complete. This provides clues as to whether you underestimated resource allocation.
- Resource capacity: This is the number of people working on a project as a percentage of their available time. Resource capacity helps project managers allocate resources efficiently to meet a project schedule.
- Use of resources: Resource utilization indicates how effectively your project’s resources are used for billable work, where they spend time, and how often.
- Return on investment (ROI): Return on investment is a recognized KPI in project management. It indicates whether a project is profitable or not and by how much. It measures the money spent on a project against its financial benefits.
- Time difference (SV): This KPI identifies whether a project is ahead or behind schedule and by how much.
Before defining KPIs for your project, it is important to remember that they should be realistic, timely, specific to the project and its objectives, and agreed to by all parties before the project begins.