10 KPIs for Project Managers and Why They Matter
A key performance indicator (KPI) is a quantifiable metric that helps the project manager (PM) determine overall project performance and its alignment with organizational objectives. Success in a project is defined within predetermined budgets, timelines, scope, and quality levels.
While the Project Manager is engrossed in efforts to deliver a project on time and within budget, shareholders are waiting to see if the results fit their strategic goals. KPIs provide a linkage between the strategic objectives and project goals, reducing attrition among project managers, employees, shareholders, and customers.
KPIs can be used as an effective control tool. Instead of waiting until a project is completed to evaluate its performance, the PM measures periodic progress against set targets to determine whether the project is headed in the right direction.
KPIs demonstrate that there are many ways of achieving project success. Here are some of the principal metrics for project managers:
Cost Performance Index
The cost performance index (CPI) measures financial management efficiency in a project. CPI ratios have the following implications:
- The project is said to have underperformed when CPI was less than 1.
- A CPI greater than one means that performance was better than expected.
- Performance was on target if CPI was equal to 1.
CPI fluctuates throughout a project’s lifespan because of variable expenses like wages and prices of inputs. Using CPI metrics, project managers can make decisions that influence the delivery of projects within the budget.
CPI = Earned value (EV) / Actual costs (AC)
where; EV = budgeted cost of work completed; AC = actual expenses incurred
Budget variance (BV) is done periodically to measure the difference between the estimated expenses (earned value) and actual figures. Also known as cost variance (CV), it is used to track expense items within project activities, helping the manager decide how best to allocate the remaining resources for optimal performance. BV outcomes can be summarized as:
- Positive = below budget
- Zero = within budget
- Negative = exceeds the budget
Budget variance is calculated as follows: BV/CV = Earned value (EV) – Actual value (AV)
Profitability (by task, customer, and project)
Determining the profitability of a project is not an easy task, but project managers need to calculate the returns to decide whether a project is viable to the business. It allows them to drop unproductive ventures, steer away from loss-making activities, and get more profitable clients. Profitability should be measured at three levels:
- Profitability by task measures the activities that realize optimum profits for the project. Unprofitable tasks can be dropped or improved to increase profit performance.
- Client profitability filters customer projects so that managers can focus on more profitable ventures or negotiate with clients for higher billable rates.
- Profitability for the entire project is the difference between the amount billable to the client and the total expenses incurred.
Here is a general formula for profitability:
Profitability = Billable amount – Total costs
Billable amount = (Billable hours X Billable rate) + Billable expenses
Total cost = (Hours spent on project X Labor rate) + All expenses
Profitability has the following implications:
Balance > 0 = Profit
Balance = 0 = Break-even
Balance < 0 = Loss
Planned value (PV) is a core component of the cost management plan, and it aims to assign a baseline monetary performance against identified milestones in a project. PV is calculated using the following formula:
For example, a project is scheduled for completion in six months and will cost $10,000. In three months, 50% of the work should be completed. The planned value after this period will be:
PV = $10,000 X 50% = $5,000
The planned value should be calculated before the work begins, as it will be needed to compute the schedule variance and the schedule performance index.
PV = Budget at completion (BAC) X Planned percentage complete
Billable utilization is the ratio of available hours against the hours billable to the client. It measures the time spent on generating revenue and pits it against the expected revenue, so project managers have a way of measuring performance during task execution.
The project manager can set baselines to control utilization. While profitable to the business, maximum utilization could lead to employee burnout, and minimum utilization would make it harder to stay profitable.
Here’s how to calculate billable utilization:
Billable utilization = (Number of billable hours / Number of available hours) X 100%
Schedule Performance Index
The schedule performance index (SPI) is a tracking metric used to measure completion progress against the schedule. It eliminates guesswork and allows the project manager to provide timely improvements to increase resource efficiency. The SPI is a ratio of the planned value to the actual value and is calculated as:
SPI = Earned value (EV) / Planned value (PV)
Earned value is a metric used to quantify the performance of a project during execution. For instance, if a project is expected to be worth $100,000 after completion, and the current works are estimated at 80%, the earned value would be:
80% X $100,000 = $80,000
The SPI, in this case, would be $80,000 / $100,000 = 0.8
If SPI > 1, it means that you are ahead of schedule, and lower than that indicates that the work completed is below what was planned.
Employee Churn Rate
The employee churn rate is the percentage of team members who have left the company. A high employee churn rate might be seen as a HR or management problem only, but it’s not. A high employee churn rate negatively affects project efficiency.
If half of your project team leaves, you will probably have delay, unexpected expenses and, a lower customer satisfaction.
A 0 % employee churn rate is impossible, but an ideal target should lean towards 15% or less.
You can calculate an employee churn rate with this formula:
(Employees who left ÷ Average number of employees) x 100
Resource capacity planning helps project managers to allocate resources where they are most needed to derive maximum value. Effective resource capacity metrics can also aid in:
- Eliminating underskilled resources
- Adjusting project schedules to match the existing capacity
- Allowing rotation of resources across different tasks for optimal output
- Ensuring optimal quality is produced
- Minimizing workforce turnover by matching workloads to competent staff
- Conflict avoidance and better conflict management
- Preventing double allocation of the same resource to different activities happening at the same time
- Identifying skills gaps and planning for upskilling or recruitment ahead of time
The project manager needs to be aware of task priorities within a given grouping to predict resource capacity. Resource capacity planning can be portfolio-based (multiple projects) or project-based.
An accurate capacity estimate should account for breaks and hours spent off the actual tasks, like attending meetings, subtracting this from the hours available.
Resource capacity = Available work hours per day X Total number of workdays allotted to the project
On-Time Completion Percentage
The project on-time completion rate measures the number of projects completed on time. It helps the project manager to track efficiency and improve on it. A good completion metric exposes patterns that help the organization understand issues that make it hard to complete a project within the estimated timeline.
Accurate estimation and execution are essential to any successful project. However, some projects may run behind their schedules because sometimes people underestimate the time needed to complete them. And the organization is bound to lose money every time implementation falls behind.
Correct estimation is a crucial skill for any project manager. Besides understanding the level of detail involved in the undertaking, they need metrics from previously completed projects as a starting point. The goal for any project manager is to achieve a 100% on-time completion rate or be as near as possible to the threshold.
They can also set a lower threshold to signal underperformance. For example, anything below 85% is poor, and 86% or greater is good progress.
On-time completion rate = (Total number of projects completed on time / Total number of projects) X 100%
Planned Hours vs. Time Spent (by task or project)
The planned vs. actual hours metric tracks task progression by accounting for the difference between the scheduled duration and the actual execution time. The project manager can track every employee’s progress against the set targets, where a difference greater than zero indicates good progress, and negative variance shows exceeded timelines. Time management not only helps to align activities but also saves organizational resources.
Activities should be completed without delay for a project to meet its deadlines. If the actual hours spent exceed the planned time, then it either means an employee is unproductive or the scheduled time was underestimated.
Planned vs. Time spent = Estimated time – Actual time spent
Adjust Your KPIs as Needed
While the KPIs listed here are common and effective metrics to track, they may not always work for your business needs. Focus on what’s most important and what you can measure when determining your KPIs.Darshan Somashekar, who runs product at the jigsaw puzzle platform im-a-puzzle, encourages flexibility when using KPIs. “Every project is different, which may mean you need unique KPIs tailored to that project. Be flexible, and identify metrics that move the needle.”
The Ultimate KPI Cheatsheet for Project Managers
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