Welcome to forecasting. In this lesson, we will continue to review our hypothetical project. If you recall from the last lesson, we've calculated the earned value, and then used that value to calculate the schedule variance index, the schedule performance index, the cost variance index, and the cost performance index. These indices indicated that our project was significantly behind schedule and trending over budget. In this lesson, we will learn what we need to do to forecast a final schedule and cost for our project based on our progress to date. First and foremost, if your project has a significant variance in either cost or schedule performance, and especially if the variance is in both areas, you should inform the project sponsor of the situation. Informing the project sponsor is the right thing to do for several reasons. First, no one likes a surprise on a project, either a good surprise or a bad surprise, either one's bad. Second, the project sponsor, like you, is responsible for the project. The earlier he or she understands the situation, the earlier they can get involved and help you figure out a solution to the problem. Potentially, with their experience and access to resources, the project sponsor may be able to help you find a solution that's not available to you. Third, if the situation cannot be rectified, then someone needs to talk to the customer to determine how the variance will impact the viability of the project. Don't assume that they will want to proceed at all costs. Remember the iron triangle. The customer may want to adjust the scope, schedule, or budget, or other variable to remedy the situation. Either just before or just after we inform the project sponsor of the situation, we should complete a forecast of what the likely cost and schedule will be at the end of the project, based on where we stand today. There are three major options to completing this forecast. One, we can complete a bottoms up estimate of the cost and schedule for the remaining scope to complete the project. In this case, we may want to revise our estimates of the unit rates, durations, and resources required to complete the work based on our experience to date. This is the best approach, as it gives you the best picture of how the project will finish. If you take this approach, it should be done after a careful analysis of the issues surrounding the performance, to determine the likely result going forward. One major drawback of this option is that it can take time and also be costly to complete. Using this option may delay any actions based on the forecast, potentially putting the project in a deeper hole or further delaying it. The cost and time to prepare this new estimate will also affect the cost and schedule of the budget, as it can be considered added scope. Second, we can assume that the remaining work will be completed at the budgeted rates and durations. This means taking the cost to date and adding the remaining planned budget to get the final forecast. Or taking the duration to date and adding the planned durations for the remaining activities to get the final schedule. In our case, this is an optimistic assumption. It assumes that whatever issue caused the problem has been resolved, and the project will perform at the budgeted rate. This option gives a quick look at the best-case scenario for the project. It should only be used as the final solution if we understand what happened to cause the delay or the cost overrun, and we know that it's behind us. However, if we're ahead of schedule and/or under budget, this approach will give us a conservative view going forward. We will have captured the savings to date but are not assuming that we can continue to perform at this elevated level. Third, finally we can assume that we will complete the work at the current performance rate. To complete this forecast, we should take the cost performance index and divide it into the current budget to get the new forecasted cost. Similarly, we could take the schedule performance index and divide it into the schedule duration to get the new duration. The results of this approach are opposite of the earlier example. If we're behind schedule and over budget, this will give us a pessimistic view. It assumes that we cannot correct the deficiencies, and we will continue to work at this reduced rate. This is appropriate if we can determine that we just mis-estimated the work in the first place, and this is really close to reality. If we're ahead of schedule or under budget, then this approach becomes optimistic. It assumes we missed the estimate high and our performance will continue to work at this improved rate. Typically, the best answer is somewhere between these two boundaries. Other options we should consider include calculating the performance indices by smaller units to pinpoint the problem area. It may be that you can isolate the issue and only adjust a portion of the project. This approach gives us better insight into the issues we're facing by narrowing the field. And it may also tell you if it is a systematic issue, if you do not find an appreciable performance variation across the project. All of this is good information to help you, the project sponsor, and the customer decide on the next steps. You might also plot SPI and CPI by area as a function of time. The trends will give you insight on how the performance has varied over time. This might tell you if we had climbed a learning curve and the problem has been addressed. Using a plot of the performance over time, tells us if the issue is persisting over a long period of time, or whether there was an isolated event. This information can inform our decision on how to proceed with the forecast. Next, review the scope against the actual work completed to understand if there's been undocumented changes. Change orders to the budget will impact the performance indices. Many times, poor performance indices are an indicator of scope creep. If the project has been undergoing undocumented change, then it will show up as poor performance. This is where a complete project scope statement and a good estimate basis can help us uncover changes versus the baseline. We should also review the critical path to see how the work is progressing. The critical path is the key schedule item. If the critical path is being maintained, then there's a chance that we're eating up float, but that the final schedule will be maintained and we can complete the project on time. However, if this is the case, do not relax. Continued slippage in non-critical areas can easily throw them onto the critical path. All it means is that you have time to address the issues before the final schedule is impacted. On the other hand, if the critical path is behind schedule, then we need to look for a new execution strategy and replan the work to try to bring it back on schedule. A delay in the critical path indicates a real issue. So in this module, we've learned about earned value management, and how to use it to determine whether we were on schedule and on budget for our project. Earned value analysis gives us a more objective look at the status of our project. It also provides some tools to help us forecast the final cost and schedule for the project. Now before we leave this module, we want to calculate the earned value for the Wilmont's Pharmacy drone project, and determine if we are on schedule or not. In the next lesson, we'll discuss this assignment and set you up to complete this calculation using the information you have put together so far.
