In recent articles, I have written about the value breakdown structure (VBS) and tried to show the benefits it offers to both program and project. One of the most important of these is the ability to align the business benefits that the sponsor/customer/program manager wants to the products and work that will create those benefits.
The VBS may be created for projects within a program or for work packages and/or activities within a project. Once the upper levels of the plan (i.e., the major summary elements of the work breakdown structure) have been conceived, communication between the sponsor/customer/program manager and the project manager/team should start, ensuring that the planned elements will in fact create the desired benefits as well as prioritizing the elements.
The initial stage of prioritization is between mandatory and optional work.
- Mandatory work is that which must be performed or else the project/program will have no value. The value-added of mandatory work is therefore equal to the expected monetary value (EMV) of the entire project/program.
- Optional work will add value to the project/program, sometimes great value – but the rest of the work would have value even without this particular item. The value-added of optional work is therefore equal to the difference in EMV of the entire project/program with and without this particular product or work item.
Ultimately, it is the optional work that can provide “wriggle room” when the project is being performed – but also can cause lots of mischief, either by being omitted when it shouldn’t be or included when it should be omitted. In other words, optional work often requires decision-making. This is one reason why the MoSCoW method, which simply separates optional work into Should, Could, and Won’t categories, is insufficiently granular. If we are deciding whether or not to invest in a specific element of work, we need a monetary estimate of both its value and its cost.
In the last article, we defined the concept of the true cost of work (TCW) in a program or project:
- If a work item is on the critical path, its true cost is the sum of its resource costs and its drag cost, the latter being the value/cost of the time that the work item’s duration is adding to the critical path.
- If an activity is off the critical path, its drag and drag cost are both zero, so that its TCW is only the cost of its resources.
This important distinction means that one can have a situation where a valuable (“Should”) work item ought to be omitted in favor of a low value-added (“Could”) work item, if:
- The Could item is off the critical path with a value-added of $40,000 and a resource budget of $20,000; and
- The Should item is on the critical path with a value added of $200,000, but with a resource budget of $30,000 and drag of three weeks at a drag cost of $60,000 per week.
Remember: chances are that the sponsor/customer/program manager will not know the details of the work, in terms of schedule and cost, two levels down from them. That is why this example is crucial in demonstrating how important it is that the project manager/team, who should know such details:
- Understand the desired benefits of the work;
- Understand how the components/work items are aligned with those benefits;
- Understand the relative priorities of those components/work items in monetized value-added terms (i.e., the VBS);
- Understand the monetized value/cost of time on the project/program;
- Perform critical path analysis up front and periodically during execution, including
- Computation of critical path drag and drag cost; and
- Ensure that no work is costing more than the value it is adding.
The sponsor/customer/program manager will not have this information; only the project manager and team will. Therefore it is of utmost importance that the sponsor/customer/program manager ensures that the project manager and team have the information, knowledge and skills (each as enumerated above) to ensure that the desired benefits are generated without wasted effort and money.
Unfortunately, what percentage of sponsors/customers/program managers know how to do this?
In my next blog article, I plan to show how to use the VBS information in combination with schedule data in a network diagram that includes critical path drag, drag cost, and true cost to determine when an optional activity goes from value-added to value-subtracted.
Fraternally in project management,
Steve the Bajan