The title of this blog post may, alas, be a surprise to some less experienced project managers. “What – you mean the critical path might change?” Not only might it change, but if you did a good job of schedule optimization during your upfront planning, it very likely will change!
That’s because time is money and project value is usually increased by a shorter project schedule. The optimization process is usually one of iteratively squeezing critical path drag out of the longest path through fast tracking and added resources, thereby reducing float on the other paths. With less float, it often doesn’t take much delay for a secondary path to become critical, even though the entire project duration is still a lot shorter than it would have been without optimization, and the project will be more profitable.
But when a secondary path becomes critical, lots of important things change. Not only do activities that had drag now have float, but activities that had float now have drag! And drag cost! The basis for our critical path analysis is altered, and should require examination and re-evaluation of all our critical path activities, constraints and resources.
Let’s start by looking at a simple project network diagram as shown in Figure 1:
This diagram may contain info which some readers are not familiar with seeing in a project schedule. First, it includes the output of our value breakdown structure (VBS). As you can see, each box contains a letter, either M or O.
- M stands for Mandatory and means that the activity must be performed as part of the project or the project will have no value. The value-added of all mandatory activities is equal to the project’s expected monetary value (EMV). Since the information at the top of the figure says that the project will have an expected value of $400K if completed on Day 55, and since the current schedule is 55 days, all mandatory activities have a value-added of $400K.
- O stands for optional. These are activities that add value, but the project would have value even if they were excluded. All projects have such activities, and it is important both to recognize them and to estimate the value they are adding to the project. In Figure 1, Activities C, D, E and H are all optional, with value-addeds estimated to be 50%, 40%, 80% and 20%, respectively, of the project’s value.
In Figure 2 below, I have computed the drag, drag cost and true cost (TC) (TC = drag cost plus budget) for all the activities. If you want, do those calculations for practice before you look at Figure 2.
Notice that the planned true cost of activities that are not on the critical path is equal to their budgets, as they have no drag and thus zero drag cost.
With both the value-added and the true cost of each activity computed in Figure 2, we can now compute the net value-added (NVA) (NVA = value-added minus true cost) of each activity and ensure that each is worth performing. This is displayed in Figure 3.
As shown in Figure 3, all the activities have a positive NVA. The lowest NVA is Activity H, which has a value-added of only 20% of the project’s EMV, or $80K, but a TC equal to its budget of only $30K, for a net value-added of $50K.
Okay, so all is hunky-dory and we start the project with this plan. And then things start to happen. To be precise, Activity C, planned to take 13 days and finish at the end of Day 23, takes an extra 7 days and does not finish until the end of Day 30. As shown in Figure 4, this can change everything that’s important!
Suddenly, the critical path has changed and now goes through Activities F, H and I. Additionally, the project’s planned duration has slipped by two days, with a delay cost of $50K per day. As a result, the project’s EMV has slipped to $350K and the value of each activity, both mandatory and optional, has slipped accordingly.
What should happen immediately is that sirens should wail, warning the project manager that Activity H, with a value-added of just 20% of $350K, or $70K, now has a negative NVA due to the fact that it now also has drag of 2 days and thus drag cost of $50K. Its true cost is $80K, $10K less than the value it is adding. Either figure out a way to change the schedule (adding resources or changing the network logic) or jettison Activity I – the project will generate $10K more expected profit without it!
Two final points:
- $10,000 may not seem like much – but this is just an example. Projects are being performed every week that include work which, for the same reason as shown here, costs millions of dollars more than its worth.
- The only way to identify when this is happening is to have all the Total Project Control (TPC) data for both activity value-added and drag cost estimated and computed.
Fraternally in project management,
Steve the Bajan