Why an average of indices measures nothing
Averaging the cost performance indices of several projects gives a fifty-thousand-euro contract the same weight as a million-euro one. The resulting figure matches no economic reality.
Fictional example
| Project | Earned value | Actual cost | Cost performance index |
|---|---|---|---|
| A — small contract | €50,000 | €40,000 | 1.25 |
| B — large contract | €800,000 | €1,000,000 | 0.80 |
| Average of indices | 1.025 | ||
| Ratio of sums | €850,000 | €1,040,000 | 0.82 |
The average shows a portfolio slightly under budget. In reality, for €850,000 of work done, the organisation has spent €1,040,000.
Waterfall therefore applies a single rule: a portfolio quantity is the sum of the projects’ quantities, and a portfolio index or percentage is the ratio of those sums.
A chosen scope, a chosen date
Every portfolio view is computed over an explicit scope: the projects in progress, to which you can add projects being costed and projects completed within a period. It is also computed at a date. At the current date, each project contributes through its current revision. At a past date, it contributes through its latest marked revision before that date, in the state it was in then. You can thus look back at the portfolio as it stood at the end of a quarter.
A project being costed is not yet a project: it may never go ahead. It counts for its amount weighted by its win probability, which the project manager assigns to the offer. Counting it in full would overstate the backlog; ignoring it would understate it.
The portfolio views are read-only. They are open to anyone with the permission, whether or not they contribute to the projects: a project you cannot open counts in the totals and appears in the lists under its label and code, without a link.
What the views show
Portfolio value
- the backlog: the sum of the baseline budgets of projects in progress, what the organisation has signed and not yet delivered;
- the pipeline: the sum of the estimates of projects being costed, gross and weighted by win probabilities;
- the delivered figure: the actual costs of projects completed in the period;
- the win rate: the share of offers that left the costing stage that were won rather than lost.
The aggregated workload plan
It sums the projects’ effort by resource role and by month: the estimate to complete of projects in progress, and the weighted estimate of projects being costed if they are included. Set against the capacity of each role, the load rate flags overloaded months and those below a chosen threshold: enough to decide whether to hire, subcontract or make trade-offs. A department filter slices labour across roles, since a multi-disciplinary project belongs to no single department.
Performance
The aggregated cost and schedule performance indices with their zones, the cumulative variances, the three estimates at completion against the aggregated budget, the distribution of projects by zone, and the trend of both indices quarter by quarter.
Cost structure
The share of labour, materials, subcontracting and provisions, read from the baseline budget and the estimate to complete, and the breakdown of labour by department. Never from spending: the ERP does not break actual costs down by cost type, and Waterfall does not invent that breakdown.
Risks
The total of provisions, the heaviest risks across all projects, the risk matrix filled in by the portfolio, and aggregated coverage: the baseline reserve against the remaining provisions and the cost of risks that have occurred.
The portfolio S-curve
The sum of the projects’ cumulative cost curves: baseline budget, actual cost, estimate and, on request, past and future cash outflows.
Control health
All these indicators are only as good as the reviews that feed them. A final view therefore says whether control itself is being kept up. It flags projects in progress:
- whose latest marked revision is older than the maximum interval between two reviews set in the reference data;
- with identified risks that have not been reassessed since the last review;
- for which no actual cost has been imported since the last review;
- with a contractual milestone past its baseline date without being completed.
This is the view that lets you trust the others.