The DIPP Formula Project Control Flag
An Assessment of the DIPP Indicator
By Glen B. Alleman
Glen's Tip
On Managing Research Projects
For those looking for a starting point for the practical aspects of managing research projects take a look at http://www.cbs.dk/departments/mpp/diverse/wp32000.PDF
This discussion replaces the "scientific" command and control with a "new model project management model for research." A table summarizes some of these differences.
This note presents an assessment of Devaux’s DIPP indicator from his book Total Project Control. The DIPP indicator is given by,
where EMV is the Expected Monetary Value and ETC is the Estimate to Complete. These expressions are:
and
Since the book Total Project Control provides no references or bibliography, these equations Eq.EMV and Eq. ETC are provided in [1] .
There are several issues with Eq. DIPP
- The denominator creates a “divide by zero” error as the project reaches the end and the estimate to complete approaches zero. This is poor behavior of a performance indicator not a ratio of two values drawn from the same time sample.
- The indicator has nonlinear behavior over its life cycle.
- The ETC value in Eq. needs to be the sum of multiple estimates to complete, since EMV is the sum of all possible outcomes. Eq. ’s ETC is a point value with no index i to correlate with EMV’s sum across the indices of possible outcomes.
The primary issue here is that DIPP does not include the sunk costs of the project. Devaux states these are not necessary for the assessment of completion decisions. In fact the estimate to complete is based on the previous performance. The “performance factor for remaining work” is most often derived from the performance of the previous work. Past is a predictor of the future.
The sunk costs are accruals and burden the net profit of the project. Ignoring sunk costs is not only poor financial management it is poor project management as well. The sunk costs must be paid by “someone.” The project manager must consider who and how much is to be paid in assessing future decisions for the project. Ignoring these is like driving in the rear view mirror. It can be done, but not recommended.
Extension to DIPP
An alternative the Devaux’s DIPP can be formulated from the earned value framework.
The Performance Index now contains elements needed for decision making. The total cost of the project to date is captured. The estimate to complete is part of the total cost projection. The estimated value of the project is defined in EMV. Both EVM and ETC are based on the same statistical estimating processes.
Decision Making
Using DIPP for decision ignores the past performance of the project. This performance is critical to estimating the effort to complete, ETC as well as the probability associated with each EMV state.
The primary role of any performance index in decision making is to allow “choices” to be made while determining the impact on the overall project. In this case the economic value of the project.
Cost to date, cost to complete, and resulting value are needed for the assessment of each decision. These decisions may include:
- Adding or removing a deliverable
- Rearranging, postponing, or accelerating deliverables
- Changing the scope of a deliverable
In each case calculating EMV, ETC, and accumulating the sunk costs allow an assessment of the decision on the total project value. A simple arrangement of these parameters are:
| Feature | Costs to Date | Expected Delivery Date | Expected Value at Delivery | Expected Cost to Delivery this Value | Expected Net Delivered Value |
| Feature Set 1 | $300,000 | 90 days | $1,000,000 | $200,000 | $500,000 |
| Feature Set 2 | $300,000 | 120 days | $900,000 | $100,000 | $500,000 |
| Feature Set 3 | $250,000 | 60 days | $750,000 | $50,000 |
$400,000 |
Conclusion
Without considering the accumulated cost of the project (the sunk costs), the project management has no basis for validating the Estimate to Complete or assessing the probability of recovering those sunk costs from the projected project “profit.”
Ignoring sunk costs hides the past from the decision makers, prevents an informed decision and “cooks the books” on the net value of the project.
All these outcomes are contrary to the roles and responsibilities of the professional project manager.
About the Author
Glen
Alleman is Vice President, Program Management for the Information and Network
Services organization of CH2M HILL's Communication Group. Prior to this
position Glen was the Principal Consultant for Niwot Ridge Consulting, where
he specialized in the management enterprise application integration projects.
At CH2M HILL, Glen provides services to Rocky Flats Environmental Technology Site. This work involves program management services for software development, server and network operations, infrastructure installation and removal, as well as telecommunications and wireless devices. Glen B. Alleman < galleman@niwotridge.com>