Effective resource planning is an important part of any process improvement program. Formalizing processes and developing measurement systems helps to determine the value of internal projects from a human capital perspective. A measurement system for effective resource planning in implementing project goals may be particularly helpful for information technology (IT) divisions of companies.
Developing a Measurement System
A first step in defining the measurement system must be establishing formalized processes for resource planning. Practitioners should gather and analyze the business requirements within the process to determine deficiency input points. This can be done using process flow diagrams of both current, or “as is,” and modified, or “to be,” processes.
Next, practitioners should determine critical-to-quality (CTQ) requirements for project task deliverables. Metrics for evaluating resource planning processes consider these CTQs. Once CTQ characteristics are identified, the cost of poor quality (COPQ) can be determined. A project skills matrix and a failure mode and effects analysis (FMEA) for resource planning can be used to capture data for measurement. Then practitioners can identify the defects per million opportunities (DPMO), a number that can be converted to a sigma level. The sigma level will focus on measuring and eliminating defects in core resource planning processes.
Identifying CTQ Variables
In evaluating project resourcing planning, the earned value management model can be used in defining CTQ variables. In order to evaluate performance, practitioners can use a general variance model, in which the actual resource cost is compared to the standard budget for a given project, to examine the cost of a resource in terms of hourly amount, hours utilized and scheduling. When actual utilization in terms of cost and scheduling exceeds the standard budget, it is deemed unfavorable.
Within the variance model framework, a resource manager should construct a CTQ FMEA template that is applicable to staffing requirements outlined in the Define phase. The CTQ specifications should be stated, and measures devised. Variables can be associated with defect opportunities (Table 1).
|Table 1: Example of CTQ Requirements|
|Set up server hardware||Resource skill||Hardware malfunctions due to incorrect setup four times|
|Install and configure Oracle on server||Resource skill in specialty area||Incorrect settings in system global area four times|
|Post go-live application support||Resource training relevant to skill||Incorrectly diagnose problem as user training issue when in actuality it is an application bug three times|
The conversion of actual defects in task delivery to DPMO will derive a sigma value denoting either organizational excellence, satisfactory performance or unfavorable results. Practitioners can compare sigma values at the start and end of the project to determine improvement gains. A sample of a CTQ measurement is illustrated in Table 2.
|Table 2: Sample CTQ Measurement|
|CTQ: The customer will tolerate up to four hardware malfunctions due to incorrect setup||Defects: Hardware malfunctions four times
Units: 196 (47 file servers x 4 setup errors)
Opportunities: 1 per file server
Process sigma: 2.81
|Two system engineer resources, A and B, are assigned to task: Resource A sets up 23 file servers over a period extending beyond the planned 10 workdays (13 workdays actual). Resource B sets up the remaining 24 file servers under the planned 10 workdays (9 workdays actual). Six file servers that Resource A sets up experience malfunctions due to incorrect setup.||Resource A caused a cost and schedule variance and failed to meet CTQ requirements six times.
Defects: Hardware malfunctions six times
Units: 138 (23 file servers x 6 setup errors)
Opportunities: 1 per file server
Process sigma: 2.14
|Identify opportunities for Resource A to improve server set up ability through training or journeying.|
Quantifying COPQ in Resource Planning Processes
There are many causes that affect COPQ: demand constraints, labor cost to fix problems, cost of lost opportunity, underutilization, loss of sale or revenue, and lower service level to customers. Table 3 describes these causes from a resource planning perspective.
|Table 3: Poor Quality Causes in Resource Planning|
|Poor Quality Cause||Description|
|1||Underutilization of resources is also termed spoilage in Six Sigma. It occurs when there is inconsistence or inefficient processes.|
|2||Reworking a deliverable due to wrong resources skill applied involves the labor to repair the defect.|
|3||Additional resources includes any burden of consumption of resources in order to accommodate an unforeseen step in project deliverables.|
|4||Lost opportunity is the loss in business of a failure. Included are the loss of margin and the capital to be invested for regaining lost revenue to offset the cumulative revenue loss.|
|5||Lost revenue due to poor quality considers the loss of new business due to defective quality in a deliverable.|
|6||Poor customer satisfaction is the sum total of all COPQ. Cost is compounded by losses customers suffer due to defective quality in a deliverable.|
The calculation of COPQ uses weighted risk for potential failures. It considers an estimation of four components:
- Probability of occurrence for each failure
- Potential severity of each failure
- Current detection provisions
- Resolution cost of a single failure
|Table 4: Sample COPQ Measurement|
|Goal: Reduce Customer Dissatisfaction Incidents Due to Resource Related Project Failures by 75|
|No.||Potential Resource Deficiency||Risk Priority Number||Effort Hours to Resolve||Average Cost Per Hour||Average Cost to Resolve||RPN x ACR|
|1||Right skilled but underutilized in project task||30||10||$90.00||$900.00||$27,000.00|
|2||Wrong skill to repair defect||27||40||$48.00||$1,920.00||$51,840.00|
|3||Added resource due to scope creep||27||56||$240.00||$13,440.00||$362,880.00|
|4||Loss of business opportunity due to downtime (daily revenue = $10,000)||18||40||$416.67||$16,666.80||$300,002.40|
|5||Lost revenue due to resource incorrectly working project task||21||10||$4,166.70||$41,667.00||$875,007.00|
|Formula 1: Weighted average cost to resolve = (RPN x ACR)/RPN = 1,616,729.40/123 = $13,144.14|
|Formula 2: COPQ (annualized) = Weighted average cost to resolve x annual reduction in resource related project failures
13,144.14 x 75 = $985,810.50
The connection of COPQ to DPMO means that poor quality costs are proportional to sigma levels. The yield should be compared to the cost of quality in the finished project deliverable. The sigma level correlation to DPMO and cost of quality is stated as percentage of revenue (Table 5).
|Table 5: Sigma Level, Value, DPMO and Cost of Quality Percentage|
|Sigma Level||Range Value||Yield||DPMO||Cost of Quality Percentage|
|2||Unfavorable||—||298,000||More than 40%|
|6||Organization excellence||99.99966%||3.4||Less than 1%|
Control System Benefits
A performance measurement system enables management to plan and make decisions. The approach identified here provides a control system that aligns practical standards against ideal, or perfect, conditions. Standardization provides performance baselines for control efforts in budgeting and planning of resource allocation. From here, practitioners can devise a simple formula that compares actual costs in resource allocation against the baselines. Variances should be noted to determine the extent of favorable and unfavorable outcomes. The data used to derive costs can be maintained in the project management application for creating reports and scorecards.