An Assessment of Steve Devaux’s DIPP Indicator

This note presents an assessment of Devaux’s DIPP indicator from his book Total Project Management. 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 TPC provides no references or bibliography, Eq. and Eq. are provided in [[1]]. In both examples the past performance index is used to calculate ETC. As a result there are several issues with Eq. ,

  1. 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.
  2. The units of measure vary through the life of the project. The result is an indicator that is not a ratio of two values drawn from the same time sample.
  3. The indicator has nonlinear behavior over its life cycle.
  4. 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 the elements needed for decision making. The total cost of the project to date. The estimate to complete ETC based on the past performance of the project for various delivery states. The estimated value of the project at various delivery states, EMV. Both EVM and ETC are based on the same statistical estimating processes.

Decision Making

Using DIPP for decision ignores two critical aspects. The past performance of the project and the various ETC’s at each delivery state. Past performance is critical to the estimate to complete, as well as the probability of success associated with each EMV state.

The primary role of any performance index in decision making is to determine the impact of “choices” 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:

  1. Adding or removing a deliverable
  2. Rearranging, postponing, or accelerating deliverables
  3. 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 manager has no basis for validating the Estimate to Complete or assessing the probability of recovering these 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 at completion

All these outcomes are contrary to the roles and responsibilities of the professional project manager.



[1] wInsight Formulas, CS Solutions, www.cs-solutions.com