Keeping tabs on project management metrics is crucial for optimizing your agency. This article looks at the 11 most important project management KPIs you need to track and why.
Peter Drucker may have said it half a century ago, but the old adage still rings true:
“If you can measure it, you can improve it.”
This is all the more true for project management where you’re usually dealing with a mix of hard and soft data. A robust PM system might tell you how a project is doing at any moment, but it can’t tell you how the organization or its constituent people are performing.
Measuring and monitoring project management metrics fills this gap. Instead of a subjective understanding of your agency’s health, these KPIs (Key Performance Indicators) tell you exactly how business, its projects, and its people are doing.
I’ll cover project management metrics in detail in this guide. You’ll learn the right approach to use when measuring project performance. You’ll also learn the top 11 metrics every agency needs to track.
The Right Approach to Project Management Metrics
Any project management system, however rudimentary it might be, throws up a lot of data. This data can be subjective or objective, individual or team-focused, project-wide or organization-wide.
Embracing this data and using it in your PM strategy helps you in three ways:
- Helps you measure, monitor, and understand the maturity of your organization’s processes.
- Helps you manage resources and projects better.
- Helps you demonstrate performance - a particularly important benefit for project and account managers.
To realize these benefits, it’s crucial that you use the right approach to project management metrics. It’s not enough to measure things; you must also measure the right things in the right way.
How to Choose the Right Metrics
All the metrics you use to evaluate project management performance must be:
1. Simple and relevant
All the project management metrics you use should be:
- Easy to measure
- Easy to understand, and
- Pertinent to your organization and its current goals
Point #1 and #2 are obvious enough. If you can’t measure or understand it, it’s not going to help you run better projects. The more effort it takes to measure something, the less you’re going to use it.
Point #3, however, is even more important. Far too many agencies fall into the trap of measuring metrics that are irrelevant to their business at that particular moment. What might be a key metric for a Fortune 500 company will be entirely useless for a 10-person boutique agency. Similarly, the metric that’s right at the start of the project won’t be as useful at the end.
Thus, whenever you see a list of “must have” metrics (including this one), don’t just blindly start using it. Ask whether it is pertinent to your business, its current situation, and its short and long-term goals.
Only measure it if the answer is a resounding ‘yes’.
2. Accurately measurable
Any metric you measure should be clearly and accurately measurable. Ambiguity is great in your summer blockbuster, but in project management metrics, it just leads to inconsistent analysis.
There are two aspects to accurate measurement:
- The metric you’re trying to measure must be consistent and predictable
- The tools you’re using to measure the metric must have a low error rate
For instance, if you’re trying to measure client happiness, simply asking clients whether they are satisfied with your performance gives you a poor estimate of performance. What’s “good” for one client might be “excellence” for another.
Instead, if you use proven measurement tools such as NPS (Net Promoter Score) that clients might already be familiar with, your results will be much more accurate.
3. Limited and supported by real data
A metric that can’t be explained by data is a poor metric. Even if it is accurately measured, it only tells you the effect, not the cause. Before you select your metrics, ask: Is there data to back this result? Can this data be reviewed and the result replicated?
At the same time, your choice of metrics should be limited in their scope. Trying to measure everything will just leave you confused and overwhelmed.
Instead, make a list of the top 5-10 metrics for your organization. Select these carefully so that they cover only the parts of the business you care about. If your priority is raising revenue, for instance, focus on sales metrics, not operations-focused metrics like utilization rate.
Most agencies follow this best practice. A survey by SoDA (Society of Digital Agencies) that covered 48 different metrics found that none of the metrics was used by all the surveyed agencies. That is, most agencies used their mix of metrics.
It’s important to be deliberate about choosing project management metrics. Don’t just pick to measure anything - even if it’s standard for the industry. Rather, pick only the metrics that impact your business, can be backed by real data, and can be measured accurately.
On that note, let’s look at some of the top project management metrics agencies usually measure. You don’t have to use them all, but this list is a good place to start.
Top 11 Project Management Metrics for Agencies
Before you can start measuring these metrics, make sure that your business has the infrastructure in place for accurate, consistent measurement.
Ideally, you should have:
- Sufficiently mature project management processes that produce reliable, consistent data.
- A way to accurately collect and analyze data. A tool like Workamajig that automatically measures so many data points is of great help.
- A baseline for performance, including industry benchmarks. You’ll use this to figure out whether you’re a) measuring correctly, and b) performing up to your own expectations.
If you do meet these requirements, here are some of the top 11 project management metrics you can use to evaluate your performance:
1. Planned Value
The PMBOK prioritizes Planned Value (PV), Earned Value (EV), and Actual Cost (AC) as three crucial metrics for measuring project performance. Whatever else you might measure, it is crucial that you measure these three metrics at least.
Planned Value, which is sometimes also called Budgeted Cost of Work Scheduled (BCWS), is a measure of the estimated cost of planned activities at any given time.
It’s important to note that this metric focuses on the scheduled value, not the actual value. That is, it tells you the ideal value you should have realized if the project was going 100% on track.
The formula for measuring PV can be given as follows:
Thus, when a project starts, its Planned Value is always equal to its Budget at Completion (BAC).
For example, a project with a budget of $100,000 has a scheduled period of 12 months. After 6 months, 50% of the project’s time has elapsed. Thus, the Planned Value of the project at 6 months would be $50,000 (50% * $100,000).
Measuring Planned Value is easy. You only have to consider the total budget allocated for the project and the project’s completion rate. Any good project management tool should be able to tell you both these figures at a glance.
How it helps: Planned Value isn’t particularly useful by itself. However, when combined with other metrics (see below), it can tell you a lot more about your project performance. Think of it as a baseline KPI that you’ll reuse to measure several other more important metrics.
2. Earned Value (EV)
While Planned Value tells you the scheduled value of the project, Earned Value gives you the actual value. It is based on the work you’ve already done, not the work you should have done.
That is:
For example, a project with a budget of $100,000 has a duration of 12 months. After 6 months, you realize that only 40% of the project is completed vs the estimated 50%.
Your Earned Value, therefore, would be $40,000 (40% * $100,000).
In contrast, your Planned Value is $50,000, i.e. you’re $10,000 behind schedule.
Note that Earned Value is sometimes also called Budgeted Cost of Work Performed (BCWP).
How it helps: Comparing Earned Value with Planned Value gives you a quick estimate of whether you’re behind or ahead of schedule.
More importantly, Earned Value is used to calculate a host of useful metrics such as Schedule Variance, Cost Performance Index, etc. Like Planned Value, think of it as a baseline metric you must calculate for all projects.
3. Actual Cost (AC)
Actual Cost is the third of the baseline metrics alongside PV and EV. This is a measure of the actual expenses incurred in completing all of the work done to date.
Calculating Actual Cost is easy. All you have to do is add up the money you’ve spent so far on the project. This should include everything from salaries to software purchases. A good project management tool should help you get this figure in seconds.
For example, if you’ve spent $10,000 on salaries and $10,000 on materials in a $100,000 project, your Actual Cost is $20,000 ($10,000 + $10,000).
Actual Cost is also called Actual Cost of Work Performed (ACWP).
How it helps: Actual Cost gives you a broad understanding of your expenses on a project. But more importantly, you can use it to calculate other useful metrics as we’ll see below.
4, 5. Schedule Variance (SV) and Cost Variance (CV)
These two related metrics tell you how far the project has strayed from its estimated budget and schedule. Keeping an eye on these KPIs is essential to know if your project is on track.
Let’s look at Schedule Variance (SV) first.
SV tells you whether the project is ahead or behind schedule. The formula for measuring it is as follows:
If the result of the above calculation is positive, it means that you’ve earned more value than planned, i.e. you’re ahead of schedule. If it is negative, you’re behind, and if it is 0, you’re exactly on time.
Similarly, Cost Variance (CV) tells you whether the project is on, over, or under-budget. You can calculate it as follows:
For example, a project with an Earned Value of $50,000 and Actual Costs of $60,000 would have a CV of -$10,000. In other words, the project is over-budget by $10,000.
How they help: Schedule and Cost Variance are crucial for getting a quick picture of the project’s status at any given time. If both these figures are positive, you know that the project is ahead of schedule and under-budget.
These are not particularly nuanced metrics (delays can be for any number of reasons outside your control), but they do a great job of helping you understand the project at a glance.
6, 7. Schedule Performance Index (SPI) and Cost Performance Index (CPI)
These two metrics are related to Schedule Variance and Cost Variance. Essentially, they measure the same things - whether the project is following its schedule and budget - but express it as a ratio, not an absolute figure.
Schedule Performance Index (SPI) can be measured as follows:
Thus:
- An SPI ratio > 1 means that the project is ahead of schedule
- An SPI ratio < 1 means that the project is behind schedule
- An SPI ratio = 1 implies that the project is exactly on schedule
Although SPI measures the same thing as SV, it is easier to understand at a glance.
Similarly, Cost Performance Index (CPI) helps you evaluate how the project is faring in terms of its budget. You can calculate it as follows:
Just like SPI, a ratio > 1 means that the project is under-budget, while a ratio < 1 means that you’re over-budget.
You don’t have to use both SPI/CPI and SV/CV. They both tell you the same thing, but in different formats. Pick whichever is easier for you to understand and retain it throughout the project.
8, 9. Utilization and Realization Rates
Utilization and realization rate are two closely related metrics that track how well you’re using your resources.
Utilization rate is a measure of the utilization of your resources, i.e. the total hours worked for each resource out of all their available hours. You can calculate it as follows:
This is a “raw” metric, i.e. it does not differentiate between billable and non-billable work. A designer spending 10 hours on a client project and 10 hours on administrative tasks both come under the same category.
Utilization rate is expressed as a percentage. Thus, an employee who works 1,500 hours out of all his 2,000 available hours has a utilization rate of 75%.
Realization rate is a more nuanced metric than utilization rate. It is a measure of the total billed hours vs the total available billable hours, expressed as a percent.
Since it focuses on billable hours, realization rate discounts all the time spent in training, administrative tasks, and in-house work.
For instance, a designer might have 2,000 available hours. Of these, 200 hours are scheduled for training, while another 300 are scheduled for in-house work. Thus, the designer has only 1,500 total billable hours.
If you bill the designer for 1,200 hours, you would have a realization rate of 80% (1,200 / 1,5000).
Realization rate can also be used to calculate the Realized Rate for each resource. This is nothing but the realization rate multiplied by the resource’ billing rate.
For example, a resource has a billing rate of $100/hour. However, since you’re only using the resource for 80% of their available time, your actual realized rate is $80 (80% * $100).
How they help: Both utilization and realization rates are crucial for understanding how well you’re using your resources.
Utilization rate tells you whether you have enough work for your people. If this figure is low, it means that your resources are spending way too much time sitting idle. Even if you don’t have any billable work for them, it’s better to get them to work on in-house projects or training to upgrade their skills.
On the other hand, Realization Rate tells you if you’re using your resources profitably. A low realization rate means that your employees are spending way too much time in training, admin tasks, or in-house projects. Your goal should be to maximize your realization rate as much as possible.
10. Project Gross Profit Margin
If there is a metric to rule them all in project management, it has to be project gross profit margin.
This figure is a measure of how profitable each project is and can be calculated as follows:
As you can imagine, the higher the margin, the healthier the agency.
Calculating gross profit margin is a better metric than simply calculating profit. For one, profit is an absolute figure, which is not only difficult to grasp at glance, but is also misleading. You might have a month where you make $100,000 in profits, but your margin is just 1%.
In contrast, gross margin tells you how much of your revenue you’re spending in servicing that revenue. A business with a 50% margin and profits of $10,000 is healthier than one with 5% margins and profits of $50,000. In the former case, you have much more leeway to grow.
It’s a good idea to calculate the gross profit margin for individual projects, clients, and resources. This can help you zero in on your most profitable people and projects.
Try using a tool like Workamajig which will show you all this data at a single glance.
Workamajig shows you the net profit, inside costs, labor hours, COGS and overheads for all projects and clients at a glance.
11. AGI: FTE Ratio
Although not strictly a project management metric, the AGI: FTE ratio is a powerful indicator of an agency’s health.
Here’s what it means:
- AGI or Adjusted Gross Income is your total billings minus your cost of goods, including contractor payments. This does not include expenses on employee salaries. Essentially, AGI tells you how much money you have to spend on your business (including salaries) after paying for all external costs.
- FTE or Full-Time Equivalents tells you how many full-time employees you have. If you have 10 people working full-time, your FTE count is 10. If you add two part-timers working 20 hours/week each, they add up to one full-time employee. FTE traditionally does not include freelancers, but if your agency relies on them heavily, you can also include their total hours towards the FTE count.
Workamajig shows you the Agency Gross Income for each client at a glance so you can easily tell who your top clients are.
AGI: FTE, thus, tells you how much money you’re bringing in for each full-time employee in your business.
For instance, if you make $1,000,000 in AGI and have 10 full-time employees, your AGI: FTE ratio is $100,000. This also means that you have at least $100k to spend on salaries for each employee.
Most healthy agencies have an AGI: FTE ratio of > $100,000. The bigger this number, the better. Of course, the agency’s location and business focus affect this metric, but $100,000 is a good baseline to aim for.
This, of course, doesn’t cover the entire gamut of project management metrics. There are tons of things you can calculate beyond these such as Net Promoter Score (NPS), Resource Capacity, etc. But for most agencies, these 11 metrics are a good place to start.
You can make the entire measuring process much easier by using a data-focused project management system such as Workamajig. Workamajig’s built-in reports automatically calculate all these metrics. You can create reports on the fly to understand exactly how each project and your entire agency is doing.
Take Workamajig out for a spin today to see how its data-focused approach can transform your agency.
