That seems easy. So far so good. But in what category would you place some more complex indicators such as CPI, IRR, ROI etc.?
Below is an exercise. There is an indicator on the left and the "rule" to be filled in in the rightmost column. Would you know the answers? If it's bigger, is it actually better or worse?
Don't look at the results lower below straight away.
Indicator

Explanation

Rule

CPI  Cost Performance Index  
SPI  Schedule Performance Index  
CV  Cost Variance  
SV  Schedule Variance  
IRR  Internal Rate of Return  
ROI / ROR  Return on Investment aka Rate or Return  
NPV  Net Present Value  
CBR  Cost Benefit Ratio  
BCR  Benefit Cost Ratio  
PP  Payback Period  
TCPI  To Complete Performance Index 
Indicator

Explanation

Rule

CPI  Cost Performance Index  Max 
SPI  Schedule Performance Index  Max 
CV  Cost Variance  Max 
SV  Schedule Variance  Max 
IRR  Internal Rate of Return  Max 
ROI / ROR  Return on Investment aka Rate or Return  Max 
NPV  Net Present Value  Max 
CBR  Cost Benefit Ratio  Min 
BCR  Benefit Cost Ratio  Max 
PP  Payback Period  Min 
TCPI  To Complete Performance Index  Min 
It becomes even more interesting when you start evaluating trends.
What if you had a run chart with positive Cost Variances going down on a curve? Is that good or bad? And what if you had a similar run chart with negative Cost Variances on a curve that goes up? Is this good or bad? It turns out that as far as variances are concerned, "the smaller the better" rule is applied here but in absolute terms which means disregard any plus or minus signs. Then, the closer to zero it is, the better it is regarded.
And how about evaluating an outcome by many different criteria some of which are of "maximizing" nature and some of which are of "minimizing" nature? There are methodologies such as Analytic Hierarchy Process (AHP) that can synthesize several weights into one overall weight thus producing a rank for each evaluated alternative. It converts minimizing criteria into maximizing ones for the purposes of the overall synthesis. More on AHP <<here>>.
No comments:
Post a Comment