How to Measure KPI in Project Management Effectively
All projects carry a risk of failure. Those that don’t fail are routinely besieged by scope creep, budget overruns, poor morale, or project delays.
Consequently, multiple projects underperform. Many of these issues may be identified and nipped in the bud early if project managers and relevant stakeholders prioritize and track the right metrics and key performance indicators (KPIs).
While it’s impossible to have a 100% project success rate, you can use data to solve problems before they are out of control and significantly reduce the chances of failure.
A successful project doesn’t go over the budget, is completed on schedule, is satisfactory to and meets the needs of the end users, and has the predetermined features and functions.
In this guide, we do a deep dive into how to effectively measure KPIs in project management so you can make sound decisions based on quality quantitative metrics.
We also share the best project management KPIs and practical tips for effective implementation.
Steps to measure KPI in project management
Are you struggling to come up with how to measure project KPIs? The steps below will provide some help.
1. Define clear and S.M.A.R.T objectives/goals
One of the first steps in measuring KPIs is gaining clarity - clarity of the outcomes to measure. Here, you really need to hone in on the project scope and the implications of every facet of implementation.
Ideally, the project planning phase should have covered the questions you have. If not, there’s no harm in asking for more clarifying questions on project expectations and outcomes, especially as it concerns each stakeholder.
It’s commonplace for different stakeholders to prioritize some KPIs over others because they all have different motivations for the project.
So, it’s vital to ask questions and clarifications from customers, end-users, clients, sponsors, and the project team to define expected outcomes that are reasonable and match the project scope.
It’s the preferred project outcomes you convert to S.M.A.R.T (specific, measurable, attainable, realistic, and timebound) goals or KPIs.
The target is to remove any vagueness from the equation and ensure everyone knows what is being measured and their meanings.
2. Match goals to specific metrics
After identifying the S.M.A.R.T. project goals, the next step is to choose metrics that help you track them. Some standard metrics will tell you how well you're faring regarding budget, resource utilization, cost, and timelines.
However, the metrics for measuring effectiveness and quality are not universal. You must carefully pick them. That's why eliciting the most desired outcomes from relevant stakeholders is super important.
The metrics you choose must help you show stakeholders the project is getting closer to their expected outcomes - or otherwise - within the stipulated budget and timeline.
Effectively, each project is different, and some metrics will be more suited to some than others.
For example, the metrics to quantify the progress of a digital transformation project will differ from those adopted for a software development project.
Not sure which KPIs to adopt? Kippy's AI assistant can help you choose and refine KPIs for your project. Find out how here.
3. Define targets for each metrics
Next, set reasonable and attainable targets for each metric to compare your actuals and expected outcomes. For example, it’s not prudent to set an average cost per hour KPI using wages and salaries below market value. It is not realistic and would likely not work.
In a digital transformation project, a great example will be: “Within the next 18 months, we want at least 75% of employees to have adopted the AI tool for generating ideas.”
You can then further break the target down to have an additional 5-10% of the workforce adopting the tool monthly, depending on when the product goes live.
For every overall target, always have separate targets or milestones at different checkpoints or phases of the project. That’s how you’ll quickly catch performance metrics that are not going as planned.
You may also like: How to Set KPI Targets that Drive Business Growth.
4. Assign ownership and responsibility, and delegate authority
Depending on the scope of your project, you may need to assign some metrics to other team members to reduce your workload. This may not always be the case, but it’s a good option to ensure nothing gets past you.
More importantly, you must empower the team members you’ve given this responsibility. They must be able to make decisions that help the project move forward and can be held responsible for project performance.
5. Adopt the right technology tools for seamless KPI tracking
Choosing the right tool is a critical part of project success for a project manager. In fact, per PMI, it's one of the 12 major mistakes that cause project failure.
Paying for the wrong tool will cost you financially and waste the time invested into getting approval, onboarding, and training.
It's easy to be enticed by well-crafted messaging and convincing sales pitch, but ensuring due diligence should be the hallmark of any project team that wants to succeed.
That due diligence must extend to your technology picks. You must probe the tools by demoing with live data, requesting information, and even client visits, as applicable.
You'll likely need tools for the following, depending on the nature of the project:
Tracking field workers' productivity and schedule
Monitoring inventory levels
Tracking and monitoring KPIs and milestones
Furthermore, the tool you pick for monitoring KPIs must have a notification feature to alert you when metrics hit specific levels.
That way, you're not always glued to your screen and quickly catch sudden drops or spikes. Kippy offers this feature in addition to robust data visualization and reporting capabilities.
You may also like: How to Present Performance Metrics: 9 Tips for a Captivating Delivery.
6. Set up a data pipeline to feed into one system for easy monitoring
Create a single source of truth to facilitate easy monitoring. That means the KPI tool must be able to pull, push, and transform data from multiple sources with minimal technical input.
Kippy offers multiple integration approaches, including Web APIs, spreadsheets, adapters, and more. You can connect to other products like Slack, Zapier, Wrike, Azure DevOps, and Excel.
The next step is to set up the KPIs in the tool and set alerts for each.
7. Choose a schedule for updates and review
From the onset, determine how often to review each metric. With alerts set to capture when KPIs breach or reach specific points, you're best served doing monthly and quarterly reviews in most cases.
You may shorten the review period if you've experienced significantly poor performance to ensure the solutions implemented are working.
You can identify trends, problem-solve, track progress, and ultimately chart a path forward based on insights extracted from the data.
Best KPIs in project management
You can group project management KPIs into four categories: budget or financial, timeline, effectiveness, and quality.
Budget or financial KPIs primarily help project teams compare actual expenditure to the estimated baseline. Timeline KPIs are used to track if a project is ahead, behind, or on schedule.
Effective KPIs show stakeholders how well you use project resources. They help gauge productivity. Lastly, quality KPIs help quantify how well the project meets the predetermined expectations, design, and function.
Below, we share the best project management KPIs across these four categories.
Best budget or financial KPIs
Some of the best budget-related KPIs include:
Cost variance is a measure that subtracts your actual expenditure from your initial estimates. The formula is:
CV = EV – AC
Negative variance indicates that there’s a shortfall, that is, you’re spending more than you budgeted.
Causes of negative variance include poorly planned budget, inflation, uncontrolled factors like a natural disaster, and underestimated labor costs.
Measuring cost variance can quickly help identify cost overruns. You can then implement corrective strategies to reverse the trend.
Earned Value (EV)
Let’s say you have completed 75% of a project with a budget of $10,000. The earned value at that point of the project is calculated as:
EV: (75/100) * $10,000 = $7,500
So, the project EV at the moment in time is $7,500. With this value, you can compare the EV with the actual expenditure or cost at 75% of the project phase.
A negative variance means you haven’t efficiently used the allocated funds.
Some causes of a negative variance include project delays, lots of idle time captured as work, plenty of overtime, ineffective scheduling strategies, and poor hiring.
Poor hiring can cause some tasks to be redone, which incurs additional costs and delays.
Cost Performance Index (CPI)
CPI uses the EV and actual cost to compute a metric. This metric shows how well you’ve outperformed or underperformed the budget. The formula for CPI is:
CPI = EV / AC
So, from our example above, where we calculated an EV value of $7,500, let’s say the actual cost at the 75% mark was $7,800. Then, the CPI would be:
($7,500/$7,800)*100 = 0.96
Thus, for every $1 spent on the budget, you can extract an actual value of $0.96. The closer to 1 the CPI is, the more efficient the project is. You can calculate CPI for the whole project or different tasks.
Planned value (PV) or budgeted cost of work scheduled (BCWS) at any point in the project measures the value of work that should have been completed based on the project schedule. The formula is:
Planned value = Planned % Complete * Budget at Completion (BAC)
For example, if the schedule says you should have completed 50% of a 12-month project by the sixth month, then the PV would be 50% of the total budget.
PV is different from EV in the sense that the former is based on the percentage of work that should have been completed, while the latter is based on actual work that has been completed.
Actual cost (AC)
This metric shows how much you’ve spent on the project to date. While you cannot gain any real insight from this metric alone, combining it with other metrics above helps you identify if the project is behind budget.
Best time KPIs
Some of the best time KPIs for your projects include:
Schedule performance index
The schedule performance index measures how the project’s progress conforms to the planned schedule. It tells you if a project is on schedule or not. Its formula is:
SPI = EV / PV
Let’s look at an example. A project with a $100,000 budget is scheduled to last for 100 days. Per the project planning, 75% of the project should have been delivered by the 75th day.
However, the team has only delivered 50% of the work. The SPI would be:
EV: 50% (actual work completed) * $100,000 = $50,000
PV: 75% (planned work completed) * $100,000 = $75,000
SPI: $50,000/$75,000 = 0.67
SPI is less than 1, so the project is well behind schedule. For the fictional project above, every hour of work paid for only returns 0.66 hours’ worth of work.
The project manager has to ensure employees or workers are not logging incorrect hours or getting away with doing the bare minimum.
Schedule variance (SV) is the difference between the EV and PV, that is, SV = EV – PV. It measures the actual progress you’ve made against the planned progress at a particular project juncture.
A negative value means you’re behind schedule, and a positive number indicates you’re ahead of schedule. Zero shows you’re on schedule.
Resource capacity and utilization
Resource capacity is a KPI that helps you allocate resources better in a way to meet project deadlines.
Imagine having the capacity (labor and equipment) to produce 100 keyboards daily or circa 3,000 monthly.
However, you signed up for multiple projects with a total delivery of 30,000 keyboards in six months. Without hiring more hands and perhaps expanding the production capacity, the company will likely default on all or some of the projects.
So resource capacity can tell you if current capacity will meet the project schedule or if there’s a need to hire more hands.
Similarly, resource utilization shows how resources are used over a specific period. The formula is:
Schedule utilization = scheduled time/ resource capacity
The time to complete any task within a project is known as the cycle time.
In many projects, you’ll have recurring tasks that should take the same time to complete.
For example, if you have 100 rooms of the same size in a building project, painting each room should ideally take the same time.
When workers deviate from the standard cycle time, you must investigate why.
Planned hours vs. time spent
How much time did you budget for each task, phase, or project? How long did they take? The planned hours vs. time spent KPI helps you track this.
It’s simply the difference between planned hours and actual hours invested.
Best quality KPIs
These KPIs are mostly reserved for the end of a task, the project, or the end of certain phases. You can use them to gauge customer satisfaction, employee happiness, and, generally, the quality of work done.
Some of the best quality KPIs for your projects include:
Employee or worker churn rate
A high worker churn rate can hint at a project’s disjointment and inefficiency. This inefficiency usually stems from poor planning or management and poor or unsafe working conditions.
The formula for churn rate is:
(workers who left the project/number of workers remaining) * 100%
A high churn rate will slow down work and ultimately push the project over schedule and budget.
Number of errors
Errors are costly, both financially and time-wise. For every task that needs to be redone, you must record it as an error.
One or a few errors are permissible, especially if it’s random. However, recurring errors with peculiar trends are worrisome.
For example, getting more errors when workers from a certain company are on shift may signify poor skill and experience levels.
Customer or stakeholder complaints
Both internal and external complaints can slow down the pace of the project. You’ll spend an unhealthy amount of time addressing more complaints than necessary.
Best effectiveness KPIs
Some of the best KPIs for measuring effectiveness include:
The formula for billable utilization is:
(billable hours/hours spent doing project work) * 100%
The higher the percentage, the more efficient the project is. You don’t want workers doing work you can’t bill your client for. Every work or task should be income-generating.
Average cost per hour
This metric captures everything it takes to complete a project, ranging from salaries and employee benefits to office space and equipment.
You’re likely not spending the planned budget and time efficiently if the average cost per hour exceeds the budgeted value.
Project milestones completed on time with customer/client approval
Are you meeting major milestones within the scheduled time? Are customers and other stakeholders satisfied with the output? This value helps you answer these questions.
Not meeting project milestones on time might point to issues like poor planning, multiple errors causing delays, and hiring unskilled and inexperienced workers.
Effective tips for measuring KPIs in project management
Maximize project management KPIs by following the tips below:
Tip 1: Account for KPIs during the project planning phase
Accounting for KPIs during project planning helps you lump all your questions, interactions, and comments into one stream. This way is more convenient for your stakeholders than engaging in multiple back and forths.
You can get sign-off on the KPIs to monitor as you’re getting approval for the other elements like budget and schedule.
Tip 2: KPIs are only as good as the quality of data you keep
Poor data entry can skew data results and give you false insights. Incomplete or inaccurate data is equally problematic. It can give you an incomplete view of the project and mislead you if you're not capturing comprehensive data like work breakdown and cost of resources.
As such, ensure there's an easy way to collect and capture data.
Using technology minimizes error. Lastly, ensure team members in charge of data receive the necessary training to help them thrive.
Tip 3: Interpret KPIs with context
Every project involves both critical and non-critical tasks. If you’re not careful, the data from the non-critical tasks may mask inefficiency in more vital tasks.
A prime example of a KPI prone to this obfuscation is the SPI. You may be completing non-critical tasks on time but be seriously lagging on more important ones.
In such cases, the SPI may indicate the project is going at a healthy pace when it actually isn’t.
Tip 4: Combine multiple KPIs to gain more context
Some standalone metrics may not provide any insight that can power critical decisions. But when combined with other metrics, you gain more clarity.
For example, PV by itself doesn’t say much, but when paired with EV, you can gauge how effective and efficient your progress is.
Tip 5: Review all technology tools before purchase
You would be surprised how many projects get delayed because some vendors suddenly went out of business, causing the project to lose data and, with it, the ability to track progress.
Also, reviewing the project before implementation will help you identify if it has all the features and requirements to meet the project's needs.
Additionally, some tools are specifically designed for specific industries. It's important to avoid such tools if your project is not in those industries.
Tip 6: Stick to only relevant metrics
You don’t have to track two dozen metrics to make sense of each project. Stick to only a handful of 7-10 to streamline your work. It takes effort and resources to track, collect, and analyze KPIs.
A limited number of KPIs also keeps your dashboard clearly defined, including only the metrics critical to the project’s success.
Takeaway: More projects completed with better efficiency and resource utilization
The right KPIs add quantifiable values that help project managers track progress, evaluate risks per time, motivate employees, allocate resources better, and make money-saving project-related decisions.
These KPIs provide real-time insights into the nitty-gritty of all projects and allow project managers to identify bottlenecks and impediments and course-correct as necessary.
Schedule a live interactive demo today to see how Kippy can help you track project management KPIs with data from multiple sources.