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Labor - Execution Efficiency ⭐

The Execution Efficiency (EE) is a KPI that tells you whether your team is on track to be in budget or not. In other words, whether the team will meet its Margin Objective on labor. 

It compares how much labor you would have spent of the Execution Budget (EB) based on your current Execution Rate (%EX) to what you a have spent to date.

Project teams should manage their project to achieve and Execution Efficiency 100% or above.

Because it is a percentage, you can instantly assess the financial health of a project, regardless of the Margin Objective.

It is the main KPI that allows you to trigger adjustments of strategy and/or objectives (client approach, margin, scope, ...).

Interpretation

  • EE < 100% - The team will spent more money than expected and the margin generated will be lower than the objective.
  • EE = 100% - The team will spent as much as expected.
  • EE > 100% - The team will spent less money than expected and the margin generated will be above the objective.

Examples

Let's consider a project that has a Labor budget (LB) of $1,000 and a Margin Objective (MO) of 40%. The resulting Execution Budget (EB) is:

Let's consider the following scenarios:


 Scenario 1 Scenario 2 Scenario 3
spent $200 $150 $400
remaining $300 $550 $190
Execution Rate (%EX)
Execution Efficiency (EE)

Let's analyze these numbers and discuss possible actions:


 EE Status Possible Actions
Scenario 1 120% 🎉
  • Increase the Margin Objective
    The team wants to bank the extra margin

  • Invest the additional margin
    The team decides to do more for the client
Scenario 2 86% 🚨
  • Decrease the Margin Objective
    The team considers it will not be able to make for the lost margin

  • Decrease the scope
    Convince the client to do less work in order to decrease the remaining costs

  • Ask for extra budget
    In order to completely or partially make for the lost margin

  • New working approach
    In order to increase the efficiency of the team and make up all or part of the lost margin
Scenario 3 102% 👌
  • Nothing
    The team is executing as planned

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