Setting Appropriate Traffic Light Thresholds
Project reporting often uses traffic light indicators (green-yellow-red) to present status. The colors usually represent variance of actuals from the baseline plan. This article describes how to associate percentage ranges with traffic light colors for several project conditions.
Quick refresher on traffic light status: Green means all is well. Yellow indicates caution. And red is danger, danger! Green might be less than 2% over schedule. 2% to 5% over schedule is yellow. And greater than 5% over schedule is red.
Here are ways to set traffic light indicator ranges for different purposes.
- The priority of the triple constraints. Each project will prioritize the standard constraints of cost, time, and scope. If you must make changes to meet a government legal compliance mandate, time and scope will be critical to avoid legal penalties. In a market where the organization needs to stay ahead of the competition, scope might be a top priority, so the product stays best-in-class. If delivering a project for a client on a fixed-fee basis, cost can become the highest priority. For example, if there’s a penalty for missing a compliance deadline, you would set up a traffic light indicator for schedule variance with a low percentage for red, such as greater than 2%.
- The consequences of missing critical constraint targets. The time and scope percentages could be broad (5% to 10%, for example) if the organization only pays a $10 penalty for a missed legal compliance mandate. On the other hand, with a $10 million penalty for a missed government deadline, the time and scope percentages should be narrow (0% to 1%), because you don’t want to miss that deadline. The red light comes on with the smallest slip in schedule, so you have early warning to work on getting the project back on track.
- The team’s familiarity with the tools and processes they use. When the project team is familiar with the context and tools they will use, narrow traffic light percentages are reasonable, because the risk of delays from unfamiliarity is low. However, you must factor in the learning curve when new tools or processes are being developed. With unfamiliar new tools and processes, broader percentages are appropriate because the team might spend more time experimenting or back-tracking. Because narrow percentage ranges convey confidence in the estimates, you want broad ranges in this situation, so stakeholders recognize the uncertainty within the project. The broad ranges (5% to 10%) indicate that things might change.
- Industry standards and expectations. Specific industries have generally accepted variances for project constraints. For example, the construction industry utilizes variances to accommodate unpredictable weather patterns (up to 15% in many cases). Manufacturing, which is much more controlled and predictable, often sets percentage ranges no greater than 5%.
- Stakeholder expectations. Organizational history and strategy elements may dictate stricter compliance to constraints, and thus narrower percentage ranges. Alternatively, plan to hold up-front discussions if percentages are broader than usual to explain the rationale for the variance range.
If you use traffic light indicators on your projects, consider whether you would adjust the variance ranges due to the preceding conditions. And think about other conditions that might affect the ranges you choose.
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