Understanding Program Resource Management through Earned Value Analysis

1
Understanding Program Resource Management through
Earned Value Analysis

• Reading the Abba Charts
• Wayne Abba
• PMI WDC Tool Time, July 18, 2006

Abba Consulting
2
Agenda

• Earned Value Management and Resource Management
• Essential Data Elements and Graphics
• Earned Value Analysis
• EVA Scenarios
• EVA and Funding Status
• Baseline Management
• Summary

3
Resource Management

• Earned Value Management Resource Management
• Resources are labor, material and other direct
  and indirect costs required to execute the
  program
• FAA applies EVM at Program level to include prime
  and subcontractors, government FTEs, support
  contractors
• Managed in dollars, hours, or any measurable unit
• Cost and schedule data summarized directly from
  contracts and programs for management and
  reporting at all levels

4
EVM Terminology and Resource Management

• - Approved baseline time-phased plan for
  resources to be consumed (e.g. 100 hours)
• - Work accomplished in terms of planned
  resources(e.g. 100 hours)
• - Actual cost of the resources consumed(e.g.
  120 hours)
• - Reconcilable to accounting system

• Budgeted Cost for Work Scheduled
• Budgeted Cost for Work Performed
• Actual Cost of Work Performed

Assume basic understanding Earned Value
Management Concept and Terminology
5
Agenda

• Earned Value Management and Resource Management
• Essential Data Elements and Graphics
• Earned Value Analysis
• EVA Scenarios
• EVA and Funding Status
• Baseline Management
• Summary

6
EVM Trend Analysis Cumulative
Time Now
Prog Budget
Management Reserve
ACWP (Actual Cost)
Resources
BCWS (Planned Value)
Cost Variance
400
Schedule Variance
BCWP (Earned Value)
300
200
100
Time
?
M
F
Approx. Time Variance
7
EVM Trend AnalysisCost/Schedule Variances
ManagementReserveConsumption
Favorable
Schedule Variance at Completion
0
Unfavorable
Cost Variance at Completion
Time
Schedule Slip
Cost Variance ---
Schedule Variance
8
Agenda

• Earned Value Management and Resource Management
• Essential Data Elements and Graphics
• Earned Value Analysis
• EVA Scenarios
• EVA and Funding Status
• Baseline Management
• Summary

9
DoD Experience

• A-10
• A-12
• B-1
• B-2
• C-17
• DDG-51
• F-18
• F-22
• C-130H J
• Chinook
• Apache
• Longbow
• Blackhawk
• Kiowa
• Seahawk
• Comanche
• T-45
• T-46

• CVN-68
• SSN-21
• SSN-688
• SSN-774
• T-AOE-6
• LHD-1
• Crusader
• M1
• M2/M3 FVS
• MK-48 ADCAP
• MK-50 ALWT
• SSBN-726
• CG-47
• MH-53
• V-22 Osprey
• P-3 Orion
• RCAS
• LIF Hawk

• B-1 Engines
• F-414-GE-400 Engines
• Chem. Demilitirization
• D-5 TRIDENT II
• Javelin
• Pershing II
• FAMECE/UET
• Satellites
• AN/BSY-2
• THAAD
• ABL
• GBL
• Aggregate overrun 5.5 on 115 largest DoD
  contracts (3.0B on 84.8B _at_ 60 complete),
  adjusted for over target baselines a/o 4/30/2000

OUSD(ATL)ARA/AM, 1/16/01
10
Earned Value Analysis

• Earned Value Analysis Understanding the
  relationships among the EVM data elements
• EVM discipline provides confidence
• Contractor and PM management systems are adequate
• Data are summarized from the Control Account
  level, where technical/schedule/cost integration
  occurs
• Use the data for management and oversight
• Data quality becomes self-policing
• Ask questions be an informed, critical consumer

11
Planned Resource Consumption
Program Budget M
40
Management Reserve
35
30
25
Resources
BCWS (Planned Value) Time-Phased Plan for
Consumption of Resources Typical S Curve
20
15
10
5
?
F
M
A
M
J
J
D
A
N
S
O
Time
12
Integrated Baseline Review (IBR)Does Planned
Resource ConsumptionMake Sense?
Program Budget
Resources
Front Loaded
Normal
400
End Loaded
300
200
100
Time
M
F
13
Baseline Extremes Front-Loaded

• Rapid start
• Most resources to be consumed early in plan
• Questions
• What is basis for plan?
• Are resources available?
• Do IBR and review supporting documentation

14
Baseline Extremes End-Loaded

• Slow start
• Most resources to be consumed late in plan
• Questions
• What is basis for plan?
• Is schedule realistic?
• Do IBR and review supporting documentation

15
Normal Baselines

• Normal S curve for planned value
• Questions
• Is scope fully and mutually understood (using
  WBS)?
• Does the baseline capture all work?
• Labor resources
• Are in-house resources available and adequate?
• Are contractor resources available and adequate?
• Material resources
• Are contracts awarded/planned?
• Is the schedule logical and complete?
• Risk management
• Is Management Reserve adequate given expected
  risk?

16
Normal Baselines contd

• Management System
• Does management system meet ANSI EVMS guidelines?
• Are managers trained?
• Are EVM techniques objective?
• Is Level of Effort scope properly categorized?
• The Bottom Line
• Does the program have an executable plan that
  integrates scope, planned cost and schedule
  resources and risk?
• If no, go slow better to do it right than to
  fail

17
Time - Based Planning Horizons
Rolling Wave 2
Rolling Wave 3
Rolling Wave 1
ProgramBudget
Resources
Initial detail planning (6 Months)
400
300

• Future work in planning packages
• Detail planning based on calendar
• Arbitrary

200
100
Time
S
D
M
J
D
M
J
S
18
Event - Based Planning Horizons
Critical Design Review
Preliminary Design Review
ProgramBudget
Resources
Initial detail planning

• Future work in planning packages
• Detail planning based on technical objectives
• Facilitates event-based reporting incentives
• Better integration of technical, schedule and
  cost performance and risk management

400
300
200
100
Time
S
D
M
J
D
M
J
S
19
Agenda

• Earned Value Management and Resource Management
• Essential Data Elements and Graphics
• Earned Value Analysis
• EVA Scenarios
• EVA and Funding Status
• Baseline Management
• Summary

20
Earned Value Analysis Scenarios
The Ideal
Portfolio Management
Early Warning Indicators
Know How to Get Help
21
Schedule Slips

• Problem indicators
• Early, large and unfavorable schedule variance
• Front-loaded baseline
• Zero variance
• Too good to be true
• Slow resource consumption
• Cant get there from here

22
Unfavorable Schedule Performance
Time Now
Prog Budget
BCWS (Planned Value)
Schedule Slip
Resources
400
Schedule Variance
BCWP (Earned Value)
300
200
100
Time
?
A
M
J
J
J
F
M
A
23
Unfavorable Schedule Performance
Time Now
Schedule Variance at completionis zero
bydefinition-even if programcompleteslate
Favorable
0
Unfavorable
Time
Schedule Variance
Schedule variance should supplement real
schedule analysis
24
Cost Overruns

• Problem indicators
• Early, large, unfavorable schedule variance
• Time is money
• Unfavorable cost variance
• Front-loaded baseline
• Zero variance
• Too good to be true
• Excessive resource consumption
• Cant get there from here

25
Unfavorable Cost Performance
Time Now
Prog Budget
Management Reserve
ACWP (Actual Cost)
Resources
BCWS (Planned Value)
Cost Variance
400
BCWP (Earned Value)
300
200
100
Time
?
M
F
26
Unfavorable Cost Performance
Time Now
Favorable
0
Unfavorable
Time
Cost Variance ---
27
Evaluating Future Performance
Time Now
Favorable
0
PM Varianceat Completion
Unfavorable
Time
Cost Variance ---

• When/how will performance improve?
• Review at appropriate time
• Tie PM evaluation to predictability

28
Evaluating Future Performance
Time Now
Favorable
0
PM Varianceat Completion
Unfavorable
Time
Cost Variance ---

• When/how will performance improve?
• Review at appropriate time
• Tie PM evaluation to predictability

29
A-12 Contract Front Loaded

• Large unfavorable variances
• Connect the dots
• Front-loaded Baseline
• (or completion date is wrong)
• No work planned 93 96?

30
A-12 Contract Actual Cost vs. EAC

• Contractor and PM EACs both imply no cost
  accrual for several years during key
  manufacturing/test phases
• Realistic EAC off the chart

31
Excessive Optimism

• Problem indicators
• Future performance predicted to be significantly
  better than historical performance
• Variance trend analysis
• Cost Performance Index compared toTo Complete
  Performance Index (CPI vs TCPI)
• Actual trend and implied future trend diverging
• One of most powerful EVA techniques
• Independent EV analysis balances PM bias

32
A-12 Contract Optimistic EACs

• Contractor estimates program will begin to
  underrun
• PM estimates all problems will be resolved
  and no new problems will occur
• Realistic EAC variance off the chart

33
Super Hornet Cumulative Trends

• Cost-type contract
• Significant cost risk

• No variances
• Too good to be true?
• No scope change
• Effective planning
• IPTs used EVM effectively
• Excellent performance

34
Super Hornet Variance Trends

• Substantial Management
• Reserve

35
Past vs. Future Efficiency CPI vs. TCPI
Time Now
TCPI
EAC Efficiency Index
CPI Cum
CPI Current
gt1.0
1.0
lt1.0
Time
36
Confidence in EstimateCan program complete at
PMs current estimate?
Adapted from USAF
37
Zeroing in on the EAC
Contract Budget PM Estimate Independent
High Independent Low
20.8M 20.8M 23.3M 22.0M
19 20 21 22
23
Contract FAA XXX Contractor FAA
Contractor as of April 2006
Adapted from USAF
38
Agenda

• Earned Value Management and Resource Management
• Essential Data Elements and Graphics
• Earned Value Analysis
• EVA Scenarios
• EVA and Funding Status
• Baseline Management
• Summary

39
EVA and Funding Status
Time Now
Prog Budget
BCWS (Planned Value)
Resources
400
ACWP (Actual Cost)
Approved/Planned Funding
300
200
BCWP (Earned Value)
100
Time
D
M
40
Profitability Analysis on Flexibly Priced
Contracts
Cost Variance levelsrelated to
Time Now
Favorable
Min/MaxFee
0
Cost Sharing
Unfavorable
Contractor Loss
Time
41
Profitability Analysis on Flexibly Priced
Contracts
Cost Variance levelsrelated to
Time Now
Favorable
Min/MaxFee
0
Cost Sharing
Unfavorable
Contractor Loss
Time
42
Agenda

• Earned Value Management and Resource Management
• Essential Data Elements and Graphics
• Earned Value Analysis
• EVA Scenarios
• EVA and Funding Status
• Baseline Management
• Summary

43
Baseline Discipline

• Effective performance management requires
  disciplined baseline management
• Initial baseline reflects go-ahead decision
• Scope, schedule, resources, risk
• Approve baseline changes to
• Revise work scope (increase or decrease)
• Restore meaningful performance management
• Manage funding reductions (salami slices or
  prioritized cuts?)
• Balance scope, schedule, cost, risk assumptions
• Do not approve baseline changes to
• Get to Green
• Eliminate cost and schedule variances

44
Baseline Discipline
Time Now
Program Budget
BCWS
ACWP
Resources

• No Variances
• Lack of definition and discipline
• Baseline schedule growth preclude
  measurement

400
300
BCWP
200
100
Time
A
J
45
Rebaselining

• When the original baseline becomes unrealistic as
  a basis for management and measurement, it may be
  necessary to establish a new baseline
• A question of degree what is unrealistic?
• Challenge assumptions
• Issues
• Visibility to original baseline
• Reporting to stakeholders

46
Establishing a New Baseline
Time Now
Program Budget
Management Reserve
Resources
ACWP

• Baseline no longer meaningful to manage
  performance

400
BCWS
300
200
BCWP
100
Time
?
A
D
47
Establishing a New Baseline
Time Now
Revised Budget
Program Budget
Original Budget
Management Reserve
NewBaseline BCWS
Resources
ACWP
400

• Single Point Adjustment
• Eliminates variances
• Establishes new baseline including Reserve if
  needed

BCWS
300
200
BCWP
100
RevisedSchedule
?
A
D
48
Establishing a New Baseline
Time Now
Favorable
0
Unfavorable
Time
49
Establishing a New Baseline
Time Now
Favorable
0

• Single Point Adjustment
• Eliminates variances
• Establishes new baseline including MR if
  needed
• History is lost
• Temptation to get to Green

Unfavorable
Time
50
Establishing a New Baseline
Time Now
Favorable
0
Unfavorable
Time
51
Establishing a New Baseline
Time Now

• Complete program picture
• Preserves historical visibility
• Identifies added baseline amount including MR
  if needed
• Changes chart dynamic by measuring future
  performance against anticipated overrun

Favorable
0
Budget forVariance
Unfavorable
Budget forFuture Work
0
Time
52
Agenda

• Earned Value Management and Resource Management
• Essential Data Elements and Graphics
• Earned Value Analysis
• EVA Scenarios
• EVA and Funding Status
• Baseline Management
• Summary

53
Summary

• Pulling it all together
• Understand EVM/A and Resource Management
• From a single database, use EVM to
• Manage the program
• Measure program performance
• Take appropriate management actions
• Report to senior management and to customers
• Fix the problem, not the blame
• Encourage timely problem identification and
  objective reporting
• Dont necessarily equate program performance with
  managers performance
• Develop organizational history and IQ

54
Program Baseline, Funding and Program Performance
are Reported in the OMB-300 Tables
55
(No Transcript)