Snippet 6 3 B Management Reserve vs Contingency

Snippet 6 -3 B: Management Reserve vs. Contingency Scenarios U. S. Department of Energy Office of Project Management (PM)

Introduction to Time Phased Scenarios 1 Refer to Snippet 1 -11 Varying Project and Contract Structures or the DOE EVMS Gold Card for information relative to the relation of the Contract Budget Base (CBB) and Project Budget Base (PBB) 2

Scenario Period 1 Bar Chart Page 3 or PBB 3

Period 1 “S” Curve or PBB 4

Period 2 Page 5 • Contractor applied MR due to the realization that waste treatment testing would need to be done • This effort is required to meet the project statement of work, but was not planned within an existing control account Balance PMB + MR + Contingency = TPC EAC Prior Period 600 80 20 700 600 Period 2 20 (20) Balance 620 60 20 20 700 620 5

Period 2 Bar Chart or PBB 6

Scenario 2 “S” Curve or PBB 7

Period 3 Page 8 • The DOE customer modifies the contract to add two additional holding tanks, a new scope of work estimated at $10 M • This out-of-scope change is an increase not only in the contractor PMB and EAC for this effort, but also the CBB or PBB • This change decreases the available government contingency by $10 M Balance PMB + MR + Contingency = TPC EAC Prior Period 620 60 20 700 620 Period 3 10 Balance 630 (10) 60 10 10 700 630 8

Period 3 Bar Chart Page 9 or PBB 9

Period 3 “S” Curve or PBB 10

Period 4 • A project wide comprehensive EAC exercise has resulted in a $40 M forecasted overrun to the current PMB Balance PMB + MR + Contingency = TPC EAC Prior Period 630 60 10 700 630 Period 4 Balance 40 630 60 10 700 670 11

Period 4 Bar Chart or PBB 12

Period 4 “S” Curve or PBB 13

Period 5 Page 14 • Two tanks scrapped due to welding issues • Overrun associated with two new tanks is $20 M Balance PMB + MR + Contingency = TPC EAC Prior Period 630 60 10 700 670 Period 5 Balance 20 630 60 10 700 690 14

Period 5 Bar Chart or PBB 15

Page 16 Period 5 “S” Curve or PBB 16

Period 6, Scenario 1 • The impact from the welding issues is $10 M more than originally projected as the contractor struggles continue • Since the EAC exceeds the CBB or PBB, additional funding is needed to pay for the costs of the overrun • *The $10 M of contingency must be obligated to fund the projected overrun Balance PMB + MR + Contingency = TPC EAC Prior Period 630 60 10 700 690 Period 6. 1 Balance 10 630 60 10* 700 17

Period 6, Scenario 1 Bar Chart or PBB 18

Period 6, Scenario 1 “S” Curve or PBB 19

Period 6, Scenario 2 • The contractor applied $10 M MR to the PMB due to the realization that additional unanticipated ground water testing would need to be done as part of their risk mitigation program • *The $10 M of contingency must be obligated to fund the projected overrun caused by the application of MR to the PMB which caused an increase to the EAC Balance PMB + MR + Contingency = TPC EAC Prior Period 630 60 10 700 690 Period 6. 2 10 (10) 640 50 Balance 10 10* 700 20

Period 6, Scenario 2 Bar Chart or PBB 21

Period 6, Scenario 2 “S” Curve or PBB 22

Period 7 Over Target Baseline • The contractor has requested and received authorization from DOE to report to an Over Target Baseline (OTB) Before OTB Total Allocated Budget (TAB) Contract Budget Base (CBB) or Project Budget Base (PBB) Performance Measurement Baseline (PMB) MR After OTB Total Allocated Budget (TAB) Contract Budget Base (CBB) or Project Budget Base (PBB) Over Target Budget (OTB) Performance Measurement Baseline (PMB) MR 23

Period 7 OTB • Between Period 6 and Period 7, the contractor and DOE agreed to an OTB, thus allowing the contractor to provide a formal replan of its PMB and MR to reflect a realistic baseline to complete the project • DOE also received Project Management Executive approval for additional project funding; TPC (less profit/fees and ODC) is now $760 M • Authorized Funding to the contractor is $710 M as designated by the green line, and the Contingency is $30 M Balance PMB + MR + Contingency = TPC EAC Prior Period 640 50 10 700 Period 7 70 (30) 20 60 10 Balance 710 20 30 760 710 24

Period 7 OTB Bar Chart Period 1 Period 2 Period 3 Period 4 Period 5 Period 6 Period 7 760 740 720 Total Allocated Budget (TAB) = CBB or PBB + OTB = $730 M OTB = (PMB + MR) – CBB or PBB = $40 M OTB DOE Contingency Contract Overrun Contractor Management Reserve Project Scope Authorized Funding CBB or PBB EAC PMB 25

Period 7 OTB “S” Curve or PBB & Original TAB 26

PARS EAC Funding Requirements Report Location: • PARS Project Reports • Project Summary Excel Workbook • Tab ‘EAC Funding Requirements’ 27

• Choosing MR or DOE Contingency depends on the situation. • The impact of selecting the correct source is SUMMARY crucial to project management and oversight. • EAC Funding Requirements: Provides a visualization of each of the PB components and fluctuations indicating concerns with remaining risk reserves and project cost variances that may signal insufficient funds to complete the project 28

For additional information, please browse our library at the following Project Management Earned Value Management websites. External: https: //www. energy. gov/projectmanagement/services 0/earned-value-management Internal: https: //community. max. gov/display/DOEExternal/PM+EVM +Guidance 46