Technical EVMS Cost Schedule PROJECT MANAGEMENT USING EARNED

Technical EVMS Cost Schedule PROJECT MANAGEMENT USING EARNED VALUE (and the Problems & Lessons Learned from it) Jim Pennington – Business Operations Director jim. pennington@lmco. com Dated November 2007 1

Technical EVMS Cost AGENDA Schedule • OMB objections and requirements for EVMS • What is EVMS? • Implementing Directives • Traditional versus Earned Value Accounting • How does EV fit into the Program Management Life Cycle • Problems and Lessons Learned over the PM EVM Life Cycle • Comments Backup Charts • Essential Elements of EVM • Tailored Earned Value Management 2

Technical EVMS Cost Schedule What is Earned Value and when does OMB want it implemented According to the Third Edition of Earned Value Project Management by Fleming and Koppelman, "Earned Value is a technique to better manage projects. It is not intended for use on continuing business processes, operations that have no unique deliverables. Earned Value is for the management of one-time-only projects, and portfolios of projects within an organization". In alignment with this statement OMB mandates the use of EVMS within OMB Circular A-11 for major development/ modernization/enhancement (DME) projects, but not all DME projects. OMB Circular A-11 defines a major project as: – A system or project requiring special management attention because of its importance to the mission or function of the Agency, a component of the Agency, or another organization; – Is for financial management and obligates more than $500, 000 annually; – Has significant program or policy implications; – Has high executive visibility; – Has high development, operating, or maintenance costs; or – Is defined as major by the Agency’s capital planning and investment control process – In addition, OMB memorandum M-05 -23 asked each agency to work with OMB to identify “high risk” projects by August 15, 2005. Circular A-11 defines high-risk projects as those requiring special attention from oversight authorities and the highest levels of agency management. 3

Technical EVMS Cost Schedule Where is the Earned Value Requirements and Standards the Process Defined Agencies follows the requirements set forth in: • ANSI/EIA STD – 748 • OMB Circular A-11, Part 7, Federal Acquisition Regulation Case 2004 -019 • OMB Memorandum M-04 -24 (dated 8/23/04) • OMB Memorandum M-05 -23 by using the NDIA EVMS Intent Guide, NDIA PMSC Surveillance Guide (dated 8 -4 -05) • NDIA* Program Manager’s Guide to the Integrated Baseline Review (IBR) Process, and EVM Implementation Guide To provide for a uniform approach to implementing EVMS and to confirm that the processes and procedures continue to satisfy the guidelines as they change Note * = NDIA – National Defense Industry Association Program Management Systems Committee Working group 4

Technical EVMS Cost Schedule EVMS is the primary project management tool that integrates the technical, schedule and cost aspects of the project or contract scope of work 5

Technical EVMS Cost Schedule Why is Earned Value Information important to the Program Manager A Program or Project’s Technical, cost and schedule performance are interrelated Problems in one area can, and usually will, cause problems in the other areas You can design and build the fastest, toughest and lightest widget in the world, but if it costs too much, or is late: Ø It may adversely affect the total funding required to complete Ø Could impact ability to get funding for future projects or may required greater effort to obtain enough funding for programs later in the future 6

Technical EVMS Cost Schedule Earned Value (EV). . . is a predetermined amount of value that is claimed, or earned, when the corresponding work is accomplished. # of Pages # of Sys Reqmts Lines of Code # of Widgets 7

Technical Earned Value Management provides EVMS Cost Schedule • Objective rather than subjective project status information • Cost and Schedule impact of known problems • Identification of problems not previously recognized • Capability to trace the problem to the source • Quantitative measure of schedule deviation in dollars • Performance measured against a program oriented baseline EARNED VALUE DOES NOT GUARANTEE SUCCESS 8

Technical Some Implementing Directives EVMS Cost Schedule GOVERNMENT • Mandatory procedures for major defense acquisition programs (Do. DI 5000. 2 -R) • • Earned Value Management Information Guide (EVMIG) • • • Defines policies governing earned value Provides detailed discussions of the EV criteria Written for the Government program offices OMB Directives to Agencies: • • • OMB Circular A-11, Part 7, Federal Acquisition Regulation Case 2004 -019 OMB Memorandum M-04 -24 (dated 8/23/04) OMB Memorandum M-05 -23 by using the NDIA EVMS Intent Guide, NDIA PMSC Surveillance Guide (dated 8 -4 -05) INDUSTRY • Industry guidelines for Earned Value Management Systems (ANSI-ESI 748) • • Industry Standard for Earned Value Incorporated in Do. DI 5000. 2 R 9

Technical EVMS Cost Earned Value Management Terms Schedule ACWP = Actual cost of work performed (Basically costs extracted from work in process) BCWP = Budgeted cost of work performed (Earned Value) BCWS = Budgeted cost of work scheduled (Budget spread to time) BAC Budget at completion (Total budget for a given task) = CVAR = Cost variance (BCWP-ACWP) EAC Estimate at completion = SVAR = Schedule variance (BCWP-BCWS) 10

Technical EVMS Cost Schedule TRADITIONAL VS EARNED VALUE ACCOUNTING Budget versus Actuals Time Now Time All we really know is that we spent more than we planned 11

Technical EVMS Cost Schedule TRADITIONAL VS EARNED VALUE ACCOUNTING (Using EVM approach) Time Now Time Earned value provides an objective measure of work accomplished. It tells you what you got for what you spent 12

Technical EVMS Cost Schedule PROGRAM MANAGEMENT PROCESS Project Management Cycle PROGRAM MANAGER NEEDS Initiate Plan Execute Control Close Out Develop a realistic plan of work scope, budget, and schedule Organize work and teams Authorize work properly Control Changes Performance reporting Corrective Actions Understand variances Forecast of final cost and schedule 13

Technical EVMS Schedule PROGRAM MANAGEMENT PROCESS EARNED VALUE MANAGEMENT Project Management Cycle Cost Initiate Plan Execute Control • Organize • Plan work scope – schedule and budget • Authorize work • Control changes • Report performance • Understand variances • Corrective actions • Forecast final cost and schedule Close Out 14

Technical EVMS Cost Schedule Earned Value Problems & Lessons Learned over the Program Management EVM Life Cycle 15

Technical Initiate Phase of Program EVMS Cost Schedule Problems and Lessons Learned Problems • • • Baseline is not stable EVM Staffing Resources not in place at time of ATP Program Management as not assigned responsibilities to CAMs Program Team is not experienced or trained IBR (Integrated Baseline Review) Deliverables not defined Contracting Officer or COTR wants to deviate from SOW or Contract EVM direction w/o proper modifications Different set of assumptions from the proposal submittal Variance Thresholds are not defined Variance Analysis Guidelines not agreed upon prior to start Lessons Learned • • • Establish early baseline basis Have contractor or internal personnel identified during negotiations PMs must plan to execute program like it was proposed (Work per SOW) Have Program Team (PMs, CAMs, EVM and Customer) trained together Establish specific contract SOW app. for EVM and for Integrated Schedule Keep CO and COTR (& PM) diligent on proper contracting practices Develop clear walkdown of deltas in Scope and assumptions (document) Variance Thresholds by % & $ off plan Analysis must be to a specific level of WBS, contents identified & Corr. Action 16

Technical Planning Phase of Program EVMS Cost Schedule Problems and Lessons Learned Problems • • No set deadline to freeze plan (Continuous Churn) IPTs (Integrated Product Teams) are not working to same schedule Baseline Changes are not controlled at the beginning (Loss of string from Prop to Baseline-Rates, Sch, Scope) IBR (Integrated Baseline Review) delayed due to baseline flux or continued negotiations No plan for Contract Changes (No CCB board and/or no COTR involved ) Program Management Reserve and Undistributed Budget not well defined Current Forecasts and recovery plans do not change the baseline planning Lessons Learned • • Establish a EVM Implementation schedule and hold everyone to it IPTs must complete earlier for IMS integration with other teams and tasks Contractor should be able to walkdown Proposal as Submittal to IBR Baseline Push to hold IBR schedule and work SOW, schedule or scope changes later (as formal changes / plan maintenance) Must have established CCB with PM, Finance, Contracts, IPTs (Govt / Contr) Undistributed Budget is not Reserve, if it is not needed convert to PM Reserve Only Customer approved changes impact the Baseline (Establish a window for change approval and freeze the plan for near term changes) 17

Technical Execution Phase of Program EVMS Cost Schedule Problems and Lessons Learned Problems • • • Program seems to not meet the EVM reporting schedule Status or Earned Performance inputs are not consistent with period cutoffs No established Performance Criteria identified for tasks and completion Errors or Inconsistent Reporting Inconsistent Subcontractor or Procurement Status No reconciliations of Ledger Actuals to EVM (Accrued Costs) Program Management does not use or analyze the EVM information PMs manage to the IMS or Schedule and EVM data must be incorrect Program Plan Risks are not defined or PM Reserve is not earmarked Lessons Learned • • • Establish a EVM Status and Reporting Business Rhythm EVM Staffing Resources not in place at time of ATP Must have EV method and completion criteria defined for tasks (agreed upon) CAM/EV data reviews prior to release Establish a ICD approach for Vendor and Subcontractor Accruals / Receipts Have defined reconciliation process to validate EVM ACWP reported & deltas Make EV data part of monthly review deliverables and status reviews Report number of late IMS workpackage starts and completions by WBS Risks that have not been realized should have MR allotted plus mitigation plans 18

Technical Control Phase of Program EVMS Cost Schedule Problems and Lessons Learned Problems • • Contract Changes are too frequent and formal plan changes are not timely Variance Analysis is too vague or is not determined in a timely manner IPTs do not take ownership of their variances or mitigation plans Program has a large cost and/or schedule variance that plan is relevant Program does not properly close workpackages when replanned Scope Creep and workscope/rate trades from well minded PMs and CO/COTRs Inconsistent EVM performance and reporting over the life of the program EVM process adherence is not objectively evaluated or tested Lessons Learned • • CCB process should be defined and IPT provide estimates at CCB meetings EVM and variance root cause analysis must be timely to be effective IPT must be given labor reports by name to validate charges and resp. Program should establish a over target or baseline replan to make plan valid You must close incomplete tasks and replan them as new tasks with replan Small unapproved changes and creep drive variances & impacts future work Contractor should have proven and documented process to operate consistently Establish a Joint Surveillance Plan 19

Technical Close Out Phase of Program (or task) EVMS Cost Schedule Problems and Lessons Learned Problems • • • Last months of program, data appears to be incorrect Final Estimates to Complete are off by a large amount Costs continues to come into the workpackage after it is completed Indirect rate impacts hit after the program or task is completed Subcontract or Material Costs does not match Ledger Final EVM Report does not match current Invoice Totals or Balances Lessons Learned • • • Be sure contractor does not get sloppy w/ charging practices (>95%) Be sure final EACs include remaining material commitments, labor suspense Be sure all charge accounts closed, clear suspense & transfer bad charges Understand contractor financial calendar and rate adjustment process Have contractor complete a walk-down of the EVM ACWP and the ledger $s Contractor should create a projection when all costs will be final and on the books of record 20

Technical EVMS Cost Closing Comments Schedule • With the problems on the FBI Virtual Case File Program, IT programs will continue to have additional OBM scrutiny and needs for oversight • If you are going to spend the money on EVM, use it (effectively!) • Manage the EVM process, do not let the process manage you • Do not just look at the big variances, drive for better analysis and corrective actions that are meaningful (remember you have a boss too!) • One little rule: If your TCPI is 1. 06 after being more than 15%, You will not recover to the original baseline! (LMC history) 21

Technical EVMS Cost Questions and Answers Schedule Comments or Questions? ? 22