“Reading the Abba Charts” Wayne Abba PMI WDC Tool Time, July 18, 2006 Understanding Program Resource Management through Earned Value Analysis “Reading the Abba Charts” Wayne Abba PMI WDC Tool Time, July 18, 2006 Abba Consulting

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

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

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

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

EVM Trend Analysis: Cumulative At Complete Variance Risk Time Now Prog Budget Management Reserve Schedule Slip ACWP (Actual Cost) Resources Cost Variance BCWS (Planned Value) 400 BCWP (Earned Value) Schedule Variance 300 200 100 Time J M A J ▲ J A F M Approx. Time Variance

EVM Trend Analysis: Cost/Schedule Variances Management Reserve Consumption $ Favorable Schedule Variance at Completion $ Unfavorable Purpose: To relate contract performance to profitability. Description: This chart shows variance trends with respect to the fee structure. Cost Variance at Completion Time Schedule Slip Cost Variance --- Schedule Variance Management Reserve

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

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 @ 60% complete), adjusted for over target baselines a/o 4/30/2000 * OUSD(AT&L)ARA/AM, 1/16/01

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

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 J ▲ F M A M J J A S O N D Time

Integrated Baseline Review (IBR): Does Planned Resource Consumption Make Sense? Program Budget $ Resources Front Loaded Normal 400 300 End Loaded 200 100 Time J M A J J A F M

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 J F M A Time $ Resources 400 300 200 100 Program Budget Front Loaded

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 J F M A Time $ Resources 400 300 200 100 Program Budget End Loaded

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?

Normal Baselines cont’d 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

Time - Based Planning Horizons Rolling Wave 1 Rolling Wave 2 Rolling Wave 3 Program Budget $ Resources Initial detail planning (6 Months) 400 300 Future work in planning packages Detail planning based on calendar Arbitrary 200 100 Time D M J S D M J S

Event - Based Planning Horizons Preliminary Design Review Critical Design Review Program Budget $ 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 D M J S D M J S

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

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

Schedule Slips Problem indicators Early, large and unfavorable schedule variance Front-loaded baseline Zero variance “Too good to be true” Slow resource consumption “Can’t get there from here”

Unfavorable Schedule Performance Time Now Prog Budget BCWS (Planned Value) Schedule Slip $ Resources 400 Schedule Variance BCWP (Earned Value) 300 200 100 Time ▲ J F M A M J J A

Unfavorable Schedule Performance Time Now Schedule Variance at completion is zero by definition- even if program completes late $ Favorable $ Unfavorable Time Schedule Variance Schedule variance should supplement “real” schedule analysis

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 “Can’t get there from here”

Unfavorable Cost Performance At Complete Variance Time Now Prog Budget Management Reserve ACWP (Actual Cost) $ Resources Cost Variance BCWS (Planned Value) 400 BCWP (Earned Value) 300 200 100 Time J M A J ▲ J A F M

Unfavorable Cost Performance Time Now $ Favorable $ Unfavorable Time Cost Variance --- Management Reserve

Evaluating Future Performance Time Now $ Favorable PM Variance at Completion $ Unfavorable Time Cost Variance --- When/how will performance improve? Review at appropriate time Tie PM evaluation to predictability Management Reserve

Evaluating Future Performance Time Now $ Favorable PM Variance at Completion $ Unfavorable Time Cost Variance --- When/how will performance improve? Review at appropriate time Tie PM evaluation to predictability Management Reserve

A-12 Contract – Front Loaded Large unfavorable variances “Connect the dots” Front-loaded Baseline (or completion date is wrong) No work planned ’93 – ’96?

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”

Excessive Optimism Problem indicators Future performance predicted to be significantly better than historical performance Variance trend analysis Cost Performance Index compared to To 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

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”

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

Super Hornet Variance Trends Substantial Management Reserve

Past vs. Future Efficiency: CPI vs. TCPI Time Now TCPI EAC Efficiency Index CPI Cum CPI Current >1.0 Average Future Performance must Equal TCPI 1.0 To Achieve Indicated Efficiency in Estimate at Completion <1.0 Given Performance to Date (cumulative CPI) Time

Confidence in Estimate Can program complete at PM’s current estimate? ( ) 1 x 100 No Confidence Questionable CPICUM TCPIEAC Cumulative Efficiency / Required Efficiency Percent Difference Acceptable Contract: FAA XXX Contractor: Air Systems Inc. as of January 2006 Adapted from USAF

Zeroing in on the EAC $19 $20 $21 $22 $23 Contract Budget: PM Estimate: Independent High: Independent Low: $20.8M $23.3M $22.0M $19 $20 $21 $22 $23 Contract: FAA XXX Contractor: FAA Contractor as of April 2006 Adapted from USAF

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

Approved/Planned Funding 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 J S M J S M D

Profitability Analysis on Flexibly Priced Contracts Cost Variance levels related to: Time Now $ Favorable Min/Max Fee Cost Sharing $ Unfavorable Contractor Loss Time Cost Variance --- Schedule Variance Management Reserve

Profitability Analysis on Flexibly Priced Contracts Cost Variance levels related to: Time Now $ Favorable Min/Max Fee Cost Sharing $ Unfavorable Contractor Loss Time Cost Variance --- Schedule Variance Management Reserve

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

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

Baseline Discipline No Variances Lack of definition and 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 J J O A J O A J

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

Establishing a New Baseline Time Now Program Budget Management Reserve $ Resources ACWP 400 Baseline no longer meaningful to manage performance BCWS 300 200 BCWP 100 Time D J S M ▲ A D

Establishing a New Baseline Time Now Revised Budget Program Budget Original Budget Management Reserve New Baseline BCWS $ Resources ACWP 400 BCWS “Single Point Adjustment” Eliminates variances Establishes new baseline including Reserve if needed 300 200 BCWP 100 Revised Schedule D J S M ▲ J S A D

Establishing a New Baseline Time Now $ Favorable $ Unfavorable Time Cost Variance ------- Schedule Variance Management Reserve

Establishing a New Baseline Time Now $ Favorable “Single Point Adjustment” Eliminates variances Establishes new baseline including MR if needed History is lost Temptation to “get to Green” $ Unfavorable Time Cost Variance ------- Schedule Variance Management Reserve

Establishing a New Baseline Time Now $ Favorable $ Unfavorable Time Cost Variance ------- Schedule Variance Management Reserve

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 Budget for Variance $ Unfavorable Budget for Future Work Time Cost Variance ------- Schedule Variance Management Reserve

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

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 Don’t necessarily equate program performance with manager’s performance Develop organizational history and “IQ”

Program Baseline, Funding and Program Performance are Reported in the OMB-300 Tables