Understanding Program Resource Management through Earned

Value Analysis

Abba Consulting

“Reading the Abba Charts”

Wayne AbbaPMI WDC Tool Time, July 18, 2006

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

Budgeted Cost for Work Scheduled

Budgeted Cost for Work Performed

Actual Cost of Work Performed

- 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

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

Cost Variance

Approx. Time VarianceJ F M A

Time

Re

so

urc

es

400

300

200

100

Time Now

ACWP (Actual Cost)

BCWS(Planned

Value)BCWP

(Earned Value)

EVM Trend Analysis: Cumulative

M J J A

Schedule Slip

Schedule Variance

Risk

Management Reserve

At Complete Variance

ProgBudget

▲

EVM Trend Analysis:Cost/Schedule Variances

Time

Cost Variance at Completion

Schedule Variance at Completion

0

Cost Variance --- Schedule VarianceManagement Reserve

$ U

nfa

vora

ble

$ F

avo

rab

leManagement

ReserveConsumption

Schedule Slip

Agenda

• Earned Value Management and Resource Management

• Essential Data Elements and GraphicsEarned 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 ConsumptionProgram

Budget $M

J F M A

Time

Re

so

urc

es

20

15

10

5

M J

Management Reserve

▲

25

30

35

40

J A NS O D

BCWS(Planned Value)

Time-Phased Planfor Consumption

of Resources

Typical “S” Curve

J F M A

Time

$ R

es

ou

rce

s

400

300

200

100

Integrated Baseline Review (IBR):Does Planned Resource Consumption

Make Sense?

M J J A

ProgramBudget

Front Loaded

End Loaded

Normal

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 ATime

$ R

es

ou

rce

s

400

300

200

100

M J J A

ProgramBudget

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 ATime

$ R

es

ou

rce

s

400

300

200

100

M J J A

ProgramBudget

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

D M J S

Time

$ R

es

ou

rce

s

400

300

200

100

Time - Based Planning Horizons

D M J S

ProgramBudget

Rolling Wave 1

Initial detailplanning

(6 Months)

Rolling Wave 2 Rolling Wave 3

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

D M J S

Time

$ R

es

ou

rce

s

400

300

200

100

Event - Based Planning Horizons

D M J S

ProgramBudget

PreliminaryDesign Review

Initial detailplanning

CriticalDesign Review

• 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

Agenda

• Earned Value Management and Resource Management

• Essential Data Elements and Graphics• Earned Value AnalysisEVA 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”

J F M A

Time

$ R

es

ou

rce

s

400

300

200

100

Time Now

BCWS(Planned

Value)

Unfavorable Schedule Performance

M J J A

Schedule Slip

Schedule Variance

ProgBudget

▲

BCWP (Earned Value)

Unfavorable Schedule Performance

Time

Schedule Variance at completionis zero bydefinition-

even if program

completeslate

0

Schedule Variance

$ U

nfa

vora

ble

$ F

avo

rab

le

Schedule variance should supplement “real” schedule analysis

Time Now

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”

Cost Variance

J F M A

Time

$ R

es

ou

rce

s

400

300

200

100

Time Now

ACWP (Actual Cost)

BCWS(Planned

Value)BCWP

(Earned Value)

Unfavorable Cost Performance

M J J A

Management Reserve

At Complete Variance

ProgBudget

▲

Unfavorable Cost Performance

Time

0

Cost Variance ---

Management Reserve

$ U

nfa

vora

ble

$ F

avo

rab

le

Time Now

Evaluating Future Performance

Time

0

Cost Variance ---

Management Reserve

$ U

nfa

vora

ble

$ F

avo

rab

le

PM Varianceat Completion

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

Time Now

Evaluating Future Performance

Time

0

Cost Variance ---

Management Reserve

$ U

nfa

vora

ble

$ F

avo

rab

le

PM Varianceat Completion

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

Time Now

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 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

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

1.0

TCPIEAC Efficiency IndexCPI Cum CPI Current

Time Now

<1.0

>1.0 Average Future Performance must Equal TCPI

To Achieve Indicated Efficiency in Estimateat Completion

Given Performance to Date(cumulative CPI)

Confidence in EstimateCan program complete at PM’s current estimate?

( )1 x 100

-15

-10

-5

0

5

10

15

Apr-05 May-05 Jun-05 Jul-05 Aug-05 Sep-05 Oct-05 Nov-05 Dec-05 Jan-06

No Confidence

Questionable

Questionable

CPICUM

TCPIEAC

No Confidence

Per

cen

t D

iffe

ren

ce

Cu

mu

lati

ve E

ffic

ien

cy

/ R

eq

uir

ed E

ffic

ien

cy

Acceptable

Contract: FAA XXX Contractor: Air Systems Inc. as of January 2006

Adapted from USAF

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

Agenda

• Earned Value Management and Resource Management

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

D M J S

Time

Re

so

urc

es

400

300

200

100

Time Now

EVA and Funding Status

D M J S

ProgBudget

Approved/Planned Funding

BCWP (Earned Value)

BCWS(Planned

Value)

ACWP (Actual Cost)

Profitability Analysis on Flexibly Priced Contracts

Time

0

Cost Variance --- Schedule VarianceManagement Reserve

$ U

nfa

vora

ble

$ F

avo

rab

le

Min/MaxFee

Contractor Loss

Time Now

Cost Sharing

Cost Variance levelsrelated to:

Profitability Analysis on Flexibly Priced Contracts

Time

0

Cost Variance --- Schedule VarianceManagement Reserve

$ U

nfa

vora

ble

$ F

avo

rab

le

Min/MaxFee

Contractor Loss

Time NowCost Variance levelsrelated to:

Cost Sharing

Agenda

• Earned Value Management and Resource Management

• Essential Data Elements and Graphics• Earned Value Analysis• EVA Scenarios• EVA and Funding StatusBaseline 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

J A J O

Time

$ R

es

ou

rce

s

400

300

200

100

J A J O

ProgramBudget

Time Now

BCWS

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

ACWP

BCWP

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

D A J S

Time

$ R

es

ou

rce

s

400

300

200

100

Time Now

ACWP

BCWP

D M

Management Reserve

ProgramBudget

▲

BCWS• Baseline no longer meaningful to manage performance

Establishing a New Baseline

D A J S

RevisedSchedule

$ R

es

ou

rce

s

400

300

200

100

Time Now

ACWP

BCWP

D M J S

Management Reserve

ProgramBudget

▲

NewBaselineBCWS

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

OriginalBudget

RevisedBudget

BCWS

Establishing a New Baseline

Time

0

Cost Variance ------- Schedule VarianceManagement Reserve

$ U

nfa

vora

ble

$ F

avo

rab

le

Time Now

Establishing a New Baseline

Time

0

Cost Variance ------- Schedule VarianceManagement Reserve

$ U

nfa

vora

ble

$ F

avo

rab

le

Time Now

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

Establishing a New Baseline

Time

0

Cost Variance ------- Schedule VarianceManagement Reserve

$ U

nfa

vora

ble

$ F

avo

rab

le

Time Now

Establishing a New Baseline

Time

0

Cost Variance ------- Schedule VarianceManagement Reserve

$ U

nfa

vora

ble

$ F

avo

rab

le

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

Budget forVariance

Budget forFuture Work

0

Agenda

• Earned Value Management and Resource Management

• Essential Data Elements and Graphics• Earned Value Analysis• EVA Scenarios• EVA and Funding Status• Baseline ManagementSummary

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

Program ABC

0

100

200

300

400

500

600

$ (M

)

Budget

Earned Value

JRC Cur B/L

JRC Org B/L

Actual

ETC

Critical DesignReview

1st SiteDelivery

ProductionDecision

In-serviceDecision

Last Site GA

= Milestone B/L Plan= Milestone Complete

Funding (CIP)

Summary of Spending Table

I.H.2 Table

I.H.4 Table (EVMS) for Approved Useful Segments

I.H.4 Table

EAC

$ (M) CUR MO CUMBudget 30$ 255$ Earned Value 25$ 240$ Actual 33$ 270$ SV (5)$ (15)$ SPI 0.83 0.94CV (8)$ (30)$ CPI 0.76 0.89VAC 35$ JRC Baseline 550$ PM EAC 515$ JRC Completion B/L Nov-05PM Completion Oct-05

Program ABC

0

100

200

300

400

500

600

$ (M

)

Budget

Earned Value

JRC Cur B/L

JRC Org B/L

Actual

ETC

Critical DesignReview

1st SiteDelivery

ProductionDecision

In-serviceDecision

Last Site GA

= Milestone B/L Plan= Milestone Complete

Funding (CIP)

Summary of Spending Table

I.H.2 Table

I.H.4 Table (EVMS) for Approved Useful Segments

I.H.4 Table

EAC

$ (M) CUR MO CUMBudget 30$ 255$ Earned Value 25$ 240$ Actual 33$ 270$ SV (5)$ (15)$ SPI 0.83 0.94CV (8)$ (30)$ CPI 0.76 0.89VAC 35$ JRC Baseline 550$ PM EAC 515$ JRC Completion B/L Nov-05PM Completion Oct-05

Prior Years FY05 FY06 FY07 Beyond Total APB Total Program Duration :

Original APB 263.7 59.9 24.8 4.1 152.7 505.2 Segment Milestone

[Rebaselined 09/05] 250.3 47.2 29.7 63.9 158.7 549.8 Total System Initial Inv Decision

Actual Funding 250.7 47.1 29.7 63.6 159.0 550.1 Contract Award

Prior year obligations, 1/06 250.3 46.9

Inv Decision

FY06 Planned obligations 24.6 Inv Decision

FY06 Actual obligations TBD In Service Decision

Original Risk Res First ORD

Remaining JRC Rebaseline

Last ORD

Segment Milestone Planned Actual

Deliver two (2) Systems Sep 2006. Feb 2006.

Achieve Operational Readiness Date (ORD) at

three (3) sites Jul 2006.

Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06BCWS 214.7 216.9 218.20 156.68 159.07 161.23BCWP 205.4 203.1 206.6 159.01 160.33 163.81ACWP 146.1 149.3 151.5 153.27 154.5 156.77

Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06CPI 1.41 1.36 1.36 1.04 1.04 1.04SPI 0.96 0.94 0.95 1.01 1.01 1.02

CPI >1.0 Good (cost efficiency - for every dollar spent more than $1.00 of value received)

EVM Performance Data

FAA Major Program

APB Plan (9/05)

Baseline Status ($millions) APB Schedule Milestones

Aug-00

Sep-01

May-11

* Program Requirements have not changed since the program was rebaselined in September 2005.* If the ASDE-X Program does not receive the funds outlined in the September 2005 rebaseline proposed CIP funding profile, then the program will not be able to implement the rebaseline as planned.* If ASDE-X Upgrade Sites’ (i.e. ASDE-3/AMASS sites) expectations exceed ASDE-X program specifications and requirements, then the Program IOC/ORD goals are at risk of not being met.

FY 06 Milestones

Technical Requirements and Other Issues

Oct-03

Sep-05

Oct-00

Jun-02

Oct-03

EVM- last 6 months

0.000.200.400.600.801.001.201.401.60

Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06

Month

CP

I / S

PI

CPI

SPI