a management tool vs. a reporting tool
In the past, much emphasis has been placed on technical performance as the main metric for performance evaluation. However, in today’s environment, an effective program management and control system will increase customer confidence and improve competitive competency. This paper provides a compelling business case for why a company or program/project manager would want to invest time and resources in the implementation and management of Weekly Earned Value.
An Earned Value Management System (EVMS) enables management to effectively and efficiently integrate the work scope of a project or program with the schedule and cost elements for optimum program planning and cost management. It is a continuous measurement of actual achievements against a detailed performance plan. The application of EVMS has been in place for decades in the defense industry. Typically, EVMS is a DOD requirement that requires a Government contractor to utilize and demonstrate a validated system that properly tracks the cost and schedule performance of a particular program. Historically, this data has been “reported” on a monthly basis instead of managed real time. EVMS remains an excellent source of trend data but the single biggest complaint from the technical community is: EVMS is a reporting tool and not a management tool.
“It tells me where I’ve been and not where I’m going.”
EVMS as a Management Tool
Weekly earned value is a program management tool that facilitates the EARLY mitigation of cost, schedule, and technical risk and enables management to identify potential problems and then incorporate corrective action at the earliest possible time. What is weekly earned value? Weekly earned value is the statusing of work scheduled, work performed and actual cost of work performed on a weekly basis (labor hours). It is NOT planning your budgets on a weekly basis, as many initially fear. Budgets are still planned monthly; however, the system converts the budget into weekly plans. Milestones are planned monthly and traditional earned value techniques are utilized. The milestones in the schedules are assessed each week and variance analysis for cost, schedule, and technical performance are assessed real time.
Weekly EVMS vs. Monthly EVMS
Utilizing the traditional monthly EVMS, cost and/or schedule variances are identified in month two at the earliest, and corrective action visibility and results are not implemented until month three. In the weekly EVMS assessment, the progress is statused each week, problems are identified as early as week two, corrective action is implemented in week three and the results may be visible as early as week four. This is an improvement of eight weeks! (See Exhibit 1) The real advantage is that problem areas are identified each week. When it is time to write the monthly variance analysis report, the IPT already has all of the information and recommended corrective action available.
Best Practice at Northrop Grumman—F/A-18 Program
In order to appreciate the practical application of weekly EVMS, we will discuss best practices implemented at Northrop Grumman Corporation and Lockheed Martin Corporation.
Northrop Grumman Corporation (NGC), Air Combat Systems, located in El Segundo, California is the major subcontractor to Boeing for the Navy’s F/A-18E/F Super Hornet Program. Northrop Grumman builds over 40% of the aircraft, including the center and AFT fuselage, vertical stabilizers, and the attendant subsystems. Today, the F/A-18E/F program is widely viewed as a “model” of excellence in program management. This multibillion-dollar contract has always been on cost, on schedule, and has consistently exceeded performance specifications. This exceptional performance is greatly attributable to the implementation of weekly earned value. However, it wasn’t always that way. During a 1993 Subsequent Application Review (SAR), the Customer uncovered deficiencies in the cost/schedule performance measurement system. In January 1994, a surveillance review indicated major concerns with the integrity of the EVMS database and the timeliness/quality of the cost performance reporting. An internal NGC review of EVMS related processes revealed data integrity issues. The root causes were identified and it usually related to the way NGC had implemented the EVMS processes.
Under the leadership of Vice-President and Program Manager, Dick Odum, the program team implemented an integrated management approach, including managing with weekly earned value. Exhibit 2 (Integrated Management of F-18 Program) illustrates the integration of cost, schedule and quality and the required key elements that must be in place to ensure effectiveness of EVMS. Integrated Product Teams (IPT) are key to the successful implementation of this approach and the team leaders have full Responsibility, Accountability, and Authority (RAA) for their statement of work.
Management Culture Change
Management mandated the requirement for weekly performance assessment for all cost, schedule, and technical performance. This change in management approach took about six months to get people trained, and for the “culture” change to be embraced. While there were nonrecurring costs associated with weekly earned value implementation 18 months into EMD, the benefits certainly outweighed the costs, based on the outstanding program performance mentioned earlier. It will be discussed later how costs are significantly minimized with careful up-front planning of this management technique.
Initially, there was skepticism and resistance to implementing this change. However, in converting to the new approach, the program team soon discovered that the following types of weekly assessments were already in place:
• On a daily basis, supervisors reviewed fabricated parts, assembly status, etc.
• On a weekly basis, the operating plans and variance status were summarized.
• Daily status was taken by manufacturing engineers to assess percent complete against tools for the tooling organizations.
• Engineering held weekly Build-To-Package (BTPs)/Drawing release status reviews.
• Business Management/Planning personnel were already in place to provide support (some training was required for reprioritization of weekly workload to support IPT requirements).
Weekly Earned Value formalizes the process, contains the information, and presents it in an integrated and quantifiable manner on a real-time basis.
Northrop Grumman’s core systems and processes were reengineered and integrated to fulfill IPT requirements. Today, the floor system data interfaces with the cost and scheduling systems and thus, work packages are linked to team schedules. The result is a system generated, single database, which is the source of all weekly information for the IPT. F/A-18 holds weekly performance reviews with common metrics roll-up from team to program. IPT leaders are required to brief their own data and focus on exceptions to plan. These reviews include Program and Business Management, IPTs, and DCMA representatives. Weekly EVMS works on the F/A-18 program because it has upper management’s commitment, relentless reinforcement, disciplined team leaders, and open and honest communication.
Weekly Earned Value Mitigates Program Risk!
Weekly earned value improves the integrity of your EAC; it will facilitate early identification of risks and opportunities and flow that information up to the program level. It will not only benefit internal program management and customer objectives, but will also help improve a company’s financial position and shareholder value.
JSF Weekly Earned Value Approach
The LM Joint Strike Fighter team experienced issues similar to those of the F/A-18 program during the Concept Demonstration Phase (CDP). In early 1999, several EVMS anomalies and data discrepancies were identified. The LM JSF team has refined its approach to managing cost and schedule based on best practices from teammates Northrop Grumman and BAE Systems and lessons learned from the CDP program. Our approach provides the IPT, program management and the customer with total air system cost and schedule performance in a timely manner by integrating the key cost, schedule, and technical performance indicators on a weekly basis. The team now uses weekly EVMS as a real-time management tool that provides insight to the IPT Lead regarding potential cost and schedule risk.
The LM JSF Team recognized the need to improve management practice with respect to program cost and schedule management. The team wanted to develop an EVMS process that would be a competitive discriminator for the EMD program. The following steps were critical to the team’s success:
• Adopt the Northrop Grumman Best Practice of weekly earned value
• Demonstrate to the Customer during the CDP phase
• Demonstrate Engineering and Manufacturing Development capability via pilot testing
• Continual process improvement throughout the bridge phase.
Ensure a seamless transition for implementation into EMD
The LM JSF team is committed to managing the JSF EMD contract using weekly earned value, including major critical suppliers. An EVMS team was formed in the summer of 1999, co-lead by the authors of this paper. This multi-company, multifunctional team consisted of participants from LM, NGC, BAES, and Pratt & Whitney with Financial, Planning, Scheduling, EVMS, and Systems backgrounds. The approach was to provide integrated timely cost and schedule information to the IPT that would enable them to rapidly identify problems and implement mitigation at an earlier time. IPT leads required the ability to utilize a user-friendly effective management tool that provided online weekly performance status. They also required electronic communication status between teammates, performance roll-up, and seamless integration of total team performance information.
The performance of the supplier base is crucial to the success of the LM JSF program. The weekly cost and schedule performance visibility ensures that the IPTs have sustained focus on milestones, including subcontractor performance. It is essential that weekly supplier information be provided, in addition to the team labor status in order to capture performance for a greater portion of the contract value. More importantly, it facilitates increased communication between the contractor and suppliers, which allows real-time management, as opposed to the traditional one- to two-month lag of supplier visibility.
The weekly earned value status applies to labor hours only. As Exhibit 3 (JSF Weekly EV Reporting) illustrates, each company (including major critical suppliers) imports their own cost and schedule performance data into the Cost/Schedule Database (CSDB). The CSDB facilitates the seamless integration of cost and schedule information. Each teammate and supplier is responsible for reconciling their data to ensure it accurately reflects their current status, and validate that their data was imported successfully. Integrating the earned value data in a common database facilitates online, real-time visibility of weekly cost and schedule earned value performance. It also provides critical path and late item information, technical performance, risk plans, and program performance metrics to all IPTs, program management and to the customer. This single source of access for all cost and schedule information allows for open and honest communication across all levels of the program and with the customer. It provides the basis for all weekly and monthly IPT and customer reviews.
Weekly EVMS Cycle
While the IPT Lead has full RAA for weekly performance assessment and analysis, well-trained business management or Cost/Schedule Integrators (C/SIs) are critical to the IPTs successful implementation of weekly EVMS. It is easier to understand the process of weekly EVMS by reviewing a typical weekly cycle:
|Monday:||IPT lead gets team progress on detailed schedule activities from IMS IPT lead analyzes schedule performance and addresses schedule conflicts C/SI enters resulting earned value into cost/schedule system|
|Tuesday:||(All Tuesday tasks are completed by the C/SI) Complete load of EV into cost/schedule system, review and verify BCWP Budget/EAC/Work package maintenance/revisions as required Retrieve weekly labor actuals and input to the cost system Finalize cost and schedule for weekly reporting|
|Wednesday:||C/SI loads data into CSDB IPT lead reviews and analyzes performance IPT lead develops variance explanations as required|
|Thursday:||Conduct management review|
The LM JSF team has been managing with weekly earned value for over 18 months on the JSF program. The monthly EV reporting process has been augmented to include weekly status of labor EV, schedule milestones and risk issues. Each week, our IPTs assess technical progress to determine any potential impact on cost and schedule (labor hours) and evaluates whether any corrective action is required. If there are cost and schedule deviations identified, mitigation plans are generated, based not only on cost and schedule boundaries, but also technical achievement. Once these are approved, the mitigations plans are incorporated into our performance measurement baseline and estimate at completion. This ensures the Air System is delivered on schedule and within budget. If the cost and schedule impacts are outside of their targets, the IPT lead formally declares a variance in terms of the potential forecasted dollar impact and/or schedule slip.
Team Buy-in to Systems and Processes
The EVMS processes were put into place with total team buy in. This included not only the teammates, but the customer as well. It involved a lot of trust on both sides. The data is openly shared and there is real-time program insight. The customer attends all of the weekly briefs to the executive management and is fully aware of cost and/or schedule risks and the mitigation plans that must be put into place.
Teamwork is Key to Weekly Earned Value
The JSF has a complete integrated three-company team. The members of Lockheed Martin, BAES, and Northrop Grumman support training and resource requirements. They also lead and co-lead various EVMS teams with full RAA. All decisions or changes to be implemented go through an extensive team review and full team concurrence is mandatory before any change is accepted or implemented. All teammates wear one non-company specific yellow JSF badge that identifies them as a JSF team member, but has no company affiliation. Most days, one would not know who works at which company. Because of this approach, there is excellent communications between the companies and IPTs. The emphasis is on IPT management vs. company management. This facilitates the seamless approach, eliminates nonvalue-added cycle time, and minimizes duplicate management reviews. The team is focused on tailoring earned value to provide a useful management tool to the IPTs. Seeking IPT feedback and buy-in on data requirements, tools, formats and processes is essential and should be part of the process.
This integrated team approach requires the integration across the miles. Time zones are used to the team’s advantage. Processes were established that utilized the extended working day. There were only a few hours where all teammates were working at the same time. Therefore, email, net-meetings, telecons and file transfers were utilized wherever possible. It is recommended that any new projects develop a stand-alone capability before it goes to full integration. It is imperative that a trusting partnership is developed with the tool set providers. Don’t reinvent the wheel: adapt best practices, utilize existing skills, processes and tools as appropriate, and harmonize training with the tasks as planned. Be sure and consider long-term company strategies such as systems infrastructure and tool set deployment.
Since each IPT is required to brief their current project status each week, it is imperative that they understand what the data is telling them, and be able to explain to management how they are performing. The briefings to management are “by exception only.” What this means is that if a IPTs performance or data exceeds an established threshold, they are required to review and drill down to the variance contributor. We have red, yellow, and green performance indicators; the IPTs are only required to brief yellow and red performance. Trend predictions for early warning to IPT leads are provided via email. An email is automatically generated and sent to the appropriate IPT lead when a predetermined threshold is penetrated.
The LM JSF team implemented an enhanced training curriculum for the IPTs and the CSI community. There are annual EVMS refresher courses; however, it is mandatory that all IPT leads and CSI employees complete an extensive weeklong scheduling and EVMS course. The course includes scheduling methodology, as well as critical path methodology. The relationships of the EVMS indices are included in the curriculum to help them understand certain trends for cost and schedule variances. This enables them to relate the indices and variances to completing their tasks within budget and/or their EAC.
“How much will this cost me?” / “How soon will I see positive impacts?”
Cost of Implementation
Many contractors and suppliers immediately believe that they will not be able to implement without extensive retooling and expensive software capabilities. Many of these companies already have some of the required weekly tools. Weekly earned value is NOT as ominous as it may sound. Here are some questions to consider:
• Do you have job-order costing?
• Do you have manufacturing standards?
• Do you have systems that provide hourly, daily, and weekly information—including labor?
• Do you status Build-To-Package daily and/or weekly already?
• Do you have shop floor control systems in place?
If you already have these tools/processes today, the only additional changes required for weekly earned value are the interfaces for the integrated cost/schedule systems, and the additional labor required for IPTs and CSIs to assess progress against milestones. It should be emphasized, however, that initially more labor hours will be required each week to support this effort, but there should be a corresponding decrease to monthly CDRL labor hours, since most of the groundwork, explanations, and corrective action plans have already been completed or initiated.
Non-recurring costs include system interface development required for multi-team /company/supplier integration and initial EVMS weekly hands-on training. Recurring costs include periodic follow-up training, additional CSI resources (depending on the size of the Program/IPT structure), and weekly performance assessment expended by the IPT and CSI (approximately six hours each week).
JSF Lessons Learned and Benefits of Weekly Earned Value
The LM JSF team implemented weekly earned value on the CDP program two years into contract award. The team plans to incorporate the many lessons learned into the EMD program. It is recommended to implement weekly earned value before the program starts. This will minimize the system costs and will be less disruptive.
The primary benefit of the implementation of weekly earned value is the real-time management of technical, cost and schedule performance. There is a sustained focus on meeting milestones by project managers and IPT leads. Potential problems are identified early allowing corrective action and mitigation to be implemented at a much earlier time frame. The management of performance on a weekly basis helps to bound “run-away” activities to a one- to two-week corrective action and impact realization instead of two to three months. It also facilitates timely trend analysis—“are we doing better?” or “are we doing worse?” which is even more critical. Thus, the Estimate-at-Completion (EAC) has a higher fidelity because it is reviewed much more frequently.
Weekly earned value enables the early mitigation of cost, schedule, and technical risk.
In summary, project managers need to manage the cost and schedule weekly vs. reporting the data monthly. Weekly earned value provides the tool to manage within the cost and schedule. It will increase the probability of meeting customer, program and financial objectives. The biggest challenge is changing the reactive management culture of reporting the data instead of the proactive culture of managing cost and schedule real-time. Weekly earned value is a project management tool that assists the program manager/IPT lead by facilitating the EARLY mitigation of cost, schedule, and technical risk resulting in increased customer confidence and improved competitive competency.
Proceedings of the Project Management Institute Annual Seminars & Symposium
November 1–10, 2001 • Nashville,Tenn., USA