Using planning packages to achieve earned-value goals

Abstract

Earned value management can be an intimidating subject. To think that one must identify the complete program plan, tasks, and schedule to be measured against at the beginning of the project is a daunting task. From our experience gained in measuring earned value, the use of planning packages has provided projects an opportunity to more completely define tasks after the onset of the project. As the project is executed and reaches these planning package milestones, the Planning Packages can then be better detailed within the earned-value management system. This process allows for the program to stay on-track without being re-baselined, and provides a better opportunity to achieve the earned-value goals for the program.

Introduction

Earned value and the associated methods is a powerful tool for managing project scope, schedule, and cost. Forecasting cost and schedule at completion can be effectively accomplished by methodically calculating variances and tracking the project’s performance indices. Credible results, whether positive or negative can only be achieved however if the proper planning is done at the onset. Budgeting time and cost will always be difficult, since the future is hard to predict. Allocating to a planning package during this budget planning process can be an effective means of predicting the effort without trying to define a task that is not yet well understood.

The budgeting process begins during the proposal phase of a potential contract. The cost estimate developed during the proposal phase becomes the basis for the budget baseline. This information is updated upon contract negotiation/award and is reflected in the approved baseline. This baseline may be further reduced should the Project Manager establish Management Reserve. The budget remaining is used for establishing detailed account budgets. Through an iterative planning process, each detailed account is planned by activities, resources, and constraints and is summarized in time-phased budget increments. These time-phased budgets are established in what is referred to as planning packages.

Proposal/Budget Baseline Relationships

The budgeting process begins during the proposal phase of a potential contract. The cost estimate developed during the proposal phase becomes the basis for the contract budget baseline. This information is updated upon contract negotiation/award and is reflected in the approved Performance Measurement Baseline (PMB).

As a result of contract negotiation, the Contract Target Price and Contract Target Cost are established. The Performance Measurement Baseline (PMB) may be further reduced should the Project Manager establish Management Reserve. The budget remaining is for establishing detailed Control Account Budgets. The Project Manager initiates the PMB process. Through an iterative process, which includes network & scheduling definitions, and resource loading, each Control Account is planned by activities, resources, and constraints and is summarized in timephased budget increments. This timephased plan is referred to as the Budgeted Cost for Work Scheduled (BCWS). The sum of all Control Account BCWS amounts with their associated Indirect Cost added to Undistributed Budget creates the PMB.

Establishing the Contract Baseline

The baseline is established when these four distinct elements have been defined (BAE Systems -System Decription):

  • A clearly defined contract Statement of Work
  • An integrated and traceable contract schedule
  • Control Account Plans that integrate scope of work, schedule and budget traceable to the baseline
  • A budget structure that has the concurrence of each responsible performer

The establishment of the contract baseline involves three integrated subsystems: budgeting, scheduling, and work authorization. This paper describes only the budgeting subsystem, and the scheduling and work authorization subsystems are only referenced to provide an overview of the entire system. After establishing the contract baseline, a smooth transition from proposal to contract will occur as the proposal data is refined.

NOTE: The following flow-chart describes the budgeting process flow:

Budgeting process flow

Exhibit 1 – Budgeting process flow

Budget Baseline Management

The distribution of the Contract Target Cost is maintained in the Contract Baseline Log (CBL). A CBL is maintained and reconciled monthly for each contract by Planning & Control/Contract Analysis. The CBL provides total traceability of contract budget from the point of issuance of the contract Project Authorizations through the issuance of Work Package Authorizations.

For example, the CBL documents the following changes (BAE Systems -System Description):

  • Contract modifications
  • Formal reprogramming (all formal reprogramming requires customer notification)
  • Transfer of budget from Management Reserve
  • Assignment of Undistributed Budget to applicable accounts
  • Budget transfers involving accounting adjustments and work transfers (make/buy revisions, transfer of responsibilities, etc.)
  • Replanning actions performed for remaining effort within the recognized total allocated budget. The conditions under which replanning may be accomplished are:
    • Any portion of a Control Account (unopened Work Packages scheduled to start beyond the next accounting month) may be replanned on a ‘to-go’ basis only, as long as the total value and the schedule end date of the Control Account remain unchanged. This is to compensate for internal conditions that affect the planning and scheduling of remaining work.
    • Schedule end date or value changes (Management Reserve adjustment) to Work Packages that have been planned but not opened will be documented to show the change and the reason.
    • Revised technical, schedule or organizational plans may affect open Work Packages. Open Work Packages are examined by each Control Account Manager to determine the impact. Those open Work Packages that are directly affected are closed, BCWS is then set equal to BCWP, and ACWP remains unchanged. The open Work Package’s remaining work (i.e., BAC-BCWP) plus unopened affected Work Packages and Planning Packages are changed. The result of additions or deletions of a statement of work within a Control Account are recorded in the Contract Baseline Log.
    • Other replanning as agreed to by the customer on a case-by-case basis.

Management Reserve Budget

Management Reserve budget is an amount of contract budget set aside at the start of the program by the Project Manager. The sum of the PMB and Management Reserve equals the Contract Budget Base. Management Reserve is established to provide budget coverage for the contract statements of work, which must be performed, but were of an unknown nature at the beginning of the program. Management Reserve budget is not assigned to specific segments of work and is therefore not considered part of the PMB, although it is a part of the CBB.

The Project Manager or designee has authority and control over the discretionary use of the Management Reserve budget. Management Reserve is maintained only at the project level.

Undistributed Budget

Undistributed Budget (UB) is an amount within the total PMB that has scope but has not been detail planned to the Control account level. Upon contract award, the entire budget is UB. UB will be distributed to the Cost Account level and to MR as soon as practical. Our intention is to have all new contracts planned within a maximum of 90 days following contract award.

In the case of authorized unpriced work, UB may be used to hold budget until definitization. This is done to avoid unnecessary adjustments to Control Account budgets following negotiation of the change. Our common practice is to use the estimated value of the cost of the change and enter this amount of budget into the UB. If beginning work prior to definitization is necessary, budget for the near-term work is negotiated between the PM and CAM before distribution to the Control Account level. The balance is held in UB until definitization. Upon definitization, the balance is either distributed to Control Accounts, MR, or a combination of these elements.

Distributed Budget

Distributed Budget (DB) is the timephased budget plan against which work performance is measured. It is formed by the assignment of detailed budgets to scheduled tasks, with the addition of appropriate indirect costs making up the Control Account budgets. Future effort that is not detail planned at the Control Account level (Planning Package) or at a higher level of the CWBS is held in Undistributed Budget.

Control Account Budgets

The Control Account budget is that part of the CBB and PMB which has been allocated to the Control Account. The authorized tasks and budget allocated to each Control Account are unique to a single CWBS element and a single responsible organizational element where work will be accomplished.
The Control Account Manager is responsible for managing the workscope assigned. This requires dividing the Control Account statement of work into manageable elements known as Work Packages or Planning Packages. Timephased budgets in hours or dollars by element of cost are developed for each Work Package or Planning Package.

Work Package Budgets

Work Packages are a subdivision of a Control Account, and constitute the basic building blocks used in planning, measuring accomplishment and controlling direction on a program. A Work Package is simply a lower level task or work assignment having the following characteristics: (BAE Systems -System Description)

  • Is identified to the Control Account of which it is part
  • Represents units of work depicted as hours or dollars at the level where the work is performed
  • Has a unique WBS number
  • Has unique lot number assigned to labor work packages
  • Is assigned to a single functional organization
  • Is clearly distinguishable from all other Work Packages
  • Has a task description that describes the work to be accomplished
  • Has a performance measurement technique associated with it to assess each activity or milestone being performed.
  • Has a duration limited to a relatively short span of time and/or is subdivided into activities or milestones that can be used to objectively measure work in progress
  • Is integrated within the project schedule
  • Has a total budget value expressed in dollars and/or hours
  • Segregates labor into separate Work Packages from major non-labor cost drivers (e.g., travel, material, etc.)
  • Segregates major timephasing of labor with significant rate differentials into separate Work Packages.

Work Package length refers to the budget timephasing within the individual Work Package. Discrete Work Packages should be kept as short as possible to maximize objective performance measurement for earned value.

Work Packages should be planned to the natural conclusion of the effort. As a guideline, the duration of a discrete Work Package should not exceed 6 to 9 months. Objective indicators are used to measure performance of discrete work packages. Level-of-Effort (LOE) Work Packages are generally longer in length than discrete Work Packages. As a general rule, these Work Packages should not be longer than 12 months.

Planning Packages

Planning Packages are created to describe work within a Control Account that will occur in future time periods which are beyond those of established Work Packages. There may or may not be Planning Packages in a Control Account. A single Planning Package per Control Account is common though. Planning Packages must have a statement of work and timephased budget. Planning Packages must be defined by one or more activities each with an associated schedule and budget allocation. Specific Planning Package activities do not have to be stated in as much detail as is required for activities in Work Packages. When any given Planning Package activity is converted into Work Packages, the scope and associated budget will be converted to the extent practicable into Work Packages. Planning Packages must be reviewed routinely to ensure conversion to Work Packages or retimephased to avoid rolling into the current period schedule. Planning Packages must be converted to Work Packages prior to any charges being incurred for the effort.

Example of using a planning package: A good example of this was taken from a recent program in which my team was the subcontractor, and had responsibility for earned value management. The work area was the Integration and Test effort. We had the resources planned by month stating in January 2006. Due to the delays in completing a milestone checkpoint, the planning package was not detail planned, but moved to the right. The original effort was all in one planning package, but the when detail planning took place, 2 Work Packages with several activities were planned. These tasks were planned using a discrete earned value planning technique. Where appropriate, some of the tasks within the original work package were planned as Level of Effort, such as engineering management of the test function.

Rolling Wave

The rolling wave concept represents the progressive subdivision of gross or aggregate contract planning into its component parts, and is a continuous process throughout the contract period of performance. Each period, the plan is moved forward by a corresponding amount. The Rolling Wave concept is best described as the refinement of detailed work planning by continuous subdivision of far-term activities in near-term work packages tasks (Wideman, 2002). Initially, the gross or aggregate contract planning is represented by the establishment of CBB upon contract award. Subsequently, the Project Manager, Functional Managers, and the CAMs begin the process of distributing the CBB to the maximum practicable extent to form the PMB.

The rolling wave planning process, which periodically converts Planning Package effort to Work Packages, attempts to assure that sufficient budget is available over the contract life span and that front loading is minimized or eliminated. The control of the budget occurs as a result of cost and schedule planning for the near term, as general allocations remain for the out periods.

Conclusion

Planning Packages represent far-term work that is identified, scheduled and budgeted, but is not yet detail planned into Work Packages. Although the planning and budgeting process for an earned value tracked program is exhaustive, the use of techniques such as creating Planning Packages and Rolling Wave management can help to better insure reaching your goals. When Planning Packages are detail planned into Work Packages, a performance measurement technique is established. Placing the estimated high-level tasks budget into a planning package, allows the program to establish a baseline without committing to specific detailed tasks that are not yet completely identified. As the program progresses and the Control Account Managers are ready to perform the tasks that are related to the planning package. The planning package is opened and defined to the appropriate task-level. Moving the effort to define detailed tasks to be in close proximity to the work being done helps programs achieve their earned value goals, and reduces the anxiety that comes with it.

Glossary

Budgeted Cost of Work Scheduled (BCWS): The sum of budgets for all work packages, Planning Packages, and similar items scheduled to be accomplished, plus the amount of level of effort and apportioned effort scheduled to be accomplished within a given time period. (Wideman, 2002)

Definitization: Finalizing the scope of a contract beyond that defined in the original contract.

Contract Target Price (CTP): Total negotiated contract value including all estimated, target, or fixed fee.

Fee/Profit: Estimated target, or target fee/or profit.

Contract Target Cost (CTC): The negotiated Contract Target Price less the fee/profit.

Authorized Unpriced Work (AUW): Authorized work which has not been definitized.

Contract Budget Base (CBB): This is the true starting point in the internal budgeting process. The CBB represents the financial authorization of the contract and is based on the negotiated contract cost (i.e., price less fee). The CBB is equal to the negotiated cost for definitized work and the estimated cost for all authorized but unpriced work. At the start of the contract, the CBB is equal to the negotiated Contract Target Cost (CTC) for FPI or CPI contracts or the Contract Estimated Cost for CPFF contracts. The CBB is maintained by Planning & Control/Contract Analysis and revised only by authorized contract changes. The CBB is always reconcilable to the Contract Target Cost.

Management Reserve (MR): Management Reserve is a portion of the contract budget base set aside by the Project Manager at the start of the program to cover unanticipated contract requirements. See paragraph 6.5 for a further discussion of MR.

Over Target Baseline (OTB): Increase in the Performance Measurement Baseline (PMB) due to formal reprogramming with prior customer approval.

Performance Measurement Baseline (PMB): The PMB is the sum of all allocated budgets by element of cost for which contract performance is measured. The PMB is the sum of both the distributed budgets and the Undistributed Budget (described below). The PMB is also equal to the CBB less MR unless the contract has been formally reprogrammed with prior customer approval. A contract that has been formally reprogrammed is the only situation in which the PMB may exceed the CBB.

Undistributed Budget (UB): Undistributed Budget is budget that has not yet been identified to a specific CWBS element or organizational element at or below the lowest level of reporting to the Customer.

Distributed Budget (DB): Timephased effort identified in specific Control Account budgets and assigned to the appropriate organizational area.

Control Account Budgets: Control Accounts have a specified statement of work, a detail schedule, and a timephased budget. The sum of Work Packages and Planning Packages represents the total Control Account budget.

Work Package Budgets: Work Packages are a subdivision of a Control Account and constitute the basic building blocks used in planning, measuring accomplishment and controlling direction of a program. They are made up of LOE, discrete or apportioned effort.

Planning Package Budget: An aggregation of far-term work within a Control Account that can be identified, scheduled, and budgeted but is not yet detail planned into Work Packages.

Reimers, Jackie, BAE System- System Description Document – BAE Systems – Section 06 [Electronic Version] (2004)

Reimers, Jackie, BAE System- System Description Document – BAE Systems – Section 14 [Electronic Version] (2004)

Montgomery, James BAE Systems - Project Cost/Schedule Control System Description – Planning Package Definition [Electronic Version] (1997)

Wideman, Max. (2002) Wideman Comparative Glossary of Project Management Terms v3.1, Retrieved from http://www.maxwideman.com/pmglossary/PMG_R06.htm

This material has been reproduced with the permission of the copyright owner. Unauthorized reproduction of this material is strictly prohibited. For permission to reproduce this material, please contact PMI or any listed author.

©2006 Timothy J. Pasko
Originally published as part of 2006 PMI Global Congress Proceedings – Seattle Washington

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