Where in the schedule is your budget?

Walt Berkey, Manager of Management Systems, Lockheed Martin Joann Hudson, Lockheed Martin

I'm going to describe a scenario:

You are the Program Manager reviewing the current performance for your program. The lead engineer has just finished her presentation. One program function is a bit behind in completing a schedule task but the problem is being addressed. The next major program milestone dependent on this task is four months off but still can be completed on schedule. Then comes the presentation by the financial analyst. He displays the program Earned Value Management (EVM) chart and the program has a significant negative schedule variance in this same area. Has this happened to you? Why are the schedule and cost views so different?

A key question in this situation is “Where in the schedule is your budget?” If the budget is not time phased consistent with the scheduled work—that is the baseline is not integrated—then the EVM schedule metrics, Schedule Performance Index and Schedule Variance, will not be useful to you, the Program Manager, or your Customer, or the Company Management.

An integrated Technical work scope, Cost, and Schedule baseline has always been a required foundation for Earned Value Management Systems. I know this is not new news to you. But how does a program develop an integrated baseline effectively and efficiently? Intuitively, a process based on a resource loaded schedule would be a method. But it hasn't been that easy to do. Historically, scheduling tools didn't perform cost functions well and vice versa but that situation is beginning to change.

Paradigm Shifts

Integrated Product Development Methodology/Integrated Product Teams

In the early 1990s the Air Force analyzed the value of Integrated Product Teams (IPTs) and published the Integrated Product Development (IPD) White Paper in April 1993. IPD was implemented in the daily management of Space and Missile Systems programs. The following is the AFMC definition of IPD: “Integrated Product Development is a philosophy that systematically employs a teaming of functional disciplines to integrate and concurrently apply all necessary processes to produce an effective and efficient product that satisfies customer's needs.” This event changed the landscape and definition of “What is an Integrated Baseline?”

To support the needs of the IPTs, the baseline needs to be a single integrated baseline, not three separate baselines (i.e., Technical work scope, Cost and Schedule) that are linked in some manner!

Earned Value Management Systems, ANSI/EIA 748–1998

A guide for establishment and application of an integrated management system with coordination of work scope, schedule, and cost objectives and application of earned value methods for program or enterprise planning and control was adopted by the Electronic Industries Association in accordance with the American National Standards Institute (ANSI) patent policy on May 19, 1998. The basic concepts recognized by industry for an Earned Value Management System are:

Plan all work scope for the program to completion

Integrate program work scope, schedule, and cost objectives into a baseline plan against which accomplishments may be measured

Objectively assess accomplishments at the work performance level

Analyze significant variances from the plan and forecast impacts

Provide data to higher levels for management decision-making and implementation of management actions.

Schedule Tool Improvements

Over the last several years a number of commercial scheduling tools have expanded their functionality to support task resource loading. A few have taken the next step to cost those resources and to support automatic calculation of EVM metrics. In searching for a scheduling tool supporting an integrated performance management process, there are several key cost functions to look for:

• Costing algorithms including applying burden and escalating costs through time.

• Support for the traditional EV claiming methods such as Percent Complete, 0/100, 50/50, and Level of Effort.

• Calculation of EVM metrics including SPI, CPI, SV, and CV to provide the ITP manager immediate feedback of statusing results.

• Element of Cost visibility including prime dollars and burden dollars.

• Business accounting calendar support (Start/Stop Dates and Hours per Month).

• Progress (activity bar shading) based on EVM Schedule Variance.

• Activity ID rollup capability for cost as well as schedule metrics.

• Ability to export data in Accounting Time-phased formats for integration with Cost tools.

Exhibit 1. Integrated Baseline Development Process

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Where We Need to Be

In addition to the fact that the expectation of baseline integration has become more stringent, the typical contract period of performance is shrinking significantly. For a contract two years or less in length, it is critical to establish the baseline and begin measuring against it as quickly as possible. Because of these factors, we established an objective to be able to implement an integrated Technical work scope/Schedule/Cost baseline (or major baseline revision/engineering change) within 30 days, and support performance measurement in that first month of performance as well. Of course this objective is only achievable if the technical plan is well-defined and quality summary and intermediate level schedules exist at the beginning of the process.

Integrated Baseline Development Process

The program management elements to be baselined are the technical work scope, the schedule for completing the work, and the cost of performing the work. The integrated baseline development process established is based on using a resource loaded schedule to assure baseline integration and to speed and simplify the development of the cost baseline. Exhibit 1 defines the steps in an integrated baseline development process. The following paragraphs describe each of those steps.

Authority to Proceed

The process begins with authority to proceed (ATP). Based on the CWBS and SOW from the customer, the WBS is extended to the Control Account (CA) level where both the technical work scope and ownership are established.

Develop the Integrated Master Plan

The technical team responsible for the work scope develops the Integrated Master Plan (IMP), a high-level, event driven plan defining significant accomplishments that must be achieved in order to satisfy the program requirements and milestones. Additionally, for each accomplishment identified, “Exit Criteria” required to satisfy the accomplishment are identified. Technical Plan risks are identified and in parallel, the program office develops Control Account cost bogies using the negotiated price with Management Reserve (MR) reductions.

Establish the Integrated Master Schedule

The IMP (interim milestones with exit criteria) reflects the technical plan or approach that will be used to achieve the customer requirements and should correlate to the intermediate level schedule, which supports the customer schedule objectives. The Control Account bogies define constraints required to achieve program cost objectives. With these elements in place, a kickoff meeting for the IPT managers is held to go over various aspects of the baseline process. IPT managers plan the detail portions of the Integrated Master Schedule (IMS) conforming to the IMP. IMS task definition includes documenting the task exit criteria. This effort defines the technical work scope tasks to be accomplished. Each task is traceable to the IMP (key event or milestone) and to a Control Account.

Task durations and dependencies are defined for the IMS tasks in order to develop a networked schedule. Schedule risks identified as a result of critical path analysis of the networked IMS may result in reworking the IMP. For example, critical path analysis may indicate the need to extend the design phase. In order to hold customer schedule objectives, the technical plan (IMP) may be reworked to support more parallel development thereby shortening the development window.

Exhibit 2. Integrated Performance Management Process

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Tasks within the planning horizon (typically required to complete a schedule milestone within three to six months) are further decomposed as needed to provide the required insight into schedule progress and staffing needs. All tasks must have clearly defined exit criteria and must have a single owner responsible for revisions and progress. Generally, tasks within the planning horizon should be six weeks or less in duration to support objective earned value claiming and to simplify the application of resources to the tasks.

Apply Resources and Cost Resources

Resources required to complete each schedule task are now applied. To facilitate replanning, it is desirable to level load the resources, i.e., apply the same average load each day for the task duration. Level loading makes replanning a one-step process (revise dates) rather than a two-step process (revise dates and the staffing profile). Additionally, level loading within a scheduling tool (with accounting calendar recognition) eliminates the need for the user to think in accounting month intervals. The tool performs the translation of task resource assignment to accounting month values. Tasks may be further decomposed to make level loading a realistic profile. When required resources may be profiled. The resource requirements should be traceable to the basis of estimate or justification sheets. The types of resources to consider include the labor required to complete the tasks, purchased items, other direct costs such as computer charges or travel, and assets such as labs required for testing. The scheduling tool automatically costs the resources and provides (directly or indirectly though a database) the resulting time-phased staffing profiles and spend plans by business accounting month.

Costs for all tasks tiering to a Control Account are summed and compared to its cost bogey. The plans are analyzed to ensure that the staffing plan is feasible and the spend plan meets customer requirements. In addition, asset utilization may be reviewed for over commitment. Risk areas are identified. Risk mitigation actions to address problems, e.g., an unrealistic staffing profile, may require reworking the networked IMS.

Resource loading tasks in a scheduling tool with cost functionality significantly increases the integrity of the staffing plan and spend plan and drastically reduces the effort required for replanning cycles.

Baseline the Plan

The IMS tasks and their work scope define the Technical baseline. The IMS is, of course, the schedule baseline. The cost baseline is a product of the resource loaded IMS. In other words, when baselined, the IMS is an integrated Technical work scope/Schedule/Cost baseline with no manual effort required to verify integration.

Tasks within the planning horizon and within the same Control Account are grouped into open chargeable Work Packages for purposes of collecting actual costs and are assigned the appropriate Earned Value methodology. Tasks beyond the planning horizon are collected in Future Work Package(s). In essence then, an Open Chargeable Work Package is a collection of short duration IMS tasks with exit criteria, time phased costs, and an Earned Value methodology—a Performance Measurement Plan. As we will see in the Integrated Performance Management Process discussion that follows, statusing the IMS equals statusing the Performance Measurement Plan. The Control Account Plan (CAP) is simply the collection of all IMS tasks associated with the Control Account.

The remaining baselining activity is to place the IMS under configuration management and to transmit the cost baseline to the company cost tool or controlled database.

Using a resource loaded schedule minimizes the effort required to baseline the plan once it has been approved. The CAP and Performance Measurement Plan, standard products required for the baseline process, are simply special views of the IMS. The cost baseline is developed directly from the timephased resource data.

Integrated Performance Management Process

The program elements to be measured or statused in the performance process are the progress toward completing the technical work scope, the schedule for completing the work, and the cost of completing the work. These three elements cannot be treated as independent elements with separate baselines as they have been in the past. Problems in technical development delay schedule. Delays in schedule drive up costs. Management actions to reduce cost risk must affect the technical work scope and/or the schedule for completing the work. In other words, the performance management process must address all three elements in an integrated and interlocking manner to ensure that accurate and timely data is available to the management team.

Exhibit 2 illustrates the Integrated Performance Management Process. The key steps of the process are:

• Accurate and efficient measurement (statusing) against that baseline in order to track progress toward program goals.

• Regular analysis of progress, key indicators such as CPI and SPI, critical path, and staffing projections.

• Monthly program review of integrated performance data with a focus on identifying technical/schedule/cost risks.

• Insightful management action plans to mitigate program risks, address program performance problems, or improve schedule or cost performance.

• Controlled and communicated baseline revisions.

The statusing step, which is significantly affected by using a scheduling tool with cost functionality, will be discussed in depth in the following section. The regular analysis of program data, monthly program review and management action plans, will be addressed only briefly in this paper. These steps operate in the same manner using the same data as today. The most significant change is that more accurate and timely data is available on which to make decisions and the data reflects an integrated view of contract performance. Baseline revision is essentially the same process discussed in the previous section.

Statusing

The integrated performance management cycle begins with the measurement or statusing phase. The IPT Manager reviews/statuses the Performance Measurement Plans (Work Packages) regularly, at least monthly and weekly as required. The status data elements include date revisions, Earned Value, and a Time-Phased Estimate to Complete (TPETC).

The following section describes a statusing process based on the use of a single tool, a scheduling tool with the requisite cost functionality, to perform the statusing function.

The Process

Each week, actual costs are imported into the IMS from the ledger system and IPT views of the IMS are refreshed. IPT Managers are notified when the refreshed schedules are available. Using the scheduling tool, the IPT manager opens his or her portion of the IMS. Status data may have been imported from more detailed schedules or metrics databases, or the IPT manager may enter the status data directly. The manager assesses the results of the status using the EVM metrics. Based on the assessment, the IPT manager revises the status or works with the technical team to address issues. At a designated time, access to the schedules by the IPT managers is disabled. The status data is transferred to the master IMS and the weekly Program Office process begins.

Schedule Revisions

The manager inputs date revisions for PMP tasks using a graphical view of his/her portion of the IMS. If downstream activities are affected by date revisions, schedule slips will be visible in real time. Since the manager is working with a graphical scheduling tool, multiple techniques for revising dates such as dragging an activity are available. As an additional benefit, data entry errors are minimized. An often-made mistake when entering dates in a tabular format is to enter the wrong year. This is immediately visible in a graphical view.

Earned Value

To understand the tool capabilities with regard to Earned Value, it is necessary to understand the cost data maintained by the scheduling tool. The scheduling tool maintains time-phased cost data by business accounting calendar months. That is, the tool carries the Authorized Budget (AB) for each Performance Measurement Plan task and automatically updates Budgeted Cost of Work Scheduled (BCWS) for each task as Time Now moves forward.

Earned Value claiming is automatic if the Earned Value method for Performance Measurement Plan tasks is Level of Effort, 0/100, or 50/50. If the method for a Performance Measurement Plan task is Percent Complete, the IPT manager enters the percent value in the designated field. In any case, the scheduling tool calculates the Budgeted Cost of Work Performed (BCWP) and the resulting EVM schedule metrics, Schedule Performance Index (SPI) and Schedule Variance (SV). When dates and Earned Value for all Performance Measurement Plan tasks have been statused, the IPT manager invokes the rollup function that rolls Performance Measurement Plan task data to the Work Package level. Actuals are available at the Work Package level and cost EVM metrics in addition to schedule EVM metrics are calculated at the Work Package level. It is at this level that the IPT manager assesses the viability of the plan using the EVM metrics.

With appropriate schedule configuration settings, progress shading at a summary activity level (Work Package) is driven by the EVM SV (i.e., SV in terms of dollars). In other words, if the SV is 0, the progress shading is to Time Now. If SV is negative, progress shading is behind time relative to the size of the negative variance with respect to the BCWS. And similarly, if SV is positive, progress shading is to the right of Time Now. Thus the IPT manager has immediate visual feedback regarding Work Package progress with respect to the Performance Management Baseline.

Time Phased Estimate to Complete

The final element of status to address is entry of the TPETC. With a resource loaded schedule and PMP tasks defined such that level loading is a reasonable profile, maintenance of the TPETC is facilitated by the scheduling tool. If the Performance Measurement Plan task moves to the right or left, the resources are moved appropriately and time-phased by business accounting month automatically by the scheduling tool. Two resource modes are provided to control the TPETC results when task durations are changed. In one mode, the average resource load per day stays constant and the total resource usage increases or decreases. This mode is appropriate for short duration measured tasks or level of effort tasks. With the second mode, the total resource usage stays constant as the duration increases or decreases while the average resource usage per day increases or decreases. Longer term measured tasks typically are assigned this mode. The IPT manager can manually profile the resource usage projection, but in doing so foregoes some of the tool's benefits.

The scheduling tool automatically costs resources at the Performance Measurement Plan task level as changes are made using forward pricing rates. When all ETC adjustments have been made, the IPT manager rolls up the data to the Work Package level. As discussed in the paragraph on Earned Value, the scheduling tool metrics, including Variance at Complete (VAC) and To Complete Cost Performance Index (TCPI), are available to support the plan viability assessment.

Benefits of Using a Resource Loaded Schedule for EVM Statusing

There are a number of benefits in using a resource loaded scheduling tool as the single interface for entering/analyzing status data. These benefits include:

• Completeness of the plan (does not allow for unpriced workload to creep into the PMB)

• Real time visibility to cost ramifications (resulting from changes to technical scope or schedule)

• Reduces the overall workload (less workload in maintaining an integrated plan)

• Consistency in reporting contractor performance (cost and schedule always integrated).

Analysis

When the statusing window is closed, the program office processes the data and generates the analysis products including:

• Tabular EVM metrics

• Trend charts for key indices

• Critical path reports

• Program and intermediate schedules

• Tabular schedule metrics

• Forward plan staffing graph and spend plan.

This set of products is the same basic set of products generated today. The key is that, while the products may present different types of data, Gantt bars on a program level schedule, tabular EVM cost data, staffing graphs, the data is driven from a single, integrated source, the IMS. The forward plan staffing graph reflects the current schedule. The progress shading on the Gantt bars is driven by the EVM Schedule Variance. The current month BCWS accurately represents the baseline schedule and thus a negative current month schedule variance is a valid early warning sign of a schedule problem.

Program Review and Management Actions

Remember the opening scenario in which the program manager receives conflicting information from the lead engineer and the financial analyst? When using the integrated baseline development and performance management processes described in this paper, the information presented by the two disciplines will agree because the information is driven from a single integrated source as indicated above. The IPT is provided with near real time performance data on which to perform risk assessments and develop mitigation plans. Program Management has an Integrated Baseline against which to evaluate and document schedule and cost impacts resulting from contract changes.

Summary

Industry seems to agree that a resource loaded schedule is a consistent approach to achieving cost and schedule integration. However, depending upon the maturity of the cost functionality within the various scheduling tools, the operational models can drastically vary. Some of the more readily accepted/easy to use scheduling tools lack the robust cost functionality needed to make a single tool work. There is a direct tradeoff between tool complexity and operational model complexity and both must be considered in the tool/model selection process.

Culture also plays a major role in many different dimensions. Traditionally, the Engineering community has viewed Earned Value Management as a “financial thing” necessary to satisfy a reporting requirement, but of little value in helping them manage the day to day business. A brief look at some of the major challenges and what “worked” may help you to define a successful road map in deploying a similar solution.

Some Challenges

• Engineers dislike statusing; it's difficult to sell them on the process.

• Process to generate all products can become overwhelming; automation is critical.

• ECPs are essential to the business but are disruptive to the performance management process.

• Subcontractor data integration (schedule tools and accounting calendars).

The Benefits

• Consistent, accurate, and timely data on which to base management action plans.

• Improved quality of status data without additional effort by the IPT management team.

• Reduced cost for the inevitable replan activity.

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.

Proceedings of the Project Management Institute Annual Seminars & Symposium
September 7–16, 2000 • Houston, Texas, USA

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