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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