January 10, 2008 Office of Acquisition and Property Management

1. Department of the InteriorCPIC ForumBetter Control of Cost and Schedule Variancethrough Earned Value Management January 10, 2008 Office of Acquisition and Property Management

2. 2 Project Manager’s Challenges Need for accurate and consistent planning and “real time” status information Need for accurate measuring and forecasting tools • High dollar, potentially risky projects • Complex projects with many activities to track • Expectations of many stakeholders (visitors/users to OMB/Congress) • Performance metrics and milestones to meet • Competition for limited resources Department of the Interior January 2008

3. 3 Much Opportunity for Improvement 70% of projects are over budget and/or behind schedule 52% of all projects finish at 189% of their initial budget Many don’t meet original design specs and stakeholder expectations after huge investments of time and money Source: Standish Group In some DOI construction programs: 25% of projects are not completed five years after the initial appropriation 30% of completed projects have a cost variance of >10% Almost 50% of all major projects (> $10 million) had a significant cost and schedule variance (>10%) Department of the Interior January 2008

4. 4 Threats to Cost Performance • Potential Causes of Poor Cost Performance: • Inaccurate estimating data • Vaguely defined user needs and requirements • Insufficient oversight of A-E firm during design phase • Poorly defined scope that allows for scope creep • Contract provisions are not rigorously enforced to limit cost increases • Construction management is inadequate/ineffective • Complications during construction that could not be foreseen • Inordinate amount of change orders • Unfavorable market fluctuations in the cost of labor/material • Inadequate contingency for weather disruptions Department of the Interior January 2008

5. 5 Threat to Schedule Performance • Potential Causes of Poor Schedule Performance • Extensive design changes • Poorly developed schedule • Insufficient use of tools to track/manage schedule (e.g., EVM) • Contractors not held to contract performance requirements • Differing site conditions / other “unforeseen” conditions • Inordinate number of change orders • Poor performing subcontractors or venders • Competition for resources • Scope creep • Inclement weather Department of the Interior January 2008

6. 6 Answering the Critical Questions • “Have we done what we said we’d do?” • % of budget spent • % of work done • % of time elapsed • And if we don’t do what we said we’d do -- • Will the mission be adversely affected? • Will a critical health and safety risk remain? • Will ongoing completion funding be available? • Will the project be able to complete successfully? Department of the Interior January 2008

7. performance schedule Earned Value Management cost 7 Earned Value Management (EVM) Can Help EVM is aproject management tool that integrates the project scope of work with schedule and cost elements. Department of the Interior January 2008

8. 8 Earned Value Management (EVM) Strengths • Provides customers and contractors the ability to: • Examine detailed schedule information; critical program data, technical milestones; and costs • Measure a projects progress • Forecast its completion date and final cost • Identify schedule and budget variances • Take preemptive action to keep the project on track Department of the Interior January 2008

9. Requirements to Use EVM • EVM is an industry standard • Mandates Set the Stage: • Government Performance Results Act ; 1993 • Federal Acquisition Streamlining Act, Title V; 1994 • Clinger-Cohen Act; 1996 OMB Requires It (Circular A-11, Part 7) "Agencies must use a performance based acquisition management system, based on ANSI/EIA (EVMS) Standard 748, to measure achievement of the cost, schedule, and performance goals." Department of the Interior January 2008

10. 10 Three Measurementsfor EVM EVM provides consistent, numerical indicators with which you can evaluate and compare projects EVM compares the PLANNED amount of work with what has actually been COMPLETED, to determine if COST, SCHEDULE, and WORK ACCOMPLISHED are progressing as planned Work is “Earned” or credited as it is completed Department of the Interior January 2008

11. 11 EVM Terms • BCWS - Budgeted Cost of Work Scheduled Planned cost of the total amount of work scheduled to be performed by the milestone date • ACWP - Actual Cost of Work Performed Cost incurred to accomplish the work that has been done to date • BCWP - Budgeted Cost of Work Performed • The planned (not actual) cost to complete the work that has been done Department of the Interior January 2008

12. 12 Foundation of EVM EVM work is ‘compartmentalized’ (manageable segments) Compartmentalization achieved with a Work Breakdown Structure (WBS) – basic building block for all authorized work Well-planned WBS is the most important planning element Department of the Interior January 2008

13. 13 Work Breakdown Structure Design • The WBS provides a framework from which: • A project’s work content to be easily identified, tracked, and summed • Planning can be performed • Costs can be accumulated • Budgets can be established and managed • Performance can be tracked • Objectives can be linked to resources in a logical manner • Schedules and status-reporting procedures can be established • Responsibility for each element can be established Department of the Interior January 2008

14. 14 Work Breakdown Structure Design Identifies final project products (outcomes) and major deliverables necessary to meet the final products Incorporates levels of work detail appropriate for management insight and integrated control WBS reviewed and refined until project stakeholders agree that: • Project planning can be successfully completed • Managing, monitoring and control will successfully produce desired outcomes Department of the Interior January 2008

15. 15 Sample Work Breakdown Structure Department of the Interior January 2008

16. 16 WBS Units are “Work Packages” • Lowest level WBS elements • Have three measurable components • Scope of work to be accomplished • Total (direct and indirect) cost • Timeframe for completion • Duration of a work package is a relatively short span of time Department of the Interior January 2008

17. 17 Making Projections/Estimate to Complete Department of the Interior January 2008

18. 18 Metrics Derived from an EVM • SV: Schedule Variance (BCWP-BCWS) • A comparison of amount of work performed during a given period of time to what was scheduled to be performed. • A negative variance means the project is behind schedule • CV: Cost Variance (BCWP-ACWP) • A comparison of the budgeted cost of work performed with actual cost. • A negative variance means the project is over budget. Department of the Interior January 2008

19. 19 Other Derived Metrics SPI: Schedule Performance Index SPI=BCWP/BCWS SPI<1 means project is behind schedule CPI: Cost Performance Index CPI= BCWP/ACWP CPI<1 means project is over budget CSI: Cost Schedule Index (CSI=CPI x SPI) The further CSI is from 1.0, the less likely project recovery becomes Department of the Interior January 2008

20. 20 Establishing an EVMS • ANSI/EIA 748 Standard Criteria provides a list of guidelines • - Organization • - Planning, Scheduling, and Budgeting • - Accounting Considerations • - Analysis and Management Reports • - Revisions and Data Maintenance (change management) • ANSI/EIA 748 doesn’t identify ‘approved systems’ Department of the Interior January 2008

21. 21 Setting Up an EVMS • Develop Sound Statement of Work (SOW) • Determine Reporting Requirements • Develop WBS to Appropriate Level • Develop Project Schedule Structured in accord with WBS • Develop Resource Requirements/Budget Based on approved scope (WBS) • Develop Schedule and Cost Baseline a.k.a Performance Measurement Baseline (PMB) • Integrated Baseline Review (IBR) Definition Department of the Interior January 2008

22. 22 Earned Value Challenges Time required for data measurement, input, and manipulation can be considerable At the start of the project, the risk and uncertainty are highest Identify risks and plan accordingly (mitigation strategy) A project schedule must meet three criteria to be complete: buy-in, be achievable and realistic, and formal Integrated Project Management Team is actively involved Department of the Interior January 2008

23. 23 Summary Earned Value Management is a tool for performance measurement (cost and schedule) and forecasting Informal measures of progress are inaccurate Degree of planning increases with greater complexity and cost Department of the Interior January 2008

24. 24 Earned Value Resources Project Management Institute -- http://www.pmi.org/ Department of Defense, Under Secretary for Acquisition, Technology and Logistics -- http://www.acq.osd.mil/pm/ National Defense Industrial Association (NDIA) --http://www.ndia.org/ Earned Value Management CoEye (Community of Interest) -- http://www.fedevm.org/ ANSI/EIA 748 is available from Global Engineering Documents at 800-854-7179 Department of the Interior January 2008