RELATIONSHIP-OBJECTIVE ANALYSIS

1. RELATIONSHIP-OBJECTIVE ANALYSIS Getting Full Value From Earned Value With a Value-Added Way of Looking at Performance Measurement Presented By Will Gran Windmill International, Inc. Nashua, New Hampshire 03060-5830 (603) 888-5502 Presented at the 14th Annual International Integrated Program Management Conference Tysons Corner Sheraton Premiere Hotel November 19, 2002

2. Value-Added From Earned Value • Review some basics • Traditional analyses • Line graph presentation • EAC formula • Relationship-Objective Analysis • Variances • Efficiencies • Resource use rates • Estimates at completion • Some closing thoughts . . .

3. When I Say . . . I Mean . . . Planned Value BCWS Completed Value BCWP Resources Used ACWP Remaining Planned Value BCWR Baseline Total Value BAC Resource Value Variance CV Time Value Variance SV Resource Use Efficiency Index CPI Time Value Efficiency Index SPI Contract At Cost TC Contract At Price TP Contract Liability CP

4. EVMS 32 Criteria • Industry Standard EIA 748, paragraph 2.4.f “Develop revised estimates of cost at completion based on performance to date, commitment values for material, and estimates of future conditions. Compare this information with the performance measurement baseline to identify variances at completion important to company management and any applicable customer reporting requirements including statements of funding requirements.”

5. Performance Analysis Process • Objective analysis from the data: • Status performance to time now • Look for performance trends • Compare tends with a baseline plan • Project performance trends into the future • Relate projected trends to some meaningful objective • Subjective analysis from information: • Investigate root causes of variances • Identify future influencing factors and risk • Adjust projected trends • Assess resource requirements • Compare with contract parameters

6. Traditional Performance Analysis The Line Graph X-Axis: Passage of time Years, quarters, months, weeks, days, etc. Y-Axis: Measure of Resources Dollars, items, lengths, volumes, etc.

7. The Line Graph

8. Line Graph Charts The presentation is limiting . . . • Depicts absolute values versus a time scale • That focus on performance history • Difficult to identify trends • Difficult to compare trends to a baseline plan • Difficult to develop credible cost projections to completion

9. Estimate At Completion Formula EAC = Actuals + PF X Remaining Planned Value • Assumes Performance Factor will be a constant • And 1 unit of Planned Value will convert to 1+/- unit of Actual The Estimate At Completion Formula • Provides a point estimate • Is a limited predictive metric • That inherently underestimates overruns • And inherently underestimates underruns

10. The Traditional Analyses Line Graph Charts and the Estimate At Completion Formula Provide partial value from Earned Value

11. Why The Difference In EACs?

12. Work Completed Percent Complete = X 100 Baseline Total Value Resources Value Percent Of (Objective) = X 100 Value Of (Objective) A Different Look At Performance Relationship-Objective Analysis X-Axis: Value of work completed Y-Axis: Progress toward an (Objective)

13. Relationship-Objective Graph An X - Y Scatter Diagram

14. An (Objective) May Be • Baseline Total Value • Estimate At Completion • Contract At Cost • Contract At Price • Contract Liability • Or any general (Objective) that is a specific resource value

15. Variance As Percent Line Graph

16. Completed Value - Planned Value Time Variance = X 100 Baseline Total Value Completed Value - Resources Used Resource Variance = X 100 Baseline Total Value Variances As % Of Baseline Plan • Deviation from baseline time plan • Deviation from baseline resource plan Reduces volatility of variance trends in early periods of the project.

17. Variances As % Of Baseline Plan An X - Y Scatter Diagram

18. Completed Value Resource Use Efficiency Index Since Start = X 100 Resources Used Completed Value Time Value Efficiency Index Since Start = X 100 Planned Value Performance Efficiency Since Start • Value of work completed with resources used • History of past performance efficiency • Efficient > 100% • Inefficient < 100%

19. Resource Use Efficiency Since Start An X - Y Scatter Diagram

20. Remaining Planned Value Efficiency Index To Meet (Objective) = X 100 (Objective) Resources Remaining Baseline Total Value - Completed Value Efficiency Index To Meet (Objective) = X 100 (Objective) - Resources Used Performance Efficiency To Finish • Ability to accomplish work within (Objective) • Future performance required

21. Resource Use Efficiency To Finish

22. Resources Used Planned Value Resource Use as % Of (Objective) = Planned Value as % Of (Objective) = X 100 X 100 (Objective) (Objective) Completed Value Completed Value as % Of (Objective) = X 100 (Objective) Rate Of Using Resources • History of a “resource burn rate”

23. Rate Of Using Resources

24. Estimate At Completion (EAC) EAC = Actuals + PF X Remaining Planned Value • Assumes Performance Factor will be a constant • And 1 unit of Planned Value will convert to 1+/- unit of Actual The Estimate At Completion Formula • Provides a point estimate • Is a limited predictive metric • That inherently underestimates overruns • And inherently underestimates underruns

25. Performance Factors Should be related to performance Cumulative ~ Resource Use Efficiency Index Running Average ~ Resource Use Efficiency Index (Period of Time) Product ~ Resource Use Efficiency Index X Time Value Efficiency Index Weighted ~ 0.8 Resource Use Efficiency Index + 0.2 Time Value Efficiency Index Time Value Kicker ~ Resource Use Efficiency Index + 0.2 Time Value Efficiency Index

26. Estimate At Completion

27. Trend Line Projection Analysis • Identify performance trend • Select set of data to project trend • Determine “best fit” line • Y-Axis intercept • Slope of “best fit” line • Extrapolate to 100% complete Projects performance trend to end of effort

28. Resource Use Trend Projection

29. EAC Trend Projection

30. Best Case - Worse Case - Most Likely

31. Thoughts While Showering . . . • Focus on the BIG picture first, then dig deeper • Volatility indicates poor baseline plan, poor discipline, or both • Watch for front loading due to optimistic planning • Significant change in scope creates a new baseline • Don’t be fooled by the early “resource variance hump” • Time variances are associated with Work-In-Progress • Time variances disappear when work is completed • Resource variances accumulate when work is completed • Time variances lead resource variances • Look for long term trends and assess impacts

32. Thoughts While Shaving . . . • An Index produces a ratio • EAC formula produces a point estimate • EAC as percent of an (Objective) produces a rate of change • Trends usually appear before 20% Complete • Relationship-Objective Analysis extrapolates rate of change trend to completion . . . . . . And gives you Full Value from Earned Value

33. Thoughts While Sitting . . . • The Performance Factor is not constant as the Estimate At Completion formula assumes • The trend of the Performance factor is the key determining parameter for the most realistic Estimate At Completion • Understand which Performance factor should be the best predictor and why

34. Agathe Christie Says . . . “Getting Full Value from Earned Value with Relationship-Objective Analysis is like a good detective story. The main characters are introduced, the plot is established, and the clues to Who Dunit emerge in the first 20% of the story.”