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Is the Cumulative SCI-based EAC an Upper Bound to the Final Cost of Post A-12 Contracts

Overview. BackgroundThe A12 and the Beach ReportEVM and index-based EACsMethodologyThe database and sampleHypothesis testingResultsConclusion. Background. The A12 cancellation and Beach ReportLack of cost realismAn abiding cultural problemA catalyst for changeA range of EACsCPI-based

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Is the Cumulative SCI-based EAC an Upper Bound to the Final Cost of Post A-12 Contracts

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    1. Is the Cumulative SCI-based EAC an Upper Bound to the Final Cost of Post A-12 Contracts? David S. Christensen, Ph.D. School of Business Southern Utah University 2004 SCEA Conference (Los Angeles)

    2. Overview Background The A12 and the Beach Report EVM and index-based EACs Methodology The database and sample Hypothesis testing Results Conclusion

    3. Background The A12 cancellation and Beach Report Lack of cost realism An abiding cultural problem A catalyst for change A range of EACs CPI-based EAC: a lower-bound SCI-based EAC: an upper bound?

    5. The EAC Range To encourage cost realism, the DOD required a range of EACs (c1992) The cum CPI-based EAC became the lower-bound (optimistic, or best case), with AFIT research supporting the policy 64 pre-A12 contracts (Christensen 1996) 52 post-A12 contracts (Christensen and Rees 2002) The cum SCI-based EAC is often assumed to be a reasonable upper-bound (pessimistic, or worst-case), but there has never been any research on a large-sample of completed contracts to support the assumption

    6. What the Experts Say The SCI-based EAC is “a worst-case scenario (Humphreys & Associates 2002:683) “used to forecast the high-end cost requirements of any project” (Fleming and Koppelman 2001:136) “an upper-end or ceiling” (DAU, EAC training module)

    7. Methodology Hypothesis: The EAC computed using the cumulative SCI is a reasonable upper bound to final cost Database: DAES (over 500 contracts since 1971) Sample: Nonrandom (120 post-A12 contracts) Hypothesis testing: Average DAC evaluated at early, middle, and late stages of contract completion using one-sided t-test Sensitivity analysis: contract type, phase, service

    8. Results The cumulative SCI-based EAC is not an upper-bound to the EAC. The cumulative SCI-based EAC is a lower bound in the early and middle stages of contract completion. The average DAC was significantly less than zero (p < 0.000) The results showed some sensitivity to contact type, phase, and managing service.

    10. Discussion The cum CPI-based EAC as lower-bound resulted in more cost realism The contractor and government EACs on the A12 program were lower than the cum CPI-based EAC An understated EAC was common practice (Christensen 1996) Post-A12 EACs have been more realistic (Christensen 2002) Perhaps it’s time to raise to lower-bound to the cum SCI-based EAC BMDO has standardized EAC calculations on the cum SCI (Bachman 2001)

    14. Conclusion The cum SCI-based EAC is a floor to final cost in early and middle stages of contract completion The cum CPI-based EAC as a floor created more cost realism The cum SCI-based EAC as a floor will likely create more realistic estimates Kaizen

    15. Backup Slides

    16. EAC Formula

    17. EAC Formula

    18. Performance Factor

    19. Cost Performance Index

    20. Schedule Performance Index

    21. Combinations of CPI and SPI CPI x SPI

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