The New Management Revolution:Integrating Contractor Performancewith Agency Budgets

Mr. Wayne AbbaOUSD(A&T)API/PM

ASMC PDI ‘97

Earned Value

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4. TITLE AND SUBTITLEThe New Management Revolution: Integrating Contractor Performance with AgencyBudgetsUnclassified

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9. SPONSORING/MONITORING AGENCY NAME AND ADDRESSOUSD(AT&L)Acquisition Resources & Analysis/Acquisition Management,

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Standard Form 298 (Rev. 8-98)Prescribed by ANSI Std Z39.18

Outline

l Review - Earned Value Conceptl Acquisition Reform Legislationl Office of Management & Budget

» Circular A-11 Part 3– Principles of Budgeting for

Capital Asset Acquisitions– Capital Programming Guide

l Relationships & Summary

The Punchline

l General consensus:

The FederalGovernment needsto better manage theplanning, budgetingand acquisition of fixedassets, includinginformation technology

Before weget into allthe details let’s talk basics

Purpose of Earned Value:Effective Management

Spend Plan» Planned $1M/week» Planned $3M to date

» Actual cost $2M» $1M favorable???

Earned Value» Planned $1M/week» Planned $3M to date» Earned $1M (66% behind)» Actual $2M (100% overrun)» EAC $8M, 8 weeks late

Contract: 4 miles of railroad track in 4 weeks for $4 million.Status: After 3 weeks, only $2 million has been spent.Question: How are you doing (and how do you know)? *

* Source: GAO Report May 97

Earned Value:Integrated Management

EVMS

Cost

Schedule Technical

Fully FundedPrograms

Integrated Management

Work Breakdown Structure

Airframe Propulsion Air Vehicle Applications S/W

Air Vehicle Systems Engrg/Program Mgmnt

System Test &Evaluation

Aircraft System

Program “Dictionary” (defines the program)

J F M A M J J A S O N D

8

14

12

Budget 6

10

12

8

12

10

8

Control Account Budget = 100BCWS = 38

Control Account Budget = 100BCWS = 38

Earned Value ConceptBudgeted Cost for Work Scheduled (what you planned to do)

BCWS 6

8

7*

6*

5*

6*

* 50-50 method used for work in process

J F M A M J J A S O N D

8

14

12

Budget 6

10

12

8

Control Account Budget = 100BCWS = 38BCWP = 33“Schedule Variance” = - 5

Control Account Budget = 100BCWS = 38BCWP = 33“Schedule Variance” = - 5

* 50-50 method used for work in process

Earned Value ConceptBudgeted Cost for Work Performed (Earned Value-what you did)

BCWP 6

4*

7*

6*

0

6*

4*

Work progressingbehind schedule

Work progressingbehind schedule

Work progressing ahead of schedule

Work progressing ahead of schedule

12

10

8

Earned Value ConceptActual Cost of Work Performed (what it cost to do what you did)

Actual Costof Work

Performed(ACWP)

Actual Costof Work

Performed(ACWP)

3737

Budgeted Costfor Work

Performed(BCWP)

Budgeted Costfor Work

Performed(BCWP)

3333

Budgeted Costfor Work

Scheduled(BCWS)

Budgeted Costfor Work

Scheduled(BCWS)

3838

ScheduleVariance

ScheduleVariance - 5- 5

CostVariance

CostVariance - 4- 4

Control Account Budget = 100

Estimated Cost at Completion = ?

The Earned Value ConceptSummary

Earned Value Management:Origins

1960s-• Complex Programs• Multiple Customers• Need for Improved Management

PERT COST• Resource-loaded networks• 10 versions by ‘64

Industry Issues:• “How-to-manage”• Inefficiency

Earned Value Management:Origins (cont’d)

Industry BestPractices

Government Requirements

Criterion-based Management• Brief statements of attributes• Not “how-to”• Not a system• Minimum acceptable standard

1967: DoD Instruction 7000.2Cost/Schedule Control Systems

Criteria (C/SCSC)

1997: DoD Regulation 5000.2-REarned Value Management

Systems (EVMS) Criteria

Earned Value Policy:DoD 5000.2-R, Appendix VI

l 32 Criteria:» Organization» Planning, Scheduling &

Budgeting» Accounting Considerations» Analysis & Management

Reports» Revisions & Data

Maintenance

l Mirrors Industry Guidelines

IndustryStandardGuidelines

ADPA/NSIAAIA, EIA

ASA, SCA

DoD Earned Value Policy

l Reaffirmed-» ADL Study - 1984» TQM Report - 1991» DoDI 5000.2 - 1991» DoDIG Report - 1993» C&L/TASC - 1994» DoD 5000.2-R - 1996» OMB Circular A-11

Part 3 - 1996» GAO Report - 1997

E V M S

Reform Legislation

l GovernmentPerformance and ResultsAct (GPRA), 1993

l Federal AcquisitionStreamlining Act (FASA),(Title V), 1994

l Information TechnologyManagement Reform Act(ITMRA), 1996» “Clinger/Cohen”

Acquisition Reform is connected to 3 federal acts

Is therean inter-mission ?

Purpose of the Acts

Provides for establishment andevaluation of performance standardsand goals for expenditure of theFederal budget

GPRA

Requires reporting of cost, scheduleand performance goals for asset management and evaluation of progress

FASA(V)

Requires reporting of performance ininformation systems acquisition

ITMRA

Circular A-11, Part 3: Planning,Budgeting & Acquisition of Fixed Assets

So what is thiscircular and whatimpact DOES it have?

Note:“Fixed Asset” hassince changed to“Capital Asset”

A-11 Part 3 Objectives

• provide guidance and identify requirementsfor planning, budgeting and acquisitionmanagement of fixed assets

• unify guidance for the collection of agencyinformation that FASA and ITMRA requireOMB to report to Congress

• ensure that acquisition plans support themission statements, performance goalsand plans developed per GPRA

It is designed to

Capital Assets: Definition

l Capital assets are» Land, Structures, Equipment» Intellectual property (including software)» Useful life of two years or more» Additions, improvements, replacements

l Capital assets may be acquired by» Purchase, construction, manufacture» Lease-purchase or other capital lease» Operating lease

Capital Assets: Examples

l Office buildingsl Hospitals, schoolsl Laboratoriesl Prisonsl Dams, power plantsl Furniture, elevatorsl Printing pressesl Motor vehicles

l Airplanes, shipsl Satellitesl Space exploration

equipmentl Info. technology

hardware/softwarel DoD weapons systemsl etc…..

A-11, Part 3 (cont’d)

A-11 also addressesissues regarding fullfunding, a new ideafor some agencies.

Principles of Budgeting forCapital Asset Acquisitions

l Planning» Supports core mission» ROI > alternative uses

of public resources» Risk is understood

l Costs & Benefits» Including life-cycle» Cost/Sched/Perf

goals measurableusing EVMS

l Principles of Financing» Fully funded

l Risk Management» Analyzed & managed» Appropriate allocation

– Government– Contractor

» Controlled & monitoredusing EVMS

» Formal review process

Performance Measures

StrategicGoals

PerformanceGoals

PerformanceIndicators

• Mission• Long-term Goals

• Annual goals• Specific element of a strategic goal

• A measure of progress toward a performance goal - quantity - quality - timeliness - cost - outcome

“Three Pesky Questions:”

1. Is function tied to agency mission?2. Could another entity do it better?3. Have processes been reengineered to give best performance at lowest cost?

Performance-basedManagement: The Key?

l Shift focus to programexecution

l Provide for regular andsystematic measurementof program performancecompared to goals

l Emphasize results(outcomes and outputs)

EVMS

Baseline Goals

l Cost and ScheduleGoals

l Performance Goals

So what getsreported to OMB?

Cost and Schedule Goals

l Cost» Total project cost» Timephased by stage

l Schedule» Total duration» Significant interim

milestones

&

Nothing new to DoDhere, but...

Cost and Schedule VarianceReporting

l If cost or schedule is10% or more aboveor behind plan,respectively» Analyze variances» Discuss corrective

actions» Propose revisions if

goals can’t be met

Performance Goalsl These should clearly

define the technical orother results expected

l Wherever possible, theyshould be quantitative

l Describe the probabilityof accomplishment, i.e.what is the degree of

Risk

Performance Goal VarianceReporting

l If there is any*deviation from thebaseline plan forperformance goals» Analyze variances» Discuss corrective

actions» Propose revisions if

goals can’t be met

* 10% for DoD

Management Alternatives

l Find the resourcesl Adjust program to stay within resources

» Must meet baseline goals unless OMBapproves revisions

» Proposed revisions must be justified, withan estimated probability of achievement

l Cancel?

Earned Value Managementand A-11 Part 3

l A-11 requires a descriptionof the performance-basedmanagement system usedby contractors

l Asks whether it is an EVMSsystem and, if not

l Explain how the systemprovides measures ofaccomplishment vs plannedschedule and actual cost

A-11 sees a key role for EVMS

Earned Value and A-11, Part 3

Earned Valuefrom EVMS

Cost&

ScheduleGoals

PerformanceGoals

Quantitative

Qualitative

Whataboutthis?

The Next Steps

l OMB Capital Programming Guide» Basic reference» Replaces OMB A-109» Not prescriptive

l OMB trainingl Continue Cooperation

» American ProjectManagement Forum

l Reporting/contract types?

Capital Assets• EVMS

In Conclusion

l A-11 Part 3 officially extendsDoD-pioneered performancemeasurement to all agencies-and applies to DoD

l It effectively mandates EarnedValue Management as thebasis for performance-basedmanagement systems

l Earned Value Home Page: http://www.acq.osd.mil/pm

So, maybe there is somethinghere for me.