1. Department of the Interior CPIC Forum Department of the Interior CPIC Forum Better Control of Cost and Schedule Variance through Earned Value Management January 10, 2008 Office of Acquisition and Property Management

2. Department of the Interior January 2008 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

3. Department of the Interior January 2008 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%)

4. Department of the Interior January 2008 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

5. Department of the Interior January 2008 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

6. Department of the Interior January 2008 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?

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

8. Department of the Interior January 2008 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

9. Department of the Interior January 2008 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."

10. Department of the Interior January 2008 10 Three Measurements for 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

11. Department of the Interior January 2008 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

12. Department of the Interior January 2008 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

13. Department of the Interior January 2008 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

14. Department of the Interior January 2008 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

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

16. Department of the Interior January 2008 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

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

18. Department of the Interior January 2008 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.

19. Department of the Interior January 2008 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

20. Department of the Interior January 2008 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’

21. Department of the Interior January 2008 21 Setting Up an EVMS 1.Develop Sound Statement of Work (SOW) 2.Determine Reporting Requirements 3.Develop WBS to Appropriate Level 4.Develop Project Schedule Structured in accord with WBS 5.Develop Resource Requirements/Budget Based on approved scope (WBS) 6.Develop Schedule and Cost Baseline a.k.a Performance Measurement Baseline (PMB) 7.Integrated Baseline Review (IBR) Definition

22. Department of the Interior January 2008 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

23. Department of the Interior January 2008 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

24. Department of the Interior January 2008 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