While I think the DOE/NASA approach certainly is a sound one, am I safe in assuming that eventually, a “bottom up” schedule is developed to test what I believe you have described as being a “top down” approach?

We recently completed a bottom schedule and activity based cost estimate using PERT and applying the 85% P level (mean plus 1 sigma) and the results were shocking to the client. We never got to the point where we actually ran the simulation using Pertmaster. (The cost loaded schedule was done in Primavera v 6)

As a follow up to my posting to Travis, we really should be very specific and selective in our use of the term “margin”.

BR,
Dr. PDG, hoping for electricity shortly!!! (Dial up!!!)

While I think the DOE/NASA approach certainly is a sound one, am I safe in assuming that eventually, a “bottom up” schedule is developed to test what I believe you have described as being a “top down” approach?

We recently completed a bottom schedule and activity based cost estimate using PERT and applying the 85% P level (mean plus 1 sigma) and the results were shocking to the client. We never got to the point where we actually ran the simulation using Pertmaster. (The cost loaded schedule was done in Primavera v 6)

As a follow up to my posting to Travis, we really should be very specific and selective in our use of the term “margin”.

BR,
Dr. PDG, hoping for electricity shortly!!! (Dial up!!!)

First, there are three types of contingency.

“Management Reserve.”
Covers “Unknown Unknowns”
Owned and Controlled by MANAGEMENT

“Estimating Contingency.”
Covers “Known Unknowns”
Used by either Owners or Contractors to cover the probability of underestimating time or costs. Owned and Controlled by the person establishing it.

“Risk Events Contingency.”
Covers “Known Unknowns”
Used by either Owners or Contractors to cover any known risks which have been ACCEPTED by the Owner or Contractor. For the contractor, this is his/her profit. For the owner, this is a set aside to cover uninsurable or business risks

Peter W. Ripley, Contingency! Who Owns and Manages It?, Professional Practice Guide to Contingency (AACE International CD-ROM, 2d ed.), page CSC.08.1.

Your use of the term “margin” refers only to a contractor and while it can and does apply to any of the three categories, it more traditionally applies to “Risk Events”. That is, risks that the contractor, because of his/her experience in this field or specialty, is willing to accept risks in exchange for a margin, simply because he/she believes they are better capable at managing those risks.

Owners, because they do not MAKE money DOING the project, (a project for them is a net cash outflow or investment)would never have a “margin” (more appropriate stated profit margin) What owners have are contingencies (if they are allocated) and management reserves (if they are not allocated)

While I like the use of the terms “knowns” and “unknowns” to describe the various types of risk, unless you further refine them as to the type of risk they are designed to cover, it becomes very easy to generate false or misleading S curves. (FWIW, UNALLOCATED reserves should never be part of the Performance Measurement Baseline from the OWNERS perspective, but PROFIT MARGIN (which may very well be unallocated reserve from the contractors perspective) would ALWAYS be included in the Baseline Budget, spread or allocated over time.

AACE has done a lot of solid research on this, and while they tend to have a bias towards owners, it is not hard to find applications of the same principles for contractors as well. http://www.aacei.org/technical/rp.shtml#40R-08

Hope this helps clarify and refine the use of terminilogy…..

BR,
Dr. PDG, still in the dark west of Boston……

First, there are three types of contingency.

“Management Reserve.”
Covers “Unknown Unknowns”
Owned and Controlled by MANAGEMENT

“Estimating Contingency.”
Covers “Known Unknowns”
Used by either Owners or Contractors to cover the probability of underestimating time or costs. Owned and Controlled by the person establishing it.

“Risk Events Contingency.”
Covers “Known Unknowns”
Used by either Owners or Contractors to cover any known risks which have been ACCEPTED by the Owner or Contractor. For the contractor, this is his/her profit. For the owner, this is a set aside to cover uninsurable or business risks

Peter W. Ripley, Contingency! Who Owns and Manages It?, Professional Practice Guide to Contingency (AACE International CD-ROM, 2d ed.), page CSC.08.1.

Your use of the term “margin” refers only to a contractor and while it can and does apply to any of the three categories, it more traditionally applies to “Risk Events”. That is, risks that the contractor, because of his/her experience in this field or specialty, is willing to accept risks in exchange for a margin, simply because he/she believes they are better capable at managing those risks.

Owners, because they do not MAKE money DOING the project, (a project for them is a net cash outflow or investment)would never have a “margin” (more appropriate stated profit margin) What owners have are contingencies (if they are allocated) and management reserves (if they are not allocated)

While I like the use of the terms “knowns” and “unknowns” to describe the various types of risk, unless you further refine them as to the type of risk they are designed to cover, it becomes very easy to generate false or misleading S curves. (FWIW, UNALLOCATED reserves should never be part of the Performance Measurement Baseline from the OWNERS perspective, but PROFIT MARGIN (which may very well be unallocated reserve from the contractors perspective) would ALWAYS be included in the Baseline Budget, spread or allocated over time.

AACE has done a lot of solid research on this, and while they tend to have a bias towards owners, it is not hard to find applications of the same principles for contractors as well. http://www.aacei.org/technical/rp.shtml#40R-08

Hope this helps clarify and refine the use of terminilogy…..

BR,
Dr. PDG, still in the dark west of Boston……