Tag Archives: evm

Performance Based EVM

Guest post by Travis Anderson

Hello all,

Many of us have experienced frustrations with obtaining useful program performance data. It is not always an easy process of maturing project management and earned value management best practices on our commercial/government contracts. Some days we feel like just giving up, especially during the variance analysis time of the month. Yet we know besides the fact there is a contractual requirement that deep down there is a real need for staying the course.

Useful performance data is dependent on so many different aspects of our programs that need to work in harmony such as systems/software engineering, project management, earned value management best practices. Not to mention other standard business contexts such as budget, organizational culture, individual participation, maturity of core competencies, and customer perception.

To prompt some discussion, I have attached below a one hour video link for you to view. The Performance Based Earned Value video is presented by Paul Solomon, PMP during a DoD Data Analysis Center for Software forum in August 2008.? He discusses some common performance related deficiencies and uses the concepts of PBEV to improve the usefulness of performance data by introducing a quality aspect. Topics related to CMMI, Agile, and Acquisitions are also discussed.

I am interested in your thoughts and comments.

Thanks

DoD DACS Video link ? Performance-Based Earned Value ?

https://www.thedacs.com/training/webinar_details.php?id=36

Performance-Based Earned Value ?

http://pb-ev.com/default.aspx

Activity Based Costing in Project Management

1.0?????? Introduction & Background of the Case
The purpose of this descriptive case study is not to elaborate on the complicated details of EVM, but to elaborate on the fundamentals of activity based costing (ABC) in the context of project management. The opportunity is to develop an integrated management system utilizing ABC concepts to plan, measure, and control costs that allow managers to focus on process performance and to make informed decisions along the product/service/project life cycle.

It is assumed that the reader is familiar with common project management terms. However, Figure 01: Wideman Comparative Glossary in the appendix contains a web link to Wideman Comparative Glossary of Common Project Management Terms v3.1 for those readers unfamiliar with project management terminology.

Click web link: http://www.maxwideman.com/pmglossary/index.htm

Figure 01: Wideman Comparative Glossary

(Wideman, 2002)

1.1?????? Discussion & Analysis of Critical Issues

Organizations are faced with many challenges during this time of economic recession. The most common organizational reactions are to button down the hatches, secure the turf, and start chopping staff positions. Dysfunctional organizations tend to always look in the rearview mirror and employ managers that make snap decisions without sufficient data, which often result in organizational demise. Forward looking organizations that seek out opportunities during a time of economic recession tend to focus on process improvement initiatives such as, business-process analysis; activity based costing, life cycle compression metrics, among other things.

This case study assumes the forward looking perspective. The next section introduces activity based costing, which is followed by a brief discussion of concepts and methods found during the research of several other independent case studies. Then an introduction and description of some basic project management processes. Finally, continued by a simplicity case and finally the conclusion.

2.1?????? Activity Based Costing (ABC) – Introduction
ABC was developed as a continuous improvement initiative of the accounting information system. Original, ABC was used as a product costing methodology, but is now being used as a cost management tool in many different functions of business (Awasthi, 1994, p 8). A couple of differences between ABC and traditional cost systems are 1) costs are traced to cost objects by identifying cost drivers and 2) costs are traced on the basis of the structural or hierarchical level at which costs are incurred. Therefore, ABC provides more accurate cost estimates of the product or service and the corresponding activities than traditional costing (Kee, 1995, p 49).

 

2.2?????? Activity Based Costing (ABC) – Discussion

It is important to note that in traditional costing the assumption is that products consume resources. ABC contrasts traditional costing by assuming that products consume activities and activities consume resources. Once the product or service activities are identified, costs are allocated to the product or service according to the amount incurred by those activities. This method of allocating costs provides a benefit for making decisions regarding different types of profitability and project accounting (Awasthi, 1994, pp 9-10).

There are two sets of costs related to the accuracy of ABC cost information, 1) cost of measurement and 2) cost of decision error. As the accuracy of measurement goes down the cost of decision error goes up. Detail is an important factor in the success of a ABC system, but the detail must be value add. It is important to control changes brought on by environmental factors (competition, volatility, profit margins, etc…) while still allowing for diversity throughout the life cycle of the product or service (Awasthi, 1994, p 11). So how can one ensure accuracy in measurements for better decision making? The key is to identify and analyze the most optimal cost drivers that trace the costs of the activities back to the product or service.

2.3?????? Activity Based Costing (ABC) – Activity Identification & Analysis

Cost drivers are linked to business process mapping and activity analysis in order to obtain rigid data for measurement analysis. Figure 02 depicts a two stage process that traces expenses through activities to cost objects.

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Figure 02: Basic ABC Flow

The first stage traces expenses from the department or organizational level budget to activities that are assigned to resources (labor, space, materials, and suppliers). For example, a labor resource is allocated to an activity at 100% over a duration of time equating to a unit of work converted to an activity cost. In the second stage, activity costs are traced through the activity cost drivers to the cost objects, i.e. products and/or services. This stage is concerned with explaining the causes of work and what things cost. Managers that focus on process drivers and cost drivers have a more detailed understanding of activity costs and associated activity dependencies. Therefore, managers can make better decisions on areas in need for process improvement instead of shooting from the hip (Brandt, Levine & Gourdoux, 1999, pp 22-25).

ABC provides a hierarchical structure of detail. The challenge for managers is to ensure an optimal amount of detail that achieves balance and accuracy. Next we discuss cost driver optimization.

2.4?????? Activity Based Costing (ABC) – Cost Driver Optimization
Managers chose cost drivers for planning and control purposes. Choosing too many cost drivers? and the system is bogged down creating extra costs and inefficiency problems. Managers must strive to strike a balance between accuracy benefits and costs of data management. Babad & Balachandran indicate in their article, “Cost Driver Optimization in Activity-Based Costing”, that an optimal number of cost drivers generally discriminates and captures most of the incurred costs, and identify a priority order that specifies which low-priority and relatively insignificant activities will be combined to save costs without sacrificing much accuracy (Babad & Balachandran, 1993, p 565).

At this point the concepts of ABC have been introduced and discussed as a process object for organizations to utilize. The next section expands on the project management context as it relates to ABC.

 

3.0?????? Project Management and ABC – Introduction & Background

The project manager is responsible for the scope, schedule, and budget (triple constraints) at the project level. A project is characterized as a progressively elaborated temporary endeavor undertaken to create a unique product, service, or result (PMBOK, 2004, p 5). Projects generally exist as a sub-set of the organization.

3.1?????? Project Management and ABC – Project Life Cycle

Project managers or organizations parcel projects into phases for better management control. Phases are typical identified within a life cycle. The phases of the project life cycle are depicted in Figure 03: Project Life cycle. The project life cycle is not intended to represent the project management process. The project life cycle typically defines 1) what technical work to do in each phase; 2) when the deliverables are to be generated in each phase; 3) who is involved in each phase; 4) how to control and approve each phase (PMBOK, 2004, p 20).

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Figure 03: Project Life cycle

(PMBOK, 2004, p 68)

3.2?????? Project Management and ABC – Work Breakdown Structure (WBS)

In this process, project deliverables and objectives are subdivided into smaller more manageable components. A WBS is a deliverable-oriented hierarchical decomposition of the work. This is the activity analysis concept mentioned previously in section 2.3 Activity Based Costing (ABC) – Activity Identification & Analysis. Work is planned to the lowest-level WBS component called a work package. Work packages can be scheduled, monitored, and controlled.

Figure 04: WBS Example 01 in a generic representation of a WBS. Notice the phases and deliverables located throughout the WBS. Also notice the work packages at lowest-levels of the WBS. Figure 05: WBS Example 02 is a software development representation of a WBS. The activity costs are traced to the first level and are also the phases of the project. The deliverables are at level two, where as the resource and activity drivers are at the lowest-level. As mentioned before, the lowest level is a work packages and can be scheduled, monitored, and controlled.

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Figure 04: WBS Example 01

(PMBOK, 2004, p 114)

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Figure 05: WBS Example 02

(PMBOK, 2004, p 116)

3.3?????? Project Management and ABC – Responsibility Assignment Matrix (RAM)

To define the cost objects a PM will use a RAM. Max Wideman defines the RAM as an important tool that correlates the work required by a Contract Work Breakdown Structure (CWBS) element to the functional organization responsible for accomplishing the assigned tasks. The responsibility assignment matrix is created by intersecting the CWBS with the program Organizational Breakdown Structure (OBS). This intersection identifies the cost account (Wideman, 2002). Figure 06: RAM Example 01 and Figure 07: RAM Example 02 are great examples of how cost objects are realized as cost accounts. All the activity estimates, risks, and incurred costs related to the cost account are summarized at these management control points. This gives the PM tremendous insight to the health of his/her project.

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Figure 06: RAM Example 01

(Valuation Opinions, Inc., 2008)

7

Figure 07: RAM Example 02

(Performance Management Associates, Inc., 2008)

3.4?????? Project Management and ABC – Resource Loaded Network (RLN)

A RLN is an integration of schedule and cost and is represented as a network of time phased resource loaded activities sequentially ordered across the phases of the project life cycle. A resource loaded activity is also called a work package. The longest path through the sequential network of activities is known as the critical path. The PM uses what is known as the critical path method to focus on those activities along this path to ensure the project delivers on time and within budget. A PM can exercise a critical path analyses, what-if drills, and PERT analyses to monitor time and cost impacts.? Figure 08: Critical Path represents a network of activities with the critical path indicated in bold red.

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Figure 08: Critical Path

(Construction-planning-and-control.com, 2008)

3.5?????? Project Management and ABC – Descriptive Case

Project staff utilize ABC concepts throughout the project life cycle and may not even know it. One of the first jobs for the project manager (PM) and team to conduct is a delineation of the deliverables and objectives defined in the statement of work (SOW) using ABC concepts. A simple example of this is when a project sponsor initiates the transfer of scope (deliverables and objectives) to be performed within a stated timeline and within a specific budget to the PM via the project charter. Before establishing the activity costs, the scope must be decomposed into a work breakdown structure (WBS). The PM aligns the WBS with the organizational breakdown structure (OBS) to determine control accounts and assign control account managers (CAM). CAMs develop the scope description in the WBS dictionary, which is comprised of inputs, outputs, assumptions, constraints, risks, deliverable milestones dates, among other things. The resources are assigned to activities and time phased within a resource loaded network (RLN) or more commonly known as the schedule. It is the basis of estimate (BOE) artifact that explains the rationale behind the costs related to the time-phasing of activities and substantiates the activity cost estimates. All of the appropriate technical, schedule, and cost artifacts are captured into one project management plan (PMP).The technical baseline, schedule baseline, and the cost baseline are integrated into a performance measurement baseline (PMB), which establishes the foundation for performance tracking and estimate to complete forecasting.

4.0?????? Conclusions & Recommendations

ABC is absolutely applicable in the context of project management. Organizational managers and project managers alike need a method to manage vast amounts of activities. Tracing cost to the product/service/project element gives managers an advantage to make informed decision for process improvement. ABC is one method of many and project management is the discipline of tactical processes to implement business strategy. Organizations that focus on opportunities and process improvement initiatives may just come out on top as winners in this most uncertain time of economic despair.

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References
Awasthi, V. (1994, July). ABC’s of activity-based costing. Industrial Management, 36(4), 8.
Retrieved January 24, 2009, from EBSCO MegaFILE database.
Babad, Y., & Balachandran, B. (1993, July). Cost driver optimization in activity-based costing.
Accounting Review, 68(3), 563-575. Retrieved January 24, 2009, from EBSCO
MegaFILE database.
Brandt, M., Levine, S., & Gourdoux, J. (1999, January). Application of activity-based
cost management. Professional Safety, 44(1), 22. Retrieved January 24, 2009, from
EBSCO MegaFILE database.
Construction-planning-and-control.com. (2008) Critical path. Retrieved January, 24, 2009, from

http://www.construction-planning-and-control.com/images/CPMdemoCP.jpg
Kee, R. (1995, December). Integrating activity-based costing with the theory of constraints to
enhance production-related decision-making. Accounting Horizons, 9(4), 48-61.
Retrieved January 24, 2009, from EBSCO MegaFILE database.
Performance Management Associates, Inc. (2008). Responsibility assignment matrix. Retrieved

January 24, 2009, from http://www.pmassoc.com/images/matrix.gif

Project Management Institute (PMI). (2004). A guide to the project management body of

knowledge (PMBOK Guide) (3rd ed.). Philadelphia, Pennsylvania: PMI
Schiff, J., & Schiff, A. (2008, October). Focusing on cost management during economic
downturns. Financial Executive, 24(8), 49-50. Retrieved January 24, 2009, from EBSCO
MegaFILE database.
Valuation Opinions, Inc. (2008). Responsibility assignment matrix. Retrieved January 24, 2009,

from http://www.valuation-opinions.com/ev/ram/lasso

Wideman, R. Max. (2002, March). Wideman comparative glossary of common project

management terms v3.1. Retrieved January 24, 2009, from

http://www.maxwideman.com/pmglossary/index.htm

Fast Money? No, Agile EVM!

Agile Earned Value Project Management

Agile Earned Value Project Management

…dogs and cats living together… MASS HYSTERIA! – Dr. Peter Venkman

No, it’s true!? Earned Value Management techniques can work with non-traditional project management methodologies, including Agile, Critical Chain, and Lean PM.

Today at a Sioux Empire PMI Chapter meeting here in Sioux Falls, SD I mentioned to the group that I had written a post on using EVM with Agile, linkinng to a great white paper on the topic.? Well, I tried to find it, and I couldn’t.? Now where did I put that blog post…I know it’s around here somewhere!

At any rate, here’s a new post with the link I promised (just for you Kurt!).? This is the best paper I’ve seen on using Earned Value Management in conjunction with Agile Project Management.? If you are looking for a killer Agile Project Management blog, check out Mike’s Leading Answers blog.? It’s also in the links on the pmStudent.com home page.

This paper is very short and sweet, right to the point.? It does a great job of relaying the concepts with a good dash of visuals thrown in.? After you’ve finished reviewing it, post a comment here and let’s discuss!

Agile and Earned Value Reporting, Anthony Cabri, and Mike Griffiths of Quadrus Development Inc.

Update:? Be sure to check out Glen’s comment, where he links us to another great whitepaper, Making Agile Development Work in a Government Contracting Environment.? Thanks a ton Glen!

Monitoring and Controlling in Project Management

Projects begin and end by definition. For many of us, it is about applying the concepts and best practices we learned throughout our experience as project stakeholders. Each of us starts out differently on projects. Some may initiate, some may close, perhaps planning is your forte or execution is where the action happens.

The project environment is such an exciting place to be, especially if your company supports and recognizes the value add of project management. For me it is monitoring and controls where I have captured the most valuable project experience. As a Science Application International Corporation (SAIC) Project Controller (PC) for the Landsat Data Continuity Contract (LDCC) it is my role to administer earned value, monitor and control project scope, schedule, and budget, and integrate change control in accordance to the project management plan and contract. LDCC is a development project that is a part of the U.S. Geological Survey (USGS) Landsat Data Continuity Mission (LDCM). Provided is the LDCM website link for more information on LDCM (http://ldcm.gsfc.nasa.gov/ ).

Project Life Cycle

The monitoring and controls process group is an over arching process that lasts for the entire project as represented in the line chart to the right. Before monitoring or controlling anything on a project, we must capture scope, derive requirements, develop a schedule, derive costs components, understand team dynamics, think of reporting requirements, inventory resources, be ever watchful for potential risks, and most importantly account for contract deliverables. It is then that we encompass the monitoring and controls process group around the other process groups as represented below.

Project Management Processes

Some of the best experience I received was during the development of our Resource Loaded Network (RLN) and Performance Measurement Baseline (PMB) development. The RLN helped us to identify our critical path and the associated impact of external dependencies (risk) on the project.

The RLN is just one component of the PMB. A PMB is comprised of a scope (technical) baseline, a schedule (RLN) baseline, and a cost (budget) baseline. An Earned Value Management System (EVMS) is used as a monitoring and controls tool to evaluate project performance and generate forecasts. EVMS is a whole other subject that could be expanded upon.? [Editor note:? For more on EVMS basics, see this series of posts.]

Monitoring and controls is a process group that is associated with all aspects of the project. Delivering quality results is the primary goal of a project and we owe that to our clients. It is my job to serve and assist the project stakeholders by measuring project performance on a regular basis to ensure success and in order to generate accurate forecasts. A proper monitor and controls system must be cognizant of past performance, but the emphasis is in a forward direction. My main goal is to apply the correct balance of monitoring and controls on the project so the whole team wins.