Integrated Risk and Earned Value Management

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1 Integrated and Earned Value Management 2007 NDIA Systems Engineering Conference San Diego, CA October 24, 2007 Paul Davis Northrop Grumman Corporation

2 Contents Uncertainty management premises State of industry As-Is risk management Baseline planning identification Monitoring and control Integration approaches Summary 2

3 3 Uncertainty Management Premises A failure to meet project objectives is a failure in uncertainty management Uncertainty management management (RM) minimizing negative consequences Opportunity management maximizing positive consequences management = Uncertainty management Uncertainty management Affects project execution Changes the project future by Identifying uncertainty Measuring uncertainty exposure (likelihood X impact) Improving effective of uncertainty handling Improving decision making to successfully achieve objectives Improved decision making a key focus

4 State of Industry NDIA - Program Management Systems Committee Survey* RM and EVM integration Oct 2003 to Jun respondents Study findings: RM and EVM have separate process owners 76% of the time System engineering Program management Project control Business/financial management management seldom predicts near-term issues Failure to to integrate RM, RM, costrisrisk analysis, and and EVM EVM cost- contributes to to overruns. The The program manager is is denied denied clear clear visibility of of quantitative RM RM that that could could increase the the probability of of mission success. Peter Peter Teets, Teets, former former Under Under Secretary Secretary of of the the Air Air Force Force Majority (70%) strongly believes in the value of integrated RM and EVM even though only 34% said they were successfully integrating them 4 * Integrating Management with Earned Value Management, at

5 Typical As-Is Management Scope Definition Develop PM Plan Direct & Manage Project Execution Integrated Change Control Monitor and Control Project Work RM and PM operate as parallel processes Plan for Management Processes interface through planning & change control Minimal risk consideration in routine decision making management effectiveness not evaluated Document Identify Analyze Handle Monitor 5

6 As-Is Management Process Capability Cost Control 0.8 Descriptive Statistics Past Performance Contract References % Confidence Interval for Mu Enter average, 1.1 standard 1.2deviation, and spec limits X = s = USL = LSL = 95% Confidence Interval for Median Variable: CPI Inverse Anderson-Darling Normality Test A-Squared: P-Value: Mean StDev Variance Skewness Kurtosis N Minimum 1st Quartile Median 3rd Quartile Maximum E % Confidence Interval for Mu % Confidence Interval for Sigma % Confidence Interval for Median Less than 25% of projects meet budgeted costs Xbar S 0.14 USL 1 LSL 0.77 sigma 2. Label a Normal curve Average Standard deviation USL (and shade to LEFT for Area 1) LSL (and shade to LEFT for Area 2) s USL LSL S 6 Average costs exceed budgeted costs by 10.7% X X + s CPI -1

7 Project Baseline Planning Integrating Management Scope Definition Develop PM Plan Direct & Manage Project Execution Integrated Change Control Monitor and Control Project Work Plan for Management Plans that include risk handling with accomplishment criteria identification that is comprehensive and decision based handling activities/actions in project schedules and logs Scheduled risk management monitoring and control reviews Document Identify Analyze Handle Monitor 7 Effective Management Actions are Comprehensive

8 A Structured and Opportunity Identification (SROI) Approach Is Effective in Identifying More Uncertainties Comparison of Uniform Distribution of s with SRI s Comparison of risk counts from uniformly distributed risks over a (5 X 5) likelihood-by-impact linear risk space Uniform with Distribution average SRI counts Counts from 6 SRI pilot projects Conclusions from analyzing risks from the six SRI pilot projects: - Project risk identification identifies most high exposure risks (16-25) - Low exposure risks (1-5) remain unidentified even with SRI Count Exposure Unidentified risks 50% of risks 20% of risk exposure SRI identified risks 42% of risks 55% of risk exposure Project-identified risks 8% of risks 25% of risk exposure 8

9 Integrating Monitoring and Control with Project Monitoring and Control Scope Definition Develop PM Plan Direct & Manage Project Execution Integrated Change Control Monitor and Control Project Work Management Planning Quantifies Quantify cost, cost, schedule, and and performance technical risk impacts exposure Include exposures performance-based included in cost/schedule earned value metrics forecasts Estimates Include impacts at complete in technical/cost/schedule (EAC) computed with forecasts the addition Assess estimates of risk and at opportunity complete probabilistically exposures considering management uncertainty tracked distributions by EAC, CPI and SPI Identification Qualitative & Quantitative Analysis Response Planning Monitoring and Control 9 Integrated RM & EVM assists decision making

10 RM and EVM Integration Approaches Barriers to risk management integration* Contractual incentives Technology - tools RM or EVM process maturity Internal/external management cultures RM-EVM integration approaches EAC with and without risk exposure Residual uncertainties in forecasts with statistical profiles and EAC ellipses handling earned value monitoring residual risks monitored against plans Cost and schedule performance indices (CPI and SPI) monitoring and control Organizational Baseline instability 1.4 Emotional Focus on risk handling, not mechanics Budg et Cost Factor EAC Uncertainty X Performance Period 10 * Integrating Management with Earned Value Management, NDIA Study Report 2005

11 Earned Value Monitoring Measures Handling Effectiveness Monitors actual handling performance against plans 30 Planned RE Actual RE Lower Control Upper Control Performance-based earned R value measures A means to measure uncertainty management effectiveness performance Measures effectiveness of uncertainty management, not just task completion Exposure Triggers uncertainty management corrective actions SRR SDR PDR CDR TRR Milestone 11 R Performance-Based Earned Value is registered with the U.S. Patent and Trademark Office by Paul Solomon.

12 Cost/Schedule Performance Monitoring Provides Leading Indicators for Corrective Action Management Process Effectiveness Monitoring Cost/Schedule Performance Index CPI SPI Negative Trends in monthly CPI and SPI triggers corrective actions 9/5/ /25/ /14/2005 2/2/2006 3/24/2006 5/13/2006 7/2/2006 Calendar Time 12

13 Summary RM-EVM integration provides leading indicators that increase response time and probability of success A structured risk identification approach increases risk assessment comprehension Quantified uncertainty metrics are a basis for effective management Alternative RM-EVM integration approaches can be selected to meet project needs Focus on uncertainty handling and project decision making -- not on uncertainty computation mechanics 13

EARNED VALUE MANAGEMENT. Is it worth the effort?

EARNED VALUE MANAGEMENT. Is it worth the effort? EARNED VALUE MANAGEMENT Is it worth the effort? Session Objectives Examples of earned value in use. Why don t more Project Managers use EMV? Road Map to EVA Maturity? What you need to know? How is our