Maximizing the Value of Schedule Risk Assessments (SRAs)

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Quick Summary

  • SRAs are only as valuable as the intent and quality behind them. Treating them as a check-the-box compliance requirement produces meaningless results that get filed away and never used.
  • Real-world examples show how cost pressure and last-minute guidance changes at kickoff can derail an SRA, leaving project teams with outputs no one trusts or acts on.
  • Focusing three-point estimates on tasks that drive critical and near-critical paths delivers real insight without the prohibitive cost of analyzing every task in a large IMS.
  • Documented assumptions for selected tasks produce derived duration factors that are far more accurate than gut-feel percentages, and the difference shows up directly in the SRA results.

A previous blog, Schedule Risk Assessment Fundamentals, highlighted that when properly used, schedule risk assessments (SRAs) are a powerful management tool that can contribute to project success. It does, however, require a high-quality integrated master schedule (IMS) that is integrated with a disciplined risk management process. When conducted with the intention to gain a realistic view of schedule outcomes and risk drivers, it provides management with additional insight and an early warning indicator of potential threats to meeting schedule objectives.

The Challenge with Conducting SRAs

Schedule risk assessments are frequently a topic of discussion in project management circles and sometimes for the wrong reason. A well-run SRA can provide the confidence levels for achieving different schedule end dates as well as valuable insight into the IMS. However, the SRA is particularly susceptible to the “garbage in – garbage out” (GIGO) principle.

H&A consultants have recently observed discussions that indicate SRAs are not being properly performed or used to help manage projects. Some of these observations reinforce the GIGO principle.

One H&A senior consultant sat in on a meeting with the government program manager for a large project where the consultant, having worked on the just-completed SRA, asked the government program manager what they would do with the results. The amazingly honest answer was, “Sadly, it will just be filed. It is seen as a check-the-box thing we have to do.”

Using the results of the SRA to stuff the drawer might not be as wild a response as it seems. Too many times, we see the SRA being done in a perfunctory manner using inputs that will not yield useful management information and insight. One way people are cutting corners on the SRA is by applying global factors to the existing duration estimates and running the simulation with those durations. Applying a formula across the board is not the same as analysis. Yes, the SRA can be done so poorly it is meaningless. This is especially true if the applied factors are not realistic.

An Example of What to Avoid

One of our consultants observed that in one case the best of intentions were thwarted in the SRA by cost pressures and lack of management commitment. The manager of the SRA provided a form to each CAM for them to provide the best case, worst case, and most likely case duration estimates and provide written explanations for all three cases. The instructions were for the CAMs to use the form for every incomplete task and future task.

There were about 10,000 such tasks distributed among 70 or so CAMs. On average, that would be 140+ tasks for each CAM. Doing three-point estimates for 140 tasks would be a large expense and consume a lot of valuable time, without even mentioning the cost.

The government program manager, who pays the bills, was present at the kickoff meeting for the SRA and intervened immediately when he heard the directions being provided. He stated that he would not pay for all that effort; it would be too costly. Unfortunately, there was no probing to find out what would be reasonable to this manager in terms of details for the SRA.

Instructions for this SRA were revised on-the-fly and the SRA was done. It was done poorly; in some parts due to the disruption at the kickoff meeting and the poor guidance. The intervention of the government program manager had left the impression that the SRA “was not worth it.” That impression was wrong.

The idea of documenting the three-point estimates is a good one, but too time-consuming to be applied to every task. There are valid options that can still benefit from this detailed look at the durations, yet avoid the significant expense of analyzing all the tasks.

A Better Approach

One approach is to do a detailed analysis of the three-point estimates for specific selected tasks that reduces the number of tasks that require detailed manual estimation. The focus should be on the tasks that provide insight into the part of the IMS most likely to cause the end date or a major event date to change. Examples include those tasks that are:

  1. On one or more of the top number of critical paths.
  2. On the path to the next major event (these tasks can be found using the driving path approach).
  3. Known to be or assumed to be prone to duration risk.
  4. Known to require scarce resources that may have limited availability.
  5. Believed to be drivers of duration risk for other reasons.

A simple example will help to understand why documenting the three-point estimates for some tasks is basic to achieving a useful SRA. If you, acting as a CAM, were asked to estimate the time required to drive 10 miles from your home to work by car in a hypothetical town, you would want to understand the scope of the effort. A drive of 10 miles through the countryside, or on a freeway, or on city streets can be very different.

stylized road map of confusing roads

Some help with the assumptions could improve your estimate. If you were told that the first 5 miles of the drive was in town, where the speed limit is 25 mph with the potential for red lights along the way, and the last 5 miles is on the freeway, where the speed limit is 60 mph, this would help you produce a better estimate.

In fact, you will get a better estimate by understanding the scope, the assumptions, the risks, and so on. When doing the three-point estimate, you would employ a process that includes these steps that consider:

  1. The nature of the task. What exactly is to be done in the task?
  2. Past experience. Have we done this or similar work before?
  3. Capabilities. For example, can you drive, does your car work well, can you go up to 60 mph in your car, do you have gas, and are you equipped for potential weather?
  4. Assumptions. How many traffic lights are there along the way? How long would you wait at a red light? What time of year is it? What day of the week? What time of day?
  5. The risks. Are there possible road issues, such as construction? How about traffic issues? Accidents?

Now, suppose you were required to document your estimated durations. Using the assumption details from above, you might end up with this:

CaseDurationAssumptions
Best17 minutesA dry day, early in the morning before traffic, you have all green lights, and you obey the speed limit.
Most Likely23 minutesThe road is fine, first 5 miles is at 25 mph. Only 2 red lights with a wait time of 2 minutes each, and 7 minutes for freeway travel at 45 mph.
Worst Case32 minutesThe road is slippery and you can only travel at 20 mph. You must stop at 3 red lights and sit for 2 minutes each. You have one unexpected stop for 4 minutes because of other drivers. Also, the freeway speed is only 45 mph.

You now have a set of durations you can use in the SRA. You also have the details needed for explaining the duration estimate. Additionally, there is enough information to be able to change the estimates if presented with new facts or revised assumptions. For example, perhaps the project’s period of performance moves to the right and the work will now be performed in the winter. You can adjust your estimates for winter weather impacts.

You also have enough information to be able to derive factors to be used in formulae to generate three-point estimates for other tasks. Be careful to make sure you only use the information to generate a factor on similar work. In this case, the factors would be -26% and +39%. Those are derived factors. For comparison, a common “gut feel” reaction to the question of what factors should be used is usually more like minus 5% and plus 10%. Using derived factors versus a “gut feel” will yield significant differences in the SRA and the value of the results.

Recommendations to Increase the Value of an SRA

Begin with the intention to treat the SRA as the important and valuable tool it is. Choose to change the approach from a “check-the-box” or compliance mentality into a straightforward process that helps to produce a more realistic and executable IMS. No one likes schedule or resulting cost surprises as discussed in another blog, Maintaining a Credible Estimate at Completion (EAC), that also addresses why a credible forecast completion date is equally important. Here are a few suggestions to improve your approach to conducting SRAs:

  1. Provide clear, specific directions to project personnel on what is expected. Highlight why the SRA is an important step.
  2. Verify a quality IMS has been established.
  3. Validate the risk information.
  4. Do focused analysis of discrete tasks on a given number of critical and near-critical paths and document the rationale for the best/worst/most-likely case durations.
  5. Do focused analysis on driving path tasks if not on the critical paths.
  6. Do focused analysis on known risks.
  7. Use realistic factors derived from reality when applying factors to the larger body of IMS tasks.

Taking Action

Producing a quality IMS takes skilled master schedulers that understand the management and predictive value of a well-constructed schedule. The next step up to improve the realism of the IMS is to conduct an SRA when it makes sense. Examples include conducting an SRA as part of the process to establish the baseline schedule, when there is major change, or before a major event such as a Critical Design Review (CDR).

It is not an easy task to distill the steps to conduct a value-added SRA into a well-defined and useful process. H&A master schedulers and risk subject matter experts often work with clients to establish a pragmatic SRA process. They also train and mentor project teams on how to use the SRA outputs to produce realistic schedules with a higher probability of success. Call us today to get started.

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Revitalizing Earned Value Management Systems (EVMS)

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Revitalizing Earned Value Management Systems (EVMS)

Quick Summary

  • Regulatory changes and updated standards are creating an opportunity to revitalize EVM Systems. The FAR overhaul, revised agency thresholds, and the EIA-748-E streamlined requirements while reinforcing the continued need for an effective EVMS.
  • Organizations have an opportunity to refocus on value-driven EVM practices. Rather than treating EVMS as a check-the-box requirement, this is an opportunity to renovate bloated processes and remove non-value-added activities to establish a flexible “living” system that supports proactive project management and credible forecasting.
  • BI and AI tools can transform EVM data into a real-time decision-making advantage. When supported by reliable, integrated data, these tools can rapidly organize information, improve visibility, identify risks early, and help project teams respond faster to changing priorities as well as technical, schedule, and cost challenges.

With the recent changes in the government regulatory requirements, the publication of the EIA-748-E Standard for EVMS, and evolving Business Intelligence (BI) and AI tools, the components for revitalizing Earned Value Management Systems (EVMS) are falling into place. This is an opportunity to refocus on the original purpose of an EVMS and effective use of real-time EVM data to quickly address problems before they become critical.

As highlighted in a previous blog, “Earned Value Management (EVM): How Much is Enough?”, being merely “compliant” with the EIA-748 Guidelines should not be the goal. That strategy fails to take advantage of the benefits of an EVMS; it is also short-sighted. Too often an EVMS is perceived as a contractual check-the-box exercise or focused on detailed score keeping.

The goal should be about being efficiently expert at EVM; a commitment to become “best-in-class” as expert practitioners of EVM. Following this strategy, an organization’s EVMS is actively maintained and used to ensure it provides relevant, useful information needed to manage projects for success. EVM is a powerful project management methodology that integrates scope, schedule, and cost management to provide a clear picture of project performance, the forecast completion date, and estimate at completion. BI and AI tools are enhancing the ability to rapidly organize and analyze real-time EVM data for proactive management and clear transparent communication with the customer. This also aligns with the need for speed in delivering capabilities to the customer when trade offs between requirements, schedule, and cost must be made.

Trimming Contractual and Guideline Requirements

The regulatory environment has been evolving; government entities are either simplifying or changing the requirements for an EVMS. As a reminder, the Capital Programming Guide Supplement to the Office of Management and Budget (OMB) Circular A-11 Planning, Budgeting, and Acquisition of Capital Assets establishes the government major acquisition requirements for an EVMS. This Guide states contractors must use an EVMS that meets the EIA-748 guideline requirements to monitor contract performance. All agency EVMS regulations point to the A-11.

A summary of recent changes follows.

Revolutionary Federal Acquisition Regulation (FAR) Overhaul that began in May 2025 focused on removing most non-statutory rules and rewriting requirements in plain language. Subpart 34.2 – Earned Value Management System was trimmed to the basic EVMS and Integrated Baseline Review (IBR) requirements. The Pre-Award IBR and Notice of EVMS Post-Award IBR clauses were removed; it now just states an IBR is required. Subpart 52.234-4 – Contract Clause for EVMS text was streamlined. Key takeaways: Reaffirmed the value of an EVMS and IBRs. What is unchanged: An EVMS is required for major acquisitions for development contracts, requirements flow down to subcontractors, and IBRs are required.

Defense Federal Acquisition Regulation Supplement (DFARS) Class Deviations (2026-O0011 February 2026), in response to the FAR Overhaul. Subpart 234.2 Earned Value Management System, 234.201 Policy raised the contract value threshold from ≥ $20M to ≥ $50M for EVMS reporting and incorporated the 2015 Class Deviation Memo increasing the contract value threshold for compliance reviews to ≥ $100M. There are also new related Class Deviation Clauses: 252.234-7001 is now 252.234-7998 Notice of EVMS; 252.234-7002 is now 252.234-7999 EVMS.

NASA FAR Supplement 1834.201 Policy Class Deviation (June 2025) as well as their solicitation clause (1852.234-1) and contract clause (1852.234-2) align with the DoD contract value threshold changes and revised clauses.

National Nuclear Security Administration (NNSA). Although NNSA is part of the DOE, as of September 2025 they are the Cognizant Federal Agency (CFA) for NNSA projects. They purposely simplified their compliance and surveillance process to be able to rapidly respond to threats. Contractors self-assess their EVMS. NNSA uses an EIA-748 Guideline checklist, reviews data artifacts, and conducts interviews for evidence of compliance. Certification reviews are required when the Total Project Cost is > $300M and are subject to surveillance reviews.

EIA-748-E Standard for EVMS approved and published in February 2026. This long overdue update reduced the number of guidelines to 27 and reflects current business system capabilities. The previous set of 32 guidelines were revised or merged, two were added, and four were deleted to improve clarity.

With the publication of the EIA-748-E, industry guides as well as government agency compliance and surveillance review materials have been or are in the process of being updated. The NDIA IPMD Intent Guide for EIA-748-E will be available on the NDIA IPMD web site once it completes the membership review and approval process. The DoD Earned Value Management System Interpretation Guide (EVMSIG) is also being updated to reflect the EIA-748-E. Once the EVMSIG is published the DCMA EVMS Group will be updating their Business Practices, appendices, and EVMS Compliance Metrics (DECM). DCMA has already trimmed their DECMs to a set of 60 standard, 10 conditional, and 72 low priority tests.

Impact of BI and AI Enabled Tools and Apps

BI and AI tools speed up the process to pull data from different sources for defined use cases and to organize it for analysis. The time lag to view current data can be eliminated with the right business system interfaces and tools. These tools can quickly produce a variety of dashboards or data views with the ability to drill down into the data as well as to sort and filter as needed for root cause analysis. AI agents designed for specific use cases can also speed up the process to organize and present data for real-time decision making. These dashboards and views can be tailored for specific users such as project managers, control account managers (CAMs), functional managers, schedulers, finance, material or subcontract management, and others.

Taking advantage of BI and AI does require a defined enterprise strategy to successfully leverage these powerful tools. Data is the backbone of any AI model – data is needed to “teach” AI how to spot patterns and make predictions. This includes the vast volume of an organization’s transaction records, analytics, and proprietary information across multiple systems.

The problem? Organizations often lack a consistent, verified version of data (the single source of truth) – there is uncertainty about what data should be used to analyze and “feed” their AI models. Internal proprietary data must not be exposed to the outside world. The single source of truth must exist in a governed and curated environment; it must be organized and integrated with a defined data model to be able to analyze real-time streams of data while avoiding multiple versions of the truth.

The challenge is that many organizations are still doing their enterprise planning, including estimating, budgeting and many other functions, in spreadsheets. It is not accessible to others or captured in a common database. Employees end up debating discrepancies between spreadsheets rather than analyzing the data in question.

Once the system that contains the official single source of truth has been determined and how data is organized and integrated, there are a variety of commercial off the shelf (COTS) tools available for the next step. Employees (the power users) familiar with BI and AI tools can quickly turn ideas into apps in a matter of hours or days that help them and their team to get things done. They can quickly build business environment specific dashboards, analyze real-time data pulled from various data sets, and produce outputs designed for different users or use cases.

Putting All the Pieces Together

What are the three primary takeaways?

The requirement to provide a fact-based assessment of project progress and forecast isn’t going away. The FAR overhaul didn’t do away with EVMS or the related fundamental requirements. It does, however, require organizations to be efficiently expert at EVM. A “living” EVMS (i.e., actively maintained and used) that can be scaled/tailored to management needs for each project is essential.

Changes to the requirements provides an opportunity to update “bloated” processes and procedures or that haven’t been updated to reflect new tools. Since the EVMS will need to be reviewed anyway to verify it supports the revised guidelines as well as updated agency requirements, there may be non-value added content or steps that can be eliminated.

BI and AI tools are useful for organizing real-time data into actionable information. Organizations taking advantage of these tools can rapidly respond to realized or emerging risks and changing scope or priorities in response to evolving threats. This creates a competitive advantage.

Returning to a Focus on Proactive Management

This is an opportunity to return to the original objective of an EVMS: timely and relevant information for proactive decision making to ensure project success and a happy customer. The effectiveness of an EVMS should be measured by the technical, schedule, and cost performance metrics. Product acceptance and in-process controls are examples of technical performance metrics. Schedule status and forecast, cumulative to date cost performance index (CPI), estimate at completion (EAC), and the to complete performance index (TCPI) are examples of schedule and cost performance metrics.

Too often the perceived approach to a “compliant” EVMS is to drive the data to an excessive level of detail along with restrictive rules and guidance that result in a system that is cumbersome and painful to use. It reinforces the perception that EVMS is too costly – something the customer doesn’t want to pay for because they don’t see the value.

The alternative? An organization that is efficiently expert at EVM where the customer has directly experienced the value of using real-time performance data to successfully manage their program. Non-value activities have been eliminated. An actively maintained and used EVMS is also resilient; project teams can quickly respond to evolving priorities and threats. Taking advantage of the power and agility of BI and AI tools/apps can help project teams to focus on what matters with real-time data and analytics.

Taking Advantage of the Opportunity to Revitalize EVM

Changing the view that EVMS is burdensome, costly, and of no value will take time. It depends upon organizations choosing to become efficiently expert at EVM.

Recent changes in requirements and the guidelines will require organizations to review the state of their EVM Systems. It creates an opportunity to eliminate non-value added activities. At the same time, powerful BI/AI tools enable real-time data analysis so project teams can be more proactive as well as renovate EVMS functions. The effectiveness of the EVMS is apparent because it provides real-time visibility into project performance with a credible forecast completion date and estimate at completion.

There is no need for excessive oversight by government customers that drives up the cost of managing projects when the customer has confidence the organization’s EVMS provides the visibility they need – and that earned value based project management is a valuable tool.

Next Steps

Consider having an independent third party complete a thorough assessment of your EVMS process areas and documentation to identify where content can be trimmed and clarified or where non-value added steps can be removed – particularly if you are starting to integrate BI and/or AI tools into your EVMS and other business systems. Call us today to get started.

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Schedule Risk Assessment Fundamentals

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Schedule Risk Assessment Fundamentals

Quick Summary

  • Schedule Risk Assessments (SRAs) use Monte Carlo simulations to model schedule uncertainty, providing probability-based insights into meeting project completion dates and risk drivers.
  • SRAs enhance decision-making by quantifying outcomes (e.g., likelihood of meeting objectives), supporting risk prioritization, scenario analysis, and proactive schedule management for complex projects.
  • Effectiveness depends on quality inputs: well-constructed network schedules and well-defined risks.

Why perform a schedule risk assessment (SRA)? 

SRAs are critical in understanding the likelihood of meeting baseline or forecasted completion dates as well as identifying which risks to focus on for protecting the project schedule. 

An SRA is a Monte Carlo based simulation of the schedule using the existing logic but with different duration inputs in repeated “walk-throughs” of the schedule. In each run through of the schedule a different duration may be used for every task therefore the end date is usually different. When enough simulations are performed, a picture emerges of the distribution of potential outcomes from the shortest, to the longest, and to all those in-between. 

A simple way to think of this is to imagine driving to the grocery store on the same route a thousand times. Sometimes it may be rainy or snowy or maybe even clear and dry. There may be accidents, road work, traffic lights, or other issues. Each trip can have a different duration but overall, with enough trips, we will end up with good picture of how much time we should plan for the trip. We can even have different plans for different conditions.

Of course, you do not have the luxury of performing your project a thousand times. You get one opportunity. But an SRA can help you understand what the journey through your project can look like through simulation.

Performing SRAs and managing the project based on the results can provide project managers with powerful tools to successfully meet project objectives. SRAs are a discipline that supports critical risk and schedule decision making.

Projects are often long durations of five years or more, involve one-of-a-kind systems, facilities, or integrations, and have numerous constraints ranging from security, regulatory, to environmental. In addition, these projects have oversight from organizations such as the Government Accountability Office (GAO), Office of Management and Budget (OMB), and even Congress with expectations set to meet internal milestone commitments such as critical decisions (CDs) and initial operational capabilities (IOCs). While this is a subset of the many challenges facing these projects, they all rely on project managers and the project team meeting schedule commitments.

Purposes of the SRA

The main purposes of the SRA are twofold: 1) to understand the schedule and 2) to understand the probability of achieving the end date in the schedule. 

In a recent H&A workshop a very high-level executive in one of the large government agencies said of the SRA, “I don’t do it, but I receive the “P” numbers.” What she meant was that she receives the result in terms of the probability numbers developed in the SRA. She is informed of the probability of achieving the schedule as part of the program status review.

Understanding the SRA

In simple terms, an SRA is a structured probabilistic analysis by simulation of a project’s schedule that quantifies the likelihood of meeting critical dates. Initially the SRA focuses on the baseline and the probability of achieving the baselined dates. Once progress has been added to the schedule, the emphasis shifts to the current or working schedule and away from the baseline. The SRA uses the latest available information.

Uncertainty can exist in the schedule in terms of duration uncertainty, unplanned events, merge bias, and other such factors. The SRA tries to account for duration uncertainty by using a three-point approach to the task durations. The owners of the tasks are challenged to provide best case, most likely case, and worst-case durations for use in simulating the schedule. 

The SRA uses the project’s schedule logic as well as uncertainty assigned to activities along with the project’s risk register to produce probabilistic outcomes. A probabilistic analysis is a way of understanding outcomes when the future is uncertain. Instead of assuming there is only one single outcome for the schedule, probabilistic analysis takes variation into account based on durations, risks, and other events through simulation. This simulation is then repeated hundreds, sometimes thousands of times to produce statistical analysis that defines what the range of results could be. This statistical analysis will reveal, based on inputs to the model, a distribution of possible outcomes with confidence intervals expressed like this:

  • There is a 50% chance of finishing the project by this date, or
  • There is an 80% chance of meeting this milestone.

The SRA can be used to evaluate an entire project schedule or a subset of the schedule which may be a specific milestone, deliverable, or even a single work package. The scope of the SRA depends upon what part or whole of the schedule you would like to examine based on application needs. 

For this reason, SRAs are useful for project managers, control account managers (CAMs), schedulers, risk managers, and other key stakeholders. Stakeholders can use SRAs to meet compliance requirements, run “what-if” scenarios, or provide inputs into vendor selections and vendor performance management decisions. While the SRA is an excellent management decision tool, it should not be used to provide a static critical path review. It should never be used to create a deterministic “best-case” schedule, and it should not be dependent upon a specific software tool.

One important output of the SRA is commonly called the “Tornado Chart” because of the shape of the data provided. This analysis identifies the number of times a task acts as a driver in the outcome of the schedule. If a task is often driving the outcome, it should be considered carefully. Potential other approaches should be considered or at least a detailed review of the durations of the task should be performed.

Foundations

The SRA will only be as credible as the schedule it evaluates and the integrity of the risk information that is applied. Prior to the execution of a successful SRA, the schedule integrity should meet established quality standards. 

The DCMA EVMS Compliance Metrics (DECM) specific to schedule data provides a widely accepted benchmark for evaluating integrated master schedule (IMS) health. The NDIA Integrated Program Management Division (IPMD) Planning and Scheduling Excellence Guide (PASEG) includes a section on performing schedule health assessments with a list of often used metrics. Some project teams may customize their IMS quality metrics based on their established and approved EVMS documentation. Areas typically evaluated include logic integrity, critical path integrity, schedule realism, and data quality.

Logic integrity includes the proper use of predecessors and successors with minimal usage of leads and lags and a clear path from start to finish. Critical path integrity ensures that there is an understood set of critical and near-critical paths with logical drivers of key milestones and avoidance of excessive float. Standards for schedule realism include reasonably short activity durations and a limited use of constraints. Data quality requires valid dates, calendars and status updates. All these elements are covered in the generally accepted schedule quality metrics and most SRA tools will validate the schedule as well ensure that the schedule quality is adequate to perform a successful SRA.

Equally important to the SRA is the risk information. Risks should be identified and clearly characterized; their association with the schedule should be mapped. When feasible, mitigation plans should be incorporated into the schedule along with any variations they may have. The identified risks should succinctly state the event, and the cause and effect of the risk. Each risk should be characterized by its probability of occurring and the impact to the schedule if it were to occur. This characterization should be grounded in credible assumptions, usually based on the project’s rubrics for scoring likelihood and impact.

Input of risk events into the schedule provides additional realism. In terms of the simulation there will be times when the risk event happens and times when it does not with different durations as well.

Once quality schedule and risk information is validated, these inputs are imported into the probabilistic tool used by the project team. Since probabilistic analysis is based on the Monte Carlo methodology which uses statistical math, any tool that accommodates schedule and risk inputs should be sufficient. 

Frequency of SRA Application

SRAs can be expensive when time is taken to do the best case, most likely, and worst-case duration analysis by the CAMs. The cost is a limiting factor in the use of the SRA. It is most common for SRAs to be performed:

  1. At the time of baselining to understand the baseline schedule and the probability of success.
  2. When a major change is made to the project schedule.
  3. Before a major event such as the Critical Design Review (CDR) where the nature of the effort changes from design to build and the team wants to understand the probability of success for the remaining effort.

Do not accept a contract that requires performing the SRA when requested by the customer. That is too open ended of a requirement and does not allow you to estimate the cost or control the cost. A contract should specify the number of SRAs to be included so that any additional SRAs can be treated as a compensated change.

Conclusion

When grounded in a high-quality IMS and integrated with disciplined risk management, SRAs provide stakeholders with a realistic view of schedule outcomes and the risk drivers. While often thought of as a compliance requirement, the SRA provides management decision insights and is useful in understanding, as an early warning indicator, any threats to meeting schedule objectives. When properly used, the SRA is a powerful management tool that can contribute to project success.Interested in learning more? H&A master schedulers and risk subject matter experts often assist clients with establishing their SRA process and mentoring project teams to use the SRA outputs to create more realistic schedules with a higher probability of success. Call us today to get started.

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What is the Difference Between Budget and Funds?

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Quick Summary

  • A budget is a project management metric used to plan and measure performance, while funds are real dollars recorded in the accounting system and spent to perform the work.
  • Earned Value Management distinguishes planned values (e.g., BCWS, BCWP, BAC) from actual costs and estimates (e.g., ACWP, ETC, EAC) to provide insight into project performance and funding needs.
  • Contract funding profiles influence how budgets are time-phased, and regular EAC analysis is essential to forecast total funding requirements and avoid breaching funding limits. 

While working with numerous clients over the years, H&A earned value consultants frequently observe people using the term “money.” Typically, they mean “funds” when they really mean “budget.” People often confuse the terms, even though they have been used within the project management community long before the advent of earned value management practices. 

The intention of this blog is to highlight the difference between “budget” and “funds” and promote a common understanding of the terms. Using the correct term helps to eliminate confusion and improve communication between project team members, management, and the customer. 

Examples of Budget and Funds Confusion

Here are a couple of common statements H&A earned value consultants have heard many times:

  • I am requesting management reserve (MR) to fund my overrun.
  • I underran my budget, so I am going to return funds to MR.

Why are these inaccurate statements? The people making them have confused the terms or may think that “budget” and “funds” mean the same thing. 

Explaining the Difference Between Budget and Funds

The simple definition is that “budget” is a project management metric, a planned value. It cannot be used as funds (i.e., money) to buy something tangible, such as a cup of coffee. “Funds” are real dollars. The purpose for budget is to measure project performance so that as funds are expended (the actual costs) to perform the authorized work, any difference, more or less than what was planned, can alert management.

The table below summarizes the differences between the two terms.

BudgetFunds
Cannot be spentMoney – real dollars being spent or forecasted to be spent. Funding represents the customer’s ability and commitment to pay. 
A number on a piece of paper, in a spreadsheet or database – it is a project management metricActual costs recorded in the accounting system of record used for financial reporting
Budgeted Cost for Work Scheduled (BCWS)
  • Time phased budget for required resources to accomplish tasks scheduled in the integrated master schedule (IMS)
  • Forms the performance measurement baseline(PMB)
Estimate to Complete (ETC)
  • Funding required to complete the remaining work, exclusive of prime contractor fee
  • ETC plus ACWP results in the Estimate at Completion (EAC)
Budgeted Cost for Work Performed (BCWP)
  • The budget value for completed work
Actual Cost of Work Performed (ACWP)
  • The costs incurred and recorded to accomplish the work performed
Budget at Completion (BAC)
  • Budget representing all authorized scope of work (SOW)
  • Cannot change without a change to the SOW with appropriate approval
Estimate at Completion (EAC)
  • Funding number representing all the money (at the cost level – does not include fee) that will be spent
  • Can change without a commensurate change in the SOW

An Overview of Budget Terms

It is often helpful to review the basis for determining and distributing a project’s total budget used for planning and measuring project performance, as illustrated in Figure 1. Note: this is a simplified discussion to highlight the budget terms and does not include nuances such as an Over Target Baseline (OTB) situation. 

Figure 1: Budget Distribution and Terms Illustrated

The budgeting process begins with the Contract Target Price (CTP). This is the total negotiated contract value. It includes the negotiated contract cost (NCC) plus the contractor’s planned (target) profit or fee. The Contract Budget Base (CBB) is the starting point for a contractor’s internal budgeting process outlined below. 

Budget ComponentDefinition
Contract Budget Base (CBB)  Represents the financial authorization of the contract and is based on the negotiated contract cost (i.e., price less fee). The CBB is always equal to the negotiated cost for definitized work and the estimated cost for all authorized unpriced work (AUW), also known as Undefinitized Contact Action (UCA). The CBB equals the sum of distributed budgets, undistributed budget, and management reserve (MR). It also equals the sum of the performance measurement baseline (PMB) and MR.
Management Reserve (MR)  Amount of contract budget set aside to handle realized risks and emerging in-scope effort. This effort is in scope to the contract, but out of the scope of distributed and undistributed budget. 
Performance Measurement Baseline (PMB) The PMB is the sum of all distributed direct and indirect budgets against which contract performance is measured. The PMB is the sum of the distributed budgets and undistributed budget. The PMB plus MR is equal to the CBB. 
Undistributed Budget (UB) Budget for authorized work scope that has not yet been identified to a specific WBS element and/or responsible organization at or below the lowest level of reporting to the customer. 
Distributed Budgets  Distributed budgets may be comprised of summary level planning package (SLPP) and control account budgets.
Summary Level Planning Package (SLPP) Budgets Budget may be set aside in SLPPs at the lowest WBS element until the future work effort can be defined in more detail. SLPPs have a high-level scope of work and are scheduled in the IMS with time-phased budgets. They are converted to one or more control accounts with subordinate work packages and planning packages as soon as possible. 
Control Account Budgets  Control accounts have a defined scope of work, scheduled start and finish dates, and time-phased budget that reflects the work decomposed to the work package or planning package level. The sum of the time-phased work package and planning package budgets equals the total control account budget. 
Work Package/Planning Package Budgets  Work packages and planning packages have a defined scope of work, scheduled start and finish date, and time-phased budget based on the parent control account. This lowest level of budget includes the element of cost detail (labor, material, subcontract, and other direct costs) and value detail (hours, units/quantities, direct costs, and indirect costs). 

Notes about Management Reserve

Remember that MR is a budget, is not a financial reserve (i.e., a source of funds). It is not time-phased and is not included in the PMB because there is no related work scope, although it is a part of the CBB. MR budget cannot be used to eliminate cost variances, cover cost overruns, or recover underruns. There is only one MR set aside for a project and the value is never negative.

MR is decreased to provide budget for realized risks or unplanned activities within the contract scope of work. It may be increased whenever the work scope is decreased along with the allocated budget (a contract modification). Customer authorized contract changes, including AUW, should be incorporated into the CBB and PMB as soon as possible; this may include MR budget set aside for added work scope. Only contract changes authorized by the customer’s designated contracting officer may change the CBB value. 

For more discussion on MR, see this blog: Management Reserve Best Practice Tips. Also see this article: The Difference Between Undistributed Budget and Management Reserve. 

Additional note. The MR budget belongs to the contractor’s program manager, not the government customer. MR is not a cost reserve (contingency) for the government customer and may neither be eliminated from contract prices by the customer during subsequent negotiations nor used to absorb the cost of contract changes. For the government customer, contingency is the cost reserve they own, typically associated with a Program Risk-Adjusted Budget (PRB). It is held outside of the project scope, schedule, and budget already provided to the contractor. Reserves held above the program permit senior government management to balance resources within portfolios and among programs. The government customer’s cost reserve could be used to modify the contract to include additional work scope (increases the contractor’s CBB) or provide the funds needed to cover a contract cost overrun. 

Budget, Estimates, and Funding Profiles

Contract funding also influences how the PMB budget is allocated and time-phased. The budget distributions are a result of the project planning process (scope of work definition, detailed schedule development, initial cost estimates), MR set aside (risk and opportunity planning), and the funding profile. This is an iterative process to develop the baseline schedule and time-phased budget plan. The budget distributed to the control accounts and any SLPPs is compared to the total PMB/UB value. As needed, adjustments to activities, sequence of work, or resource assignments are made to ensure the overall budget plan reflects the budget limit for the PMB and the contract’s funding profile. For a real-world example of this, see this blog, Understanding the ALAP Scheduling Option in Practical Terms, where a front-loaded schedule was exceeding the funding cap, and how a H&A scheduling consultant helped resolve the issue.  

Preparing an EAC every reporting cycle provides an accurate projection of cost at contract completion for internal and external management. It also represents the estimate of total funds required for the contract. The most likely EAC should be within the funding constraints for the contract. Any amounts expended in excess of the contract funding limit puts the contractor at risk. The contractor must notify the customer when their EAC analysis determines there is a potential to breach a funding constraint to address any contract funding issues as quickly as possible. 

Figure 2 illustrates a funding profile along with the range of project EACs. In this figure, the most likely EAC is within the contract funding limit.

Figure 2: Management Level EACs with Funding Profile

Reinforcing a Commitment to EVMS Excellence

A common theme of the H&A blogs and articles is helping clients to achieve and maintain a commitment to a high level of excellence in all EVMS process areas. An important part of this is continuous EVM training and project scheduling training, whether for beginners or advanced practitioners. This includes targeted training when clients identify an area where project personnel could use a refresher, more hands-on training, or mentoring. Examples include basic and advanced EVMS workshops, Completing Variance Analysis Reports, Developing an ETC and EAC, as well as short, targeted courses on topics such as Budget versus Funds. Give us a call today at (714) 685-1730 to get started.

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