EVM Consulting

Also known as “Earned Value Consulting” or “EVMS Consulting”. EVM consulting is support services that an expert in Earned Value Management (EVM) provides to an organization to help them implement an Earned Value Management System (EVMS).

EVM Training – Decision Making & Charlie Munger – Part 1

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Tendency Toward Misjudgment – Part 1

Charlie Munger and EVM Training

So, what does Charles (Charlie) T. Munger, Vice Chairman of Berskshire Hathaway and partner of Warren Buffet have to do with EVM training? Decision Making.  You can imagine the big-money decisions he has helped Buffett make during the many years of building up the legendary outfit. Along the way, he kept track of the happenings around him that through various speeches and writings espoused some clear thinking. Born in Omaha in 1924, Charlie began working with Warren at Buffett & Son, a grocery store owned by Warren Buffett’s grandfather. Eventually graduating magna cum laude from Harvard Law in 1948, Charlie moved into the business world.

Psychology of Human Misjudgment

This blog is narrowly focused on what I gleaned from Charlie’s writings about the “psychology of human misjudgment.” Looking to see how this information could be used to help guide a EVM training workshop on the topic of decision making, I went through each of the 25 “tendencies” that he defined and discussed. I would never have guessed that we humans have 25 tendencies that impinge on our thinking processes, but after studying his list, I think he nailed it. Most of the tendencies are backed up with some reference to psychological studies; so be assured Charlie did not make them up. This blog will treat them in numerical order and will add thoughts from the Humphreys & Associates earned value training material on decision making that will make the Charlie Munger points more specific to the subject at hand.

In our EVM training material, we emphasize the process of decision making is critical, and Charlie thought so way before I did. Bad decisions can come from good processes, but that is less likely than bad decisions coming from no process or, even worse, from a bad process. At one point Munger advises the use of checklists can help navigate through the minefield of human tendencies toward misjudgment. An amazingly timely idea, because here at Humphreys & Associates we are just wrapping up our work on “The Big Book of Project Management Checklists” that is aimed at doing just that.

Blocking Human Misjudgement

What about human misjudgment? It appears we humans are fraught with innate tendencies that, if not blocked, can lead us to make misjudgments. A misjudgment would be a wrong decision in terms of this blog. With all that follows in the blog about misjudgment, we are trying to discern a sound process for earned value decision making, with tools like decision trees, that can help avoid or counter the influences of the counterproductive tendencies. Developing your decision-making process should involve findings tactics that help you avoid or defeat or neutralize these tendencies in your EVMS processes.

Tendency #1 – Reward and Punishment Super-Response

Let’s cover one tendency as an example. Tendency #1 is called the “Reward and Punishment Super-Response Tendency.” The word “super” attached to the idea of response to reward is to emphasize that this is a case of over responding. We all know people move toward what is incentivized; they seek the reward. It must be obvious that, if the wrong thing is incentivized, people will be moving in the wrong direction. According to Munger, there is a strong tendency to move toward the reward; an overly strong tendency. Charlie cites some great examples from his experience. Your decision-making process should include some “clearing the minefield” efforts early on in the process to make sure that the decision will not be made in a move toward a reward that would be wrong for the situation. A simple example could be that you are involved in deciding about launch-ing a long-term effort that would cost quite a bit that does not have certainty to the outcome. If you are incentivized toward short terms profits, then you have the biased tendency to discard the idea in favor of short term gains.

Deprival Super-Reaction Tendency

There is a potentially related tendency called the “Deprival Super-Reaction Tendency.” This is the tendency to feel more pain from a loss than to feel pleasure from a gain of the same amount or thing. According to this tendency, there is more motivation associated with avoiding pain than making a gain. The see-saw is weighted in one direction. How counterproductive is that tendency toward carefully considered decision-making? If we are trying to make a gain in our decision process, we are not only fighting the facts of the situation but also our innate bias against taking a risk. The idea can be seen in the commonly observed action of throwing good money after bad. A loss is imminent, so the decision is to spend more to head it off to potentially save the day and avoid the pain; is that wise? Think about the situation where someone says or is known to think that “I will not be denied no matter the cost.” You probably do not want that kind of thinking involved in your decision making. Now think about a situation where tendency #1 and tendency #2 both align against one of the options being considered. Would an option that faces the tendency to risk some pain of loss and to move against a potential reward stand a chance if those tendencies were not neutralized?

Blog Series

Hopefully you get the idea now. This blog will be followed by another that covers some of the remaining tendencies identified by Charles T. Munger. I hope to learn more from and will translate what I learn here and in our EVM training material. Stay tuned.

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Summary Level Planning Packages (SLPPs) Misnomer and Alias

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Summary Level Planning Packages (SLPPs) Misnomer and Alias

Origins

One of the confusing terms in the world of Earned Value terminology is “Summary Level Planning Packages” or SLPPs. The term first appeared in Section 1 of the Earned Value Management Implementation Guide (EVMIG), published in 1996 which read:

Summary Level Planning Packages (SLPP) – “When it is clearly impractical to plan authorized work in control accounts, budget and work should be identified to higher WBS or organizational levels for subdivision into CAs at the earliest opportunity.” At this time, EIA-748 was still in draft form.

When 748-1998  was released, the SLPP reference was included with a slight modification to its use being limited to; “work scope for business reasons, is not yet allocated to responsible control accounts”.

With that being said, the term was never specifically included in the EVMS Guidelines (neither the original 35 criteria nor the initial 32 EIA Standard Guidelines)!  The concept itself was again put forth in 748-B where the title changed to “Higher Level Account”, but the SLPP was still not referenced.  With 748-C, the same phrasing is found.  Throughout this time, Guideline 8 has not changed, where it continues to say (underlines added):

“Budget for far-term efforts may be held in higher-level accounts until an appropriate time for allocation at the Control Account level.”

Higher Level Accounts

The term was “Higher Level Accounts” (HLA if you prefer an acronym), and that is the only mention in any of the Guidelines themselves.  In their 25 June 2015 Cross Reference Checklist, however, the DCMA felt the need to clarify the term in several spots:

8.a.(2) Higher level WBS element budgets (where budgets are not yet broken down into control account budgets) also known as a Summary Level Planning Package?

  1. b. Does the Contractor’s system description or procedures require that the sum of control accounts, Summary Level Planning Package (SLPP) budgets, Undistributed Budget(UB), and Management Reserve(MR) reconcile and trace to the CBB or Negotiated Contract Cost (NCC) plus the estimated cost of AUW) for any recognized OTB?
  2. b. Are ETCs developed at the work package, planning package, and Summary Level Planning Package (SLPP) levels, or where resources are identified if lower than the work package level?
  3. j. Are VACs calculated and analyzed with corrective actions at the control account (at a minimum) and Summary Level Planning Package (SLPP) levels?

Created to Help

The term “Higher Level Accounts (HLA)” was created to help contractors comply with the government requirement to distribute budgets from Undistributed Budget (UB) within two full accounting periods after definitization of the contract value.  Many contractors on large, long term contracts were struggling with distributing work and budget for far-term effort about which they were not yet sure where or by whom the work would be performed.

The government allowance to create Higher Level Accounts enabled the contractors to “distribute” the scope and budget to an account – as though it were a Control Account – where someone would “tend it” until the contractor could better define where and by whom the work would be performed.  While in the HLA status, the assigned higher-level manager (the PM or a functional manager designee) would be responsible to ensure the time phasing of the high-level budget was current and that the EAC for the work in the HLA was up to date (rates and time phasing ).  Once the contractor determined the appropriate Control Account Manager responsible for getting the work performed, the scope, schedule, and budget in the HLA would be transferred (distributed) from the Higher Level Account to the Control Account.

Misnomer

As stated earlier, the origin of the term “Summary Level Planning Package – SLPP” is not really known, and it is really a misnomer:

  1. It is not a Summary Level (i.e., other Control Accounts do not summarize into it).
  2. It is really not a Planning Package (the responsible Higher Level Manager does not perform any planning for the work in the HLA – it is just a holding point until it can be distributed to, and planned by, the ultimate CAM).

This last point is where some people become confused.  Being called a “Planning Package,” some people think the SLPP is part of a Control Account that is at a higher level within the Control Account than a Planning Package.   That is another distinction between an SLPP (HLA) and a Planning Package – an SLPP can NEVER be directly detail planned into Work Packages.  The budget in an SLPP must be transferred to a Control Account for that CAM to detail plan the work as necessary over the period of performance of the Control Account.

To be fair to the CAM receiving the HLA/ SLPP scope, schedule, and budget, the project should also have a “Rolling Wave Planning” approach for the HLA/SLPP, one that is at least 30 days in advance of the normal CAM Rolling Wave Planning process.  This would give the CAM time to incorporate the work and budget time phasing into the Control Account (generally in one or more Planning Packages within the Control Account) in order to then be prepared for any necessary detail planning into Work Packages as part of the normal Rolling Wave Planning process.

Final Thought

Some people do not even consider Higher Level Account to be an appropriate description since the HLA/ SLPP is essentially at the same level as the Control Account.  The “Higher Level” aspect means it is assigned to a higher level manager than a Control Account Manager (CAM) for that manager to “tend to” the scope, schedule, and budget until it is distributed to a CAM.

So even though HLA is what it is, SLPP is what it has become.

Higher Level Accounts or Summary Level Planning Packages can be confusing and often an area where projects need some help.   A Humphreys & Associates EVM Consultant can provide the guidance you need for your unique production or development project.  Please contact us for more information.

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EVM Consulting – Modeling & Simulation

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Fighter Jet Air Plain Flying in Front of Moon

Forewarned is Forearmed

Forewarned is forearmed. John Farmer, of New Hampshire, said that in a letter in 1685. But that advice is most likely biblical and very much older. No matter the source of the thought, we should take it as divine guidance if we are project managers. Maybe we should have it cut into a stone tablet, so we can share it with our team members.

Most of our work as project managers is spent in the “controlling” phase which is made up of the three steps “measure, analyze, act.” Our EVMS and IMS exist to be able to support this management function. The measuring part is done very well in our EVMS and our IMS; we know where we are and how we got there. The analyzing is equally well handled in the IMS and EVMS. Only the management task of acting is not well supported. Generally, we lack decision making support and tools.

EVM Consulting - Measure, Analyze, Act

Deterministic Path

No matter how well constructed and how healthy our IMS is, it has a deterministic path forward. The logic links between the activities are there because we expect them to be fulfilled. Indeed, if activity “B” is a finish-to-start successor to activity “A” we fully expect that at some point activity “A” will finish and will provide its output to activity “B”. That is a single path forward and it is a deterministic path. It is also a somewhat simplistic model.

EVM Consulting - Deterministic Relationships in EVMS

Multiple Outcomes

Our management system asks us to perform root cause analysis followed by corrective action. But what if there is more than one corrective action to be taken. And worse; what if the corrective actions can have multiple outcomes with each enjoying its own probability. That means multiple choices and multiple outcomes. How would we show that in our plan? How would we analyze the multiple possible futures that such a situation presents?

Happily, there are ways to model a future without a set path. And once we have the future model, there are also ways to simulate the outcomes to give the probabilities we need to decide which actions to take. We are talking about probabilistic branching, and we are saying that we can build a probabilistic map of the future to use in making decisions; especially making decisions on corrective actions.

Take a simple example of running a test on the project. The expectation is that eventually we will pass the test. We will keep trying until we do. In the IMS deterministic model the test portion of the IMS might look like this:

EVM Consulting - Run the Test then Use the Product

Simulation

We can simulate this situation with different expected durations for the test. That is helpful information, but it does not explain or even capture what is going on in those different durations. It looks like we are just taking longer to do the testing but is that really what is happening? What is going on here? We certainly don’t show that.

In the real world, this simple model might have three potential outcomes. There might be three paths we can take to get to the point where we use the product. Each path has a time and money cost. We might run the test and find that we passed. Or we might have to stop the test for issues on the item or the test setup. We might even fail the test and must correct something about the product to improve our chances of passing a rerun. Eventually we will get to a usable product. But what do we put in our estimate and our plan? What do we tell the resources we need? What do we tell the boss? The customer?

EVM Consulting - Real World Testing

Full Future Model

We now have a much better understanding of the future and can explain the situation. We also can simulate the situation to find out the most likely time and cost outcomes, so we can explain the future without any histrionics or arm waving.
If the issue is important enough we can build out the full future model and simulate it.

EVM Consulting - Full Future Model and Simulation

No matter how far we pursue the model of the future, having a valid model and being able to stand on solid ground are very valuable to us as project managers.

This is not to say that we should model out complex situations as a routine in the IMS. That would be impossible, or at least prohibitively costly. We are saying that when situations arise, we need to be able to use the IMS to help us make decisions.

This type of probabilistic modeling of the future is particularly useful in defining major decision points in our plan. When we reach a decision point the IMS may have multiple branches as successors but that implies we take every branch and that is not valid. Modeling each branch and its probabilities is valid. In the example below, where the milestone represents a decision point, we have shown three possible paths to take. If each were modeled out into the future with time and cost data, we should have the information we need to choose the path we wish to pursue. Without processes and tools like this, we would be flying blind.

Future Blog Posts

This discussion will be continued in future blogs to develop a better foundational understanding of the process and power of probabilistic modeling in our EVMS.

EVM Consulting - Decision Point

Good information sets the stage for good decisions. The IMS and the EVMS have sufficient information to help us model the pathways ahead of our critical decisions. We just need to learn to take advantage of what we have available to us.

Find out how an experienced Humphreys & Associates EVM Consultant can help you create a full future model and simulation of your most vital EVMS Systems. Contact Humphreys & Associates at (714) 685-1730 or email us.

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