Project Management Archives - Humphreys & Associates

Formal Reprogramming: OTB or OTS Best Practice Tips

By Humphreys & Associates / September 1, 2023 / Corrective Action, Corrective Action Request, Formal Reprogramming, Over Target Baseline (OTB), Over Target Schedule (OTS)

Corrective Action, Corrective Action Request, Formal Reprogramming, Over Target Baseline (OTB), Over Target Schedule (OTS)

Formal Reprogramming: OTB or OTS Best Practice Tips

As a result of an Earned Value Management System (EVMS) compliance or surveillance review, the Defense Contract Management Agency (DCMA) or DOE Office of Project Management (PM-30) may issue a corrective action request (CAR) to a contractor. H&A earned value consultants frequently assist clients with developing and implementing corrective action plans (CAPs) to quickly resolve EVMS issues with a government customer.

A recent trend our earned value management consultants have observed is an uptick in the number of CARs being issued related to over target baselines (OTB) and/or over target schedules (OTS). On further analysis, a common root cause for the CAR was the contractors lacked approval from the contracting officer to implement the OTB and/or OTS even though they had approval from the government program manager (PM).

So why was a CAR issued? It boils down to knowing the government agency’s contractual requirements and EVMS compliance requirements.

What is an OTB/OTS and when it is used?

During the life of a contract, significant performance or technical problems may develop that impact schedule and cost performance. The schedule to complete the remaining work may become unachievable. The available budget for the remaining work may become decidedly inadequate for effective control and insufficient to ensure valid performance measurement. When performance measurement against the baseline schedule and/or budgets becomes unrealistic, reprogramming for effective control may require a planned completion date beyond the contract completion date, an OTS condition, and/or a performance measurement baseline (PMB) that exceeds the recognized contract budget base (CBB), an OTB condition.

An OTB or OTS is a formal reprogramming process that requires customer notification and approval. The primary purpose of formal reprogramming is to establish an executable schedule and budget plan for the remaining work. It is limited to situations where it is needed to improve the quality of future schedule and cost performance measurement. Formal reprogramming may be isolated to a small set of WBS elements, or it may be required for a broad scope of work that impacts the majority of WBS elements.

Formal reprogramming should be a rare occurrence on a project and should be the last recourse – all other management corrective actions have already been taken. Typically, an OTB/OTS is only considered when:

The contract is at least 35% complete with percent complete defined as the budgeted cost for work performed (BCWP) divided by the budget at completion (BAC);
Has more than six months of substantial work to go;
Is less than 85 percent complete; and
The remaining management reserve (MR) is near or equal to zero.

A significant determining factor before considering to proceed with a formal reprogramming process is the result from conducting a comprehensive estimate at completion (CEAC) where there is an anticipated overrun of at least 15 percent for the remaining work.

When an OTB is approved, the total allocated budget (TAB) exceeds the CBB, this value referred to as the over target budget. Figure 1 illustrates this.

Before Over Target Baseline — *Figure 1 – Over Target Baseline Illustration*

When an OTS is approved, the same rationale and requirements for an OTB apply. The planned completion date for all remaining contract work is a date beyond the contract completion date. The purpose of the OTS is to continue to measure the schedule and cost performance against a realistic baseline. The process must include a PMB associated with the revised baseline schedule. Once implemented, the OTS facilitates continued performance measurement against a realistic timeline.

Contractual Obligations

An OTB does not change any contractual parameters or supersede contract values and schedules. An OTS does not relieve either party of any contractual obligations concerning schedule deliveries and attendant incentive loss or penalties. An OTB and/or OTS are implemented solely for planning, controlling, and measuring performance on already authorized work.

Should you encounter a situation where it appears your best option is to request an OTB and/or OTS, the DoD and DOE EVMS policy and compliance documents provide the necessary guidance for contractors. It is imperative that you follow agency specific guidance to prevent being issued a CAR or your OTB/OTS request being rejected.

DoD and DOE both clearly state prior customer notification and contracting officer approval is required to implement an OTB and/or OTS. These requirements are summarized the following table.

Reference	DoD/DCMA¹	DOE
Regulatory	DFARS 252.234-7002 Earned Value Management System “(h) When indicated by contract performance, the Contractor shall submit a request for approval to initiate an over-target baseline or over-target schedule to the Contracting Officer.”	Guide 413.3-10B Integrated Project Management Using the EV Management System 6.1.2 Contractual Requirements. “…if the contractor concludes the PB TPC and CD-4 date no longer represents a realistic plan, and an over-target baseline (OTB) and/or over-target schedule (OTS) action is necessary. Contracting officer approval is required before implementing such restructuring actions…” Attachment 1, Contractor Requirements Document “Submit a request for an Over-Target Baseline (OTB) or Over-Target Schedule (OTS) to the Contracting Officer, when indicated by performance.”
EVMS Compliance²	Earned Value Management System Interpretation Guide (EVMSIG)³ Guideline 31, Prevent Unauthorized Revisions, Intent of Guideline “A thorough analysis of program status is necessary before the consideration of the implementation of an OTB or OTS. Requests for establishing an OTB or an OTS must be initiated by the contractor and approved by the customer contracting authority.	EVMS Compliance Review Standard Operating Procedure (ECRSOP), Appendix A, Compliance Assessment Governance (CAG) Subprocess G. Change Control G.6 Over Target Baseline/Over Target Schedule Authorization “An OTB/OTS is performed with prior customer notification and approval.” See Section G.6 for a complete discussion on the process.
Contractor EVM SD⁴	DCMA Business Process 2 Attachment, EVMS Cross Reference Checklist (CRC), Guideline 31. “b. Are procedures established for authorization of budget in excess of the Contract Budget Base (CBB) controlled with requests for establishing an OTB or an OTS initiated by the contractor, and approved by the customer contracting authority?”	DOE ESCRSOP Compliance Review Crosswalk (CRC), Subprocess Area and Attribute G.6 “Requests for establishing an OTB or an OTS are initiated by the contractor and approved by the customer contracting authority.”

Notes:

When DoD is the Cognizant Federal Agency (CFA), DCMA is responsible for determining EVMS compliance and performing surveillance. DCMA also performs this function when requested for NASA.
Along with the related Cross Reference Checklist or Compliance Review Crosswalk, these are the governing documents the government agency will use to conduct compliance and surveillance reviews.
For additional guidance, also see the DoD EVM Implementation Guide (EVMIG) , Section 2.5 Other Post-Award Activities, 2.5.2.4 Over Target Baseline (OTB) and Over Target Schedule (OTS). The EVMIG provides more discussion on the process followed including the contractor, government PM, and the contracting authority responsibilities.
Your EVM System Description (SD) should include a discussion on the process used to request an OTB/OTS. The EVM SD content should be mapped to the detailed DCMA EVMS guideline checklist or the DOE Compliance Review Crosswalk (subprocess areas and attributes) line items.

Best Practice Tips

The best way to avoid getting a CAR from a government agency related to any OTB or OTS action is to ensure you have done your homework.

Verify your EVM SD, related procedures, and training clearly defines how to handle this situation. These artifacts should align with your government customer’s EVMS policy and regulations as well as compliance review guides, procedures, and checklists. Be sure your EVM SD or procedures include the requirement to notify and gain approval from the government PM and contracting officer, as well as what to do when the customer does not approve the OTB or OTS. Also discuss how to handle approving and managing subcontractor OTB/OTS situations; the prime contractor is responsible for these actions. Your EVMS training should also cover how to handle OTB/OTS situations. Project personnel should be aware of contractual requirements as well as your EVMS requirements and be able to demonstrate they are following them.
Maintain open communication with the customer. This includes the government PM as well as the contracting officer and any other parties involved such as subcontractors. Requesting an OTB or OTS should not be a surprise to them. Verify a common agreement has been reached with the government PM and contracting officer that implementing an OTB or OTS is the best option to provide visibility and control for the remaining work effort.
Verify you have written authorization from the government PM and the contracting officer before you proceed with implementing an OTB or OTS. You will need this documentation for any government customer EVMS compliance or surveillance review. Your baseline change requests (BCRs) and work authorization documents should provide full traceability for all schedule and budget changes required for the formal reprogramming action.

Does your EVM SD or training materials need a refresh to include sufficient direction for project personnel to determine whether requesting an OTB or OTS makes sense or how to handle OTB/OTS situations? H&A earned value consultants frequently help clients with EVM SD content enhancements as well as creating specific procedures or work instructions to handle unique EVMS situations. We also offer a workshop on how to implement an OTB or OTS . Call us today at (714) 685-1730 to get started.

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New IPMDAR DID and Implementation Guide

By Humphreys & Associates / June 3, 2020 / EVM, Integrated Program Management Data and Analysis Report, IPMDAR

EVM, Integrated Program Management Data and Analysis Report, IPMDAR

ALERT- New IPMDAR DID and Implementation Guide

The New Integrated Program Management Data and Analysis Report (IPMDAR) Data Item Description (DID) and Implementation Guide

On March 12, 2020, the Defense Department (OUSD/AAP) instituted the new Integrated Program Management Data and Analysis Report (IPMDAR), issuing the Data Item Description (DID) Number: DI-MGMT-81861B.
The IPMDAR is to be used for solicitations and RFPs for contracts with an EV reporting Requirement starting from March 12, 2020 forward. The IPMDAR can also be applied to modified contracts or to existing contracts (under the old IPMR or CPR requirements), but this has to be through a bi-lateral agreement (Government Program Office and Contractor).

Significant Change

This IPMDAR is a significant change from the previous iterations, the Integrated Program Management Report (IPMR) and the old Contract Performance Report (CPR). The IPMDAR has dispensed with the delivery of physical reports (Formats 1 – 7 of the old IPMR/ CPR), instead now requiring contractors to provide three (3) specific electronic data sets:

The Contract Performance Dataset (CPD)
The Schedule, comprised of
- The Native Schedule File and
- The Schedule Performance Dataset (SPD)
The Performance Narrative Report, comprised of
- The Executive Summary and
- The Detailed Analysis Report

The DID states: “The IPMDAR’s primary purpose to the Government is to reflect current contract performance status and the forecast of future contract performance.”

Implementation & Tailoring Guide

To help expedite the adoption of the New IPMDAR, on May 21, 2020, the AAP office also issued the 87-page Integrated Program Management Data Analysis Report (IPMDAR) Implementation & Tailoring Guide:
“This guide covers the application of the DID, how to tailor the DID in the Contract Data Requirements List (CDRL), and clarification on the intent of the DID.”

Interesting Features

The IPMDAR has introduced some interesting features that are clarified in the Guide:

The default reporting is at the Control Account, but there is the option to have Work Package Level reporting (negotiated item)
Reporting is by Hours and Elements of Cost (EOCs) (for either the CA or WP level)
Time-phased Future Baseline (BCWS) and ETC Forecast (for either CA or WP level)
Best Case/Worst Case/Most Likely EACs reported by hours and dollars
The Native Schedule is a direct export from the contractor’s scheduling tool
The SPD must match the CA or WP level negotiated
The Government may have any subcontractors provide the IPMDAR directly to the Government
- Even if this is required, the subcontractors must still provide the IPMDAR data to their prime contractor
The IPMDAR reporting components must be delivered to EVM-CR not later than 16 business days after a contractor’s accounting period
- Incremental deliveries may be authorized, but all the items must be in NLT the 16th business day and the incremental deliveries are negotiated. A potential example is IMS by third working day after close-of-month, the raw data by fifth working day, and format 5 narrative by the sixteenth working day.
Historical Contract Performance Data – The Government may request this “time-phased historical data from contract award” in place of the normally provided CPD (typically no more than annually).

Applicability

IPMDAR Applicability:

IPMDAR is intended to be applied completely (i.e., not tailored) for cost or incentive contracts ≥ $20M – unless tailoring is specified within the DID and coordinated with the Service/ Agency EVM Focal Point.
If EVM reporting is required on contracts less than $20M, tailoring is more flexible, BUT the Native Schedule and Performance Narrative Report are recommended.
IPMDAR typically not required on FFP.

Humphreys & Associates, Inc. can help you properly implement the new IPMDAR requirements, please contact us at (714) 685-1730

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Planning and Managing EVM by Elements of Cost (EOC) Example: Building a Backyard Patio – Part 1

By Humphreys & Associates / March 1, 2019 / Control Account, earned value management, earned value training, Elements of Cost, EVM, EVM Training, Planning Package, Work Package

Control Account, earned value management, earned value training, Elements of Cost, EVM, EVM Training, Planning Package, Work Package

What are “Elements of Cost”?

Labor, Materials, Subcontracts, Other Direct Costs, and their Indirect Costs (Overhead including General and Administrative —G&A) are the typical building blocks for any project: personal projects and projects we manage for the customers we support. These items are also what the Earned Value Management System (EVMS) Guidelines call elements of cost (or EOCs). So, when the Guidelines call for us to plan and manage by EOC, it really should not cause us any undue anxiety – it is just the natural way to manage any project.

Example: Outdoor Backyard Patio

Let’s use a simple home project example of building an outdoor backyard patio: What do you have to do to determine how much it will cost for this Backyard Patio Project (BPP if you like acronyms)? Generally, you look at such things as:

How much concrete; lumber for decking; nails, screws, bolts, washers, and other hardware, etc.; and weather-coating and paints/stains you will need (Material Element of Cost – EOC).
Work you cannot do by yourself: electricity for lights and power, and natural gas for the Barbecue/fireplace (Subcontract EOC).
Work you will do yourself (Labor EOC).
Costs unique to this project’s completion, such as: Home Owners Association permits, building code permits, local excavation application fee, etc. (Other Direct Cost EOC).
Costs incurred that do not necessarily go into the final product, such as: cleaning supplies, brooms, solvents, turpentine, weather tarpaulins, lighting and electricity, etc. (Indirect Costs/Overheads).

Unfortunately, when operating under the EVM requirement, often managers tend to overthink, and sometimes over apply the management of EOCs. Let’s look at the overthinking part first.

Overthinking EOCs

Guideline 9 of the EIA Standard 748 (Revision D) for EVM Systems requires:

Establish budgets for authorized work with identification of significant cost elements (labor, material, etc.) as needed for internal management and for control of subcontractors.

Some might propose: “I’ll have one Work Package for the Control Account with all the EOCs in it, and I’ll be okay.” That might meet the intent of that first part of the guideline, but would probably fail the requirement that says “as needed for internal management and control of subcontractors.” For example, what EV technique would you use for a “work package” that had labor, material, and subcontract work in it? The labor occurs as the work is performed, the material might be earned at the point of receipt on the dock, and the subcontract might earn value with the receipt of an Integrated Program Management Data and Analysis Report (IPMDAR) dataset at the end of a month. Since the Control Account (CA) has one total dollar budget, the “identification of significant cost elements” has to occur at the Work Package (WP) and Planning Package (PP) level within the CA, which requires each WP and PP to be identified as one of the EOCs mentioned above.

For Instance

In our example, if we lumped concrete and lumber into one “Material WP” and we incurred a serious overrun in material, how would we identify what caused the overrun: the concrete pour or the lumber portion? These are different categories of material that would “earn value” (be accomplished) in different ways and at different times. In order to determine the “guilty party” in the overrun, we should also have separate WPs for the different significant material categories. Some might call these major, or high value, or critical material items, which should be tracked separately.

On the other hand, for the lower-value materials, it may not be significant enough to management to know that a variance might have been caused by a 1-cent washer or a pint of deck stain. Consequently, a grouping of these low-value material items may be all that is required for visibility. Conversely, Management might actually want to break out categories such as, separating the paints/stains, and weather-coating from the nuts, bolts, washers and other hardware, since they are different categories of low-value material that could also earn value differently.

Indirect Cost Rates Must be Applied Properly

For Indirect Costs, some contractors put the burden of planning and managing these overhead costs on the CAMs, while others apply the indirect rates at a summary level of the Work Breakdown Structure (WBS) or organizational structure. Regardless of how a particular contractor does it, the indirect cost rates must be applied properly to the various direct elements of cost:

Material handling charges applied to material items
Indirect Labor rates applied to the direct labor hours
Subcontract overhead applied to the subcontract direct costs
ODC overheads charged to the ODCs identified.

Applying and managing overheads at the CA level would entail hundreds of applications across the number of Control Accounts on a project, but applying these at a summary level would require only a handful of Overhead lines in reports. Doing so would significantly reduce the number of possible errors in application – which is why many contractors do not require CAMs to “manage” overheads in their Control Accounts. [Our BPP example does not have the above types of Indirect Costs that are related to specific Direct Costs, but it does have its own specific Overheads related to the labor to build the Patio.]

Humphreys & Associates is available for earned value training and consulting. Give us a call!

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Preventing a Communications Failure

By Humphreys & Associates / June 4, 2018 / Communications Plan, Contract Data Requirements List (CDRL), Statement of Work (SoW), System Engineering Management Plan (SEMP)

Communications Plan, Contract Data Requirements List (CDRL), Statement of Work (SoW), System Engineering Management Plan (SEMP)

“What we’ve got here is failure to communicate.”

From the movie “Cool Hand Luke”, you would probably remember the famous line, “What we’ve got here is failure to communicate. Some men you just can’t reach. So you get what we had here last week….”

Ask people who work on programs and projects, “From your experience, what are the top 10 reasons that projects fail?” You will nearly always find, at the top of the list, the cause as being one of poor communications. That’s right, failure to communicate, pure and simple. But maybe not so pure and not so simple.

Establish a Communications Plan

There are so many dimensions to communication that it is advisable, even necessary, to establish a communications plan. Think about all the topics we need to communicate; the list is mighty: goals, schedules, budgets, product requirements, status, problems, successes, forecasts, roadblocks, directions, and so on. So, it makes sense that we should take time to define the communications process and actions in our communications plan.

Assuming we are about to undertake a new project rather than inject ourselves into an ongoing one, we should consider the most natural first step in preventing a communications failure. Just as we must define the product requirements, we should also define the requirements for communications through an analysis. That analysis should be rigorous and should cover all apparent aspects of communications.

What do we need to communicate?
Who are the providers and the receivers of various communications?
What are the form and format for the communication?
What are the frequencies required for these communications?

Such a requirements analysis could result in a communications compliance matrix that lists the requirement and provides the method by which the requirement will be satisfied.

Formal and Informal Communication

Two major subsets of communications could be the formal and the informal. To start considering the formal we could go to the contract the Contract Data Requirements List (CDRL) and the many requirements for plans, reports, and other deliverables that are forms of communications. The contract could be the root of a large tree that grows level-by-level. For example, the contract might have the Statement-of-Work (S0W) that tells us to use the systems engineering approach and a CDRL item to provide a System Engineering Management Plan (SEMP) in which another level of communication is revealed. On major contracts the SEMP is but one of several plans that are often required and should be extremely useful in defining the communications plan. The totality of these plans is comprehensive and very detailed.

EVMS Structure

Of interest to us here in this blog is the requirement to manage the program using Earned Value Management Systems (EVMS). A properly implemented EVMS can be the key to avoiding many of the problems of communications that are rolled up into the generic problem of “poor communications.” EVMS is one for the formal requirements that can embody wide ranging forms of communications. In the EVMS we will communicate:

Goals for scope, schedule, and budget. These are in various artifacts within the EVMS and provided to the stakeholders. Goals are the topic of the Integrated Baseline Review (IBR) to the extent that the probability of meeting the goals is assessed. Goals are clear when you have an Earned Value Management System.
Structure for the project work, people, and resources. EVMS requires a Work Breakdown Structure (WBS) to formally define and decompose the work. That means it is open and clear to all on the project what must be done top to bottom and by whom it will be done.

Integrated Master Schedule

Timing for work is established in the comprehensive Integrated Master Schedule (IMS). The IMS, when properly built and coded, provides deep insight into the time plans for the project and the relationships among the players. Topics such as “external dependencies” might have once been an obscure bit of knowledge but in the IMS these are clearly defined, and the logic shows what is dependent on these external inputs to the project.

The IMS communicates the milestones that are to be achieved. Vertical integration from the work tasks to the milestones provides the links that communicate the contributors to any major event. We know what and when we must reach a certain capability, and, with the IMS, we know how we will get there and who will carry us to that goal.

Work Authorization Document

The control account Work Authorization Document (WAD) provides a formal documentation of the baseline agreement on scope, schedule, and budget for the managerial subsets of the total project work. Carving out these manageable sections of work and making formal communication of the goals and responsibilities provides a detailed communication and acceptance for the project goals and the responsibility for their accomplishment. It would be nearly impossible to get lost in the well documented baseline of an EVMS managed project.

Measuring Progress

The status of our project is known by measuring our progress and reporting it formally; these are cornerstones of the EVMS.

What should we be doing?
What are we doing?
Are we meeting our scope, schedule, and spending goals?
Where are the problems?
What are the root causes of the problems? The impacts?

Communicating all of these up and down the hierarchies and even to the customer provides what should be open and clear communication. The generic complaint of “poor communication” often means “I was surprised.” There should be no surprises in a well run EVMS program.

Future Outcomes

Perhaps the most important thing to communicate is the future outcome. Based on our plans and our status, we are always making projections for the potential outcomes of our project from within our EVMS. The forecast for timing is contained within the IMS. The forecast for spending is contained within the Estimate to Complete (ETC). Each period we update out view of the future and analyze what that means. We use the analysis to undertake corrective action plans that have the intended effect of getting us back on track.

Summary

So, in summary, you should see that poor communications of the items that are within the purview of the program management system (EVMS) should not happen. The EVMS should be one the main pillars of communications plans and processes to prevent a communications failure. The outcome of the program might still be less than desired, but the outcome should have been foreseen and discussed many times within the communications engendered by the EVM System. We should know what we need to do, how we are doing, and where we will end up; and those are all things we need to communicate.

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Program Manager / Project Manager Use of Management Reserve

By Humphreys & Associates / April 3, 2018 / Earned Value Management System Description (EVMSD), EVM Consultant, Management Reserve, Management Reserve (MR), Management Reserve Log (MRL), Performance Measurement Baseline (PMB), Program Manager, Project Manager

Earned Value Management System Description (EVMSD), EVM Consultant, Management Reserve, Management Reserve (MR), Management Reserve Log (MRL), Performance Measurement Baseline (PMB), Program Manager, Project Manager

What is Management Reserve?

Management Reserve (MR) is developed and managed by the Program Manager / Project Manager. This discussion will provide guidance for establishing and using Management Reserve to effectively manage a project.

H&A description– The standard definition of management reserve is an amount of contract budget set aside for management control purposes (known unknowns) rather than designated for the accomplishment of one or more tasks. It is not part of the performance measurement baseline (PMB) but is included in the contract budget base.

DOE guidance – The ability to establish MR allows project management to react to unforeseen in‐scope situations that arise during the life of a project. It is budget for handling project risk and in‐scope unanticipated events. Management Reserve is not a source of funding for additional work scope or for the elimination of performance variances. It is an amount of the project budget set aside for management control purposes by the contractor. Management Reserve is the contractor’s budget and provides the project manager with a budget for unplanned activities within the current project scope. Because MR is budget that is not yet associated to work scope, it is not part of the PMB.

The Earned Value Management System Description (EVMSD)

The contractor must include a clear definition of MR in the EVM SD. For clarity and consistency, the EVM SD must describe the process and list allowable conditions under which it may be approved and allocated to the control accounts managers. Management Reserve cannot be used to offset accumulated overruns or under runs. Authorized uses of it include:

Previously unrecognized tasks or realized risks consistent with the general scope of work of the contract.
Change in execution strategy (e.g., make/buy decisions).
Unexpected future internal scope growth within the currently authorized scope of the project.
Direct and indirect rate changes and currency fluctuations.
Risk and opportunity handling (not for cost or schedule variance based risks).
Work that needs to be repeated (not the result of inaccurately reported progress).
Changes to the future budget of work not yet started (e.g., subcontractor activities that are negotiated post project award).

Baseline Planning

The first step in the process the PM must accomplish is establishing the Management Reserve at the initiation of the Performance Measurement Baseline development. The project manager has authority and control of the development and use of the MR budget.

The process steps are:

Reconciling the proposal estimates with the contract award.
The project manager will establish an MR budget based on examination of the contractual scope of work. Factors affecting the MR budget establishment are high technical risk areas, complex schedule problems, or an anticipated shortage in a critical resource area such as labor, material, or support services.
Once anticipated problem areas are isolated, Negotiations between the Project Manager and the Control Account Managerscan begin to determine the Control Account Budgets. This is an iterative process during which the PM will negotiate with the CAMs:
- The budget amount to be withheld from each Control Account(based on the results from step 2 above).
  Evaluating the scope of work, risk associated with the scope of work, maturity of the concepts/ designs/ manufacturing included in the scope of work and the CAMs past performance on similar projects.
- The PM can target a specific percent of the awarded budget based on the complexity, risk and duration of the contract and the scope in each control account
The PM will negotiate and issue budgets to the CAMs and the balance remaining from the authorized budgets and the Contract Budget Base establishes the Management Reserve. Typically, this amount should be 10-15 % of the CBB value.

The next step for the PM is to track the MR budget. This is done by creating a Management Reserve Log. This can be a separate log or part of the Contract Budget Base log.

Record the original amount of MR after the control account budgets have been authorized to the CAMs.
Record changes to MR as additional budgets are authorized to increase or decrease control account values. (Management reserve is decreased to provide budget for unplanned tasks within the contract scope of work or increased whenever work is decreased along with the allocated budget.)
Use the logs to report MR activity in the monthly reports to the customer.

Project Execution

During the actual execution of the project the PM may experience various scenarios that will require the use of Management Reserve. The process to identify, evaluate and authorize MR transactions should include the following steps:

Either the CAMs or the PM can identify new tasks or realized risks to be performed or deleted in the Control Account efforts.
The affected areas in the control accounts will be identified and the impacts quantified (resources/ time …..) for the scope being modified. Tasks identified to be outside of the Control Account scope (but within the overall Project Contract scope) will be authorized and budgeted from the Management Reserve. Reductions to the Control Account scope will be authorized and the appropriate budget and scope returned to the Undistributed Budget, where the SOW is deleted and the associated budget credited to the Management Reserve.
Management Reserve transactions cannot be made without identified scope being added/reduced from the Control Account and the associated budget recorded in the MR Log and updated Work Authorization documentation issued to the Control Account Managers.
Changes in the MR log will be identified and described in the monthly customer reports. If the transaction was for an identified Risk, the Risk Registerwill also be updated and reported to the customer.
Use the Change Control process to document the rationale for all baseline budget and schedule revisions.

Acceptable Uses of Management Reserve (Examples)

Authorize additional budget/ scope for previously unrecognized tasks and identified risks that are consistent within the scope of work of the contract.
Authorize changes in execution strategy such as a make/buy modification.
May be used to offset changes in direct/ indirect rates and currency fluctuations.
May be used for Risk/ Opportunity handling (does not include Cost or Schedule Variance based risks).
May be used for work that needs to be repeated.
May be used to adjust budgets for final negotiations with subcontractors.

Unacceptable Uses of Management Reserve

Cannot be used to cover overruns.
No changes to open Work Packages without customer approval.
MR cannot be a negative value.

Project Manager Authority/ Responsibility

Management Reserve belongs to the Project Manager.
The PM is responsible for controlling MR transactions.
The PM may or may not allocate MR based on the assessment of the CAMs requests and availability of MR balance.
The PM is responsible to ensure that all MR transactions are documented, reported, and traceable.

Summary

Management Reserve is a critical part of the PM’s toolkit. It allows the PM some flexibility in planning for Risks and Opportunities, and for required changes that are in scope to the contract but were not identified in the original baseline planning. The company’s EVM SD is the primary guide the PM should use in determining which MR requests are allowable and those that are not valid.

Some Data contained in this paper came from Humphreys & Associates and from DOE EVMS websites.

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EVM Consulting – Modeling & Simulation

By Humphreys & Associates / March 13, 2018 / deterministic model, Earned Value Consulting, EVM, EVM Consulting, EVMS, EVMS Modeling, EVMS Simulation, IMS, Integrated Master Schedule (IMS), Mesure Analyze Act

deterministic model, Earned Value Consulting, EVM, EVM Consulting, EVMS, EVMS Modeling, EVMS Simulation, IMS, Integrated Master Schedule (IMS), Mesure Analyze Act

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.

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.

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:

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?

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.

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.

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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