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FEDERAL
SECTOR
REPORT
January 2006
IN THIS ISSUE
Smarter
Enterprise
Management with EVMS
Link
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Month: CBO
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(c) 2006 by the
P2C2 Group, Inc.
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SMARTER ENTERPRISE MANAGEMENT
WITH
EARNED VALUE MANAGEMENT
Earned Value Management Systems
(EVMS) is a hot topic in Washington both in terms of SOX and OMB. SOX
is the Sarbanes-Oxley Act of 2002, which holds CEOs and CFOs of
publicly traded companies criminally liable for financial
misrepresentation (fraud) to shareholders. In the public sector, the
Office of Management and Budget (OMB) is requiring major capital
investment projects to provide accurate EVMS disclosure and to go a
step further--by achieving good financial results.
EVMS
offers remarkable benefits, but many public and private sector
organizations miss the point because EVMS is a little like marriage. It
is easy to say "I do" and show off the new ring. But it requires a
life-changing commitment to make it work on an ongoing basis. It's
ultimately about a structured approach to governing the deployment of
resources (money, people, time) to achieve measurable results (value)
on a defined schedule and within planned budget estimates.
As
public sector consultants, the P2C2 Group sees a great deal of the "I
do" activity but observes a need for much more of the
enterprise-changing commitment to the underlying policies, management
controls, and business processes that are encompassed in the 32
criteria of EVMS. Put another way, enterprises think they're
getting off the hook simply by buying the flashy new rings--generally
taking the form of an investment in EVMS software and a consulting
study. But you will miss out on the remarkable benefits unless you take
it a lot further.
EVMS
comes into play because it provides a standards-based yardstick for
evaluating the value-based progress when implementing investments,
using standard ratios that permit normalized comparisons between
projects. EVMS is a structured procedure for project and investment
management that effectively integrates the investment's scope of work
with schedule and cost elements for optimum investment planning and
control. The qualities and operating characteristics of earned value
management systems are described in American National Standards
Institute (ANSI)/Electronic Industries Alliance (EIA) Standard
–748–1998, Earned Value Management Systems, available for about $60
from http://www.webstore.ansi.org.
According
to the principles promulgated by the ANSI/EIA standard, an
earned value management methodology should support the organization's
managers in:
- Planning all work for
each program to completion
- Breaking down the
program work scope into finite pieces that can be assigned to a
responsible person or organization for control of technical, schedule
and cost objectives
- Integrating program
work scope, schedule, and cost objectives into a performance
measurement baseline plan against which accomplishments may be measured
(including the control of changes to the baseline)
- Using actual costs
incurred and recorded in performing the work
- Objectively assessing
accomplishments at the work performance level
- Analyzing significant
variances from the plan, forecast impacts, and preparing an estimate at
completion based on performance to date and work to be performed
- Applying EVMS
information strategically in the enterprise governance processes.
EVMS by the Numbers
EVMS encompasses standard
calculations for evaluating program or project performance. The
fundamental ratios calculate the relationship between (a) planned work
elements, schedule, and budgeted costs, (b) the estimated cost and
schedule at completion, and (c) the EVMS status at any point in time
between initiation and completion. The planned work, schedule, and
costs are termed the baseline against which the efficiency of execution
is measured. A Cost Performance Index (CPI) of under 1.00 means that
the investment is costing more than budgeted. A similar measure is used
for a Schedule Performance Index (SPI), and additional calculations
apply to variance calculation such as Schedule Variance (SV), Cost
Variance (CV), and Variance at Completion (VAC). Based on actual
performance, the Estimate at Completion (EAC) may be higher or lower
than the original budgeted estimated (Budget at Completion, or BAC).
The
Federal CIO
Council issued new guidance for agency EVMS policy in December
2005 at
http://www.cio.gov/documents/Framework_for_Developing_EVMS_Policy_12-5-05.pdf.
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The Potential of EVMS
Earned Value Management has the
potential of establishing a Corporate Management Maturity Model that
can lift an entire enterprise to a much higher level of performance and
excellence.
EVMS
provides a framework for enterprise-wide management controls. It maps
programs (investments) to the organizational structure to ensure that a
person or group is accountable for each work package. It demands
careful program/project planning that yields a clear work breakdown
structure (WBS) with assigned resources and schedules. It defines the
program organization and includes a responsibility assignment matrix.
Authorization of work is a formal process, and it is tracked according
to an integrated master plan. It defines Control Accounts--the focal
point for planning, monitoring and controlling within a single WBS
element. Cost accounting for performance must be tied to the
enterprise's actual accounting system, including both direct and
indirect costs. EVMS performance must be monitored at least monthly,
and corrective action plans must be implemented when serious deviations
from planned performance occur.
How to Implement Enterprise-Wide EVMS
- Hire a consulting firm that has
experience in working with top management of the entire enterprise.
This is a different perspective from the issues faced when reporting
EVMS scores within individual projects or contracts, because it must
deal with policies, financial and other management controls,
acquisition policy, and best practices for enterprise business
processes.
- Define requirements, beginning with
the ANSI/EIA standard.
- Perform a gap analysis to determine
what policies and processes need to be changed to implement EVMS
- Identify champions who will support
the required changes, and implement a long-term change management
program
- Select participants for pilot
implementation of EVMS
- Select an automated solution for the
numbers crunching and investment tracking
- Provide training and support
- Use EVMS to improve program/project
management--taking corrective actions to improve performance
- Evaluate initial results and refine
the EVMS approach
- Phase in the entire organization
- Make EVMS an integral component of
corporate governance and performance improvement.
EVMS is a way of thinking,
organizing, and managing. It needs to be part of your corporate
culture.
It's
a mistake to think that you will embrace EVMS today and have a mature,
fully effective Earned Value Management program tomorrow. Our
observation is that it takes several years of hard work to fully
implement--and possibly longer if the core accounting system does not
readily support the EVMS criteria.
Avoid
turning
EVMS into a superficial game by trying to make all of your
investments look perfect. There are sometimes valid reasons why a
program's EVMS scores may be disappointing: schedule delays and
unexpected costs do happen, and there will be no corporate learning if
these skeletons are hidden in the closet. What's more, the only way to
fix problems is to admit that they exist and to take corrective action
promptly.
Don't
view
EVMS as the end-all for enterprise performance. After all, EVMS
just measures program efficiency. It doesn't address strategic
outcomes. Put bluntly, you could have an EVMS-efficient war machine
that still looses the war because of faulty strategic planning.
Challenges
for
the Management Consulting Profession
EVMS
intersects with many other important management initiatives. In the
public sector, this includes implementation of the revised OMB Circular
A-123, Management's Responsibility for Internal Control, and Circular
A-11, Preparation, Submission and Execution of the Budget. It also is
related to the best practices for project management as reflected in
the newest documents from the Project Management Institute. All of
these changes should be considered when providing management counsel to
agency executives and when engaged in support for the strategic
planning process. Analogous considerations are applicable to private
sector organizations as well.
EVMS EVENING AT INSTITUTE OF MANAGEMENT CONSULTANTS
The
Institute of Management Consultants, National
Capital Region, conducted EVMS night on July 13, 2006. Jim Kendrick led
a
presentation about EVMS. You have online access to the briefing
material, Get
Smart
with EVMS.
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LINK OF THE MONTH: CBO
We
all face breakneck deadlines for the day after tomorrow. Yet
occasionally its important to consider long-term trends and strategic
issues, and one of the more interesting web sources for the federal
sector is the Congressional Budget Office (CBO). Anyone engaged
in the federal sector will find useful information.
CONTRACT VEHICLES
The P2C2 Group, Inc. is a
leading independent management consulting firm serving the federal
sector. It is widely accessible through world-class prime contractors,
GSA MOBIS and IT schedules and other multiple-award contracts, 8(a)
firms, and a service-disabled veteran contractor. Call Jim Kendrick at
301-942-7985 to discuss vehicles appropriate to your agency.
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HOME PAGE
My hero in the management
consulting profession died in November 2005. I first heard Peter
Drucker speak in Washington, DC over thirty years ago, and the breadth
of his writing, in 40 books and numerous articles, has been awesome.
His final book will be published in January 2006. Not bad for a
consultant born in 1909.
Like
any good management consultant, Drucker could be a pain: He challenged
organizational leaders to think beyond conventional assumptions. In the
process, he revolutionized thinking about organization and management.
As noted in the November 17 edition of The Economist, "he
changed the course of thousands of businesses. He spawned two huge
revolutions at General Electric—first when GE
followed the radical decentralisation he preached in the 1950s, and
again in the 1980s when Jack Welch rebuilt the company around Mr
Drucker's belief that it should be first or second in a line of
business, or else get out. Yet Mr Drucker is also cited as a muse by
both the Salvation Army and the modern mega-church movement. Wherever
people grapple with tricky management problems, from big organisations
to small ones, from the public sector to the private, and increasingly
in the voluntary sector, you can find Mr Drucker's fingerprints."
Best
wishes,
Jim Kendrick
Technology Management Consultant
4101 Denfeld Avenue
Kensington, MD 20895
301-942-7985
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