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Encore Performance

Encore Performance

The history of the IT industry is littered with examples of major IT projects derailed by lack of effective resource management, contract management and change control. But like cobblers' children left to run barefoot while boots are fashioned for other, richer folks, IT managers have had to wait a long time for a tool powerful enough to address the project management issues which typically dog their projects.

Now a 30-year-old management technique - enjoying a new lease on life - promises to provide better ways of measuring performance and to support more effective management decisionsWay back in the 1960s, the United States Air Force devised a radical new management tool to help corporate and government program managers integrate cost, schedule and technical performance management.

Called earned value, the powerful technique introduced unprecedented levels of discipline to planning by providing metrics capable of revealing all variances from plan in order to allow early and effective corrective action. Or at least, that's what it did for those few organisations with the massive resources required to support such a highly disciplined tool.

Now an ACT Government-owned business entity is bringing earned value down to size, reducing it from the realms of the Defence multimillion dollar contract to something far more cost-effective for smaller business and government enterprises.

ACTEW Corporation (previously ACT Electricity and Water) is piloting the introduction of the earned value system and criteria to project management within its engineering division, as a preface to incorporating it across all its activities. By greatly scaling down the criteria defined by the US Defence Department, and taking advantage of software hitherto unavailable, ACTEW is confident of turning earned value into a technique which will be as useful in very small projects as it is now for major ones.

"Earned value is a very powerful technique for combining scope, schedule and cost," says ACTEW project manager for the implementation of project performance management, Peter Lang.

"In the Australian Defence Department they apply it to very expensive contracts, worth $100 million plus. What we are trying to do is to apply it to very, very small projects, down to anything from 100 man-hours of effort. We want to be able to control every project which comes out of Engineering Division," he says.

In a true acid test, ACTEW is using the earned value technique to monitor the pilot project to introduce the earned value technique to the division. And while eventually ACTEW plans to use the technique to manage every project within every division, it is the IT section, Business Systems Development (BSD), which is most enthusiastically waiting to adopt it. The engineering division is working closely with BSD on the project, and has seconded people from that area to assist in the development, especially of an Oracle interface.

BSD's interest is very understandable. The development team says its pioneering work will provide an ideal way for IT shops to get a handle on a range of IT projects, from application development to Year 2000 conversion. In fact, the more high-risk the IT project, the more the ACTEW project team is confident earned value will help.

Blow-Out reductions

Lang says a recent US study has proved the technique highly effective in reducing cost blow-outs, particularly in high-risk projects.

"The US study looked at several hundred projects of different types," says Lang. "These included very conventional ones like sewerage, water, electricity and highway projects, which are by far the easiest to manage in terms of blow-outs because there is a lot of historical experience in performing these type of projects. And they also included very high-risk projects such as putting a man on the moon, nuclear power stations, oil rigs in the North Sea and IT projects, which are generally high-risk.

"They found the ones that were using earned value were coming in at about half the blow-out rate of the others all the way through the scheme. That puts a magnitude on the value of it," he says. "I consider IT high-risk, compared with conventional projects, and earned value clearly is of greatest value in high-risk projects." Consultant Robert Chilman, of Australian Management Control, is working with ACTEW to implement earned value.

"In high-risk projects like IT you previously might have had the accounting side, which told you how much money you were spending, and then possibly a schedule of some sort, but they were never linked," says Chilman.

"This [earned value] brings the two together, and now, as technology is advancing, you get the ability to have the schedule and the financials linked through ODBC and OLE conventions into the third-party product to give you advanced reports. This makes it primarily an IT culture change project." The criteria, designed by the Air Force in the 1960s and named the Cost/Schedule Planning and Control System, became US Defence Department policy in 1967 and was renamed Cost/Schedule Control Systems Criteria, or C/SCSC.

About 400 companies worldwide are using or implementing the technique, mostly in North America, Britain and Scandinavia. In Australia it is in use in a range of major organisations, including AWA Defence Industries, Telstra, Western Mining, Fleur Daniel, Transfield, and Digital Equipment. Many of these major companies have learned to use the technique in compliance with Defence Department criteria in managing Defence contracts, and are now applying it across their organisations in appreciation of its power as a management technique, Lang says.

Maximising benefits

ACTEW's challenge is to extract all the benefits, while achieving very low compliance costs. "Rockwell Australia has spent the last year doing a major implementation of exactly this using a lot of the tools we are using," Lang says, "but we are scaling the work down and trying to do it with very low compliance costs.

"Rockwell has something like six people full time just to run the system. We will have one person administering it, and the project managers will do all the work themselves. We have got to have very low compliance costs or it won't work." Other medium and small organisations, including Air Services Australia, are watching the ACTEW pilot closely, eager to learn from the ACTEW experience as they consider adopting the technique within their own organisations.

To achieve such low compliance costs, ACTEW is using ODBC and SQL-type interfaces to extract data from Oracle Project Accounting (OPA) and Open Plan Professional (OPP) from Welcome Software in Adelaide. Both OPA and OPP reside on an Oracle database. BSD has bought in OPA to clean up the existing General Ledger 32000 chartered accounts, which were starting to become unwieldy.

"Fields in OPA are automatically populated from accounts receivable, payables, the materials system, and Oracle Project Timesheets, and that is stored against codes that have come from the OPP MIS system, and they replicate each other in the two databases," says Chilman.

"The earned value component comes in through the project management system, and it interfaces with Microsoft Access. Access is where we are using the reporting tools that give us our SPA, which is Schedules, Performance and Actuals. We are developing our own specialised software and tying it into our work authorisations, project authorisations and change control systems, which will also reside on the Oracle database," he says.

Compliance costs are also kept low because the system makes it very simple for project managers to enter data. The system is connected to the finance system, meaning project managers only need enter their time sheets. Costs are automatically extracted from the finance system through the accounts payable, time sheets or materials management system, collected by Oracle project accounting and automatically entered against the right program manager codes.

Cost control

Lang, who developed his expertise in the technique during 13 years on large projects in Canada, including work conducted for the US Department of Energy, said a major benefit of the technique was the ability to achieve much tighter cost control. Normal project management plots time on one axis against dollars on another to provide a budget cash flow over time. Conventionally, project managers plot actual cost versus time.

"But if you can plot the actual amount of work done," Lang says, "you can see how much more it has actually cost to do the amount of work than expected, and how far behind schedule you are in dollar terms, and how far over cost you are for the actual amount of work done. "From this you can get a whole lot of projections, including how late you are going to be, and how much over cost.

"And what's really good about it is that you can get this information very early in the project, instead of having to wait until you are half-way through," he says. "On big projects, experience shows that if you've got bad blow-outs within 15 per cent of start time, then it is virtually too late to really get back on target.

"On small projects you've got more flexibility, more ways to get around it, so you need this really early information. If you wait until you are half-way through, as happens in so many projects, and then start finding you are in trouble, there's nothing you can do about it - you've got to go back to the client for more money or whatever." As an example, earned value has shown ACTEW's engineering division exactly how far behind schedule it is in the implementation pilot project. The technique shows clearly that although the project has only been going for a few months, it is already significantly behind schedule.

But at least using earned value to monitor the project has made it clear early in the piece that there is a problem, so that corrective action can be taken.

There is a sign on Lang's office wall, reading: "The really nice thing about not planning is that failure comes as a complete surprise and is not preceded by long periods of worry and depression." If that sign has particular resonance for Lang now, at least any worry and depression caused by the delays can be mediated by corrective action.

The intention is to pilot earned value in Engineering Division and start taking to other divisions, on request, next financial year.

"We want the whole capital works program, right across the organisation, to be on the system as from July 1. The real benefits will start from there," Lang says.

Year 2000

According to Chilman, not only is earned value ideal for all high risk IT projects, it is especially suitable to Year 2000 conversion projects.

"It is perfect for the large organisation with a major Cobol type system which will require tens of thousands of hours to rewrite and put in new fields.

"Earned value lets such an organisation start getting a handle on their resources, their budgets and their schedule of works. They can implement scope, time and cost management.

"Not only would this help them control costs but it would also give them confidence that the work and testing time cycles would be completed in time, because they are also managing resource, and the resource is the expensive part," Chilman says.

There are also other benefits. Lang says earned value is ideal in the move towards self managed work teams. "This is fantastic for those, because all individuals at all levels can see how they are doing. It is a great motivator.

If your green line is ahead of the blue line you just feel great.

"The other thing is that it gives managers the ability to be able to delegate because they can maintain visibility. They can see what is going on, and the people they are delegating to can see how they are doing. Managers no longer have to have a fear of delegation downwards.

"It gives you a tool to manage by facts," Lang says.

Earned Value System

Earned value is a management technique which integrates scope, schedule and cost management. Under the earned value system, all work is planned, budgeted, and scheduled in time-phased "planned value'' increments, each constituting a cost and schedule measurement baseline. The aim is to not only provide project managers with effective internal cost, schedule and scope management control systems, but also to ensure the customer can rely on timely data produced by those systems for determining product-oriented contract status.

In an earned value system, as work is performed it is "'earned'' on the same basis as it was planned, in dollars or other quantifiable units such as hours of labour. Planned value compared with earned value measures the dollar volume of work planned vs. the equivalent dollar volume of work accomplished. Any difference between the two is known as a schedule variance. In other words, the scheduled variance shows precisely how much of the work planned for a given period has not been completed.

Similarly, the difference between earned value and the actual cost of doing the work is the cost variance. Cost and schedule variances are used to calculate indices of performance. These provide powerful indicators of when and how much the project will cost at completion.

In this way the earned value approach not only allows highly disciplined planning, but also provides metrics which show all variances from plan so that necessary corrective action can be identified and taken.

*Audit period ending September, 1996

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