Tag Archives: EV

GAO Cost Estimating and Assessment Guide Updated

The venerable Cost Estimating and Assessment Guide (Cost Guide) has been updated for the first time since 2009!  Published in March, the 2020 version of the Cost Guide has been significantly improved.

Some of the changes include:

  • Better alignment of best practices, cost estimate characteristics, and cost estimating steps
  • Clarification of some of the best practices and their related criteria
  • Additional content in technical appendixes and revision or deletion of others
  • Update case studies and references to USA government legislation and rules
  • Modernization of the Cost Guide’s format and graphics.

The Cost Guide defines the four characteristics of a good estimate: comprehensive, well documented, accurate, and credible. It also incorporates 18 best practices and shows how the best practices align to the four characteristics. Additionally, it introduces the 12 steps of the cost estimating process that produce reliable estimates, and shows how the best practices align with the 12 steps.

Earned Value Management (EVM) remains central to the Cost Guide’s approach to managing the delivery of a project once the estimate is approved.

As with the previous version, the Guide can be downloaded free of charge from: https://www.gao.gov/products/GAO-20-195G

For more on cost management see:
https://mosaicprojects.com.au/PMKI-SCH-040.php

Cost Engineering is an Oxymoron!

Cost performance is a symptom of other management functions. It is impossible to ‘engineer costs’. The only way to change cost outcomes is to change the other processes that incur costs.

The three key areas of business operations and project management that incur costs and where a change in the process will cause a change in costs are:

  1. Changing the procurement / purchasing / supply chain processes that acquire the required inputs to the process being managed.
  2. Changing the way the work that transforms inputs to outputs is undertaken through enhanced management and leadership including skilling, motivating and directing the people involved in the work and ensuring they have the correct resources and equipment to undertake the work.
  3. Focusing on the quality of the outputs produces to ensure the ‘right scope’ has been delivered at the ‘correct quality’. Too low and there are cost consequences in rectification, too high and you may have spent money unnecessarily.

These three elements exist in a risk frame. Whilst risk management will not ‘control’ the future, it will allow opportunities to be identified and grasped and threats mitigated and avoided by changing the way the work is undertaken and as a consequence optimise cost outcomes.

The two key facets that permeate all of the above are stakeholder management and time management.

  • Stakeholder management both within the team and externally, (including effective communication) is central to achieving a successful outcome at the best price. Stakeholders are in the supply chain, include the project team and contractors and can have a major impact on the risk profile of the work. For more posts on stakeholder management see: http://www.stakeholder-management.com/blog/?cat=5
  • Time management focuses on ensuring the right people are in the right place at the right time, with the right resources and equipment to do the work in the optimum sequence. For more posts on time management see: https://mosaicprojects.wordpress.com/category/project-controls/scheduling-project-controls/

Both of the above need regular reviews and adjustment within the overall frame of the emerging risk profile.

Where ‘cost engineering’ adds value is via techniques such as Earned Value (EV). Applying EV effectively allows the symptoms of a deviation from the expected performance to be highlighted through Cost Variances and other reports.

As with medicine and diseases, it is capability to recognise and correctly interpret symptoms that allows diagnosis that leads to the effective treatment of the under-laying problem. In project and business management space, this should translate to the requirement for managers not only to report a cost variance, but also to identify the cause of the variance and to recommend and/or implement corrective actions.

Whilst it is impossible to directly manage or control costs; timely and accurate information on cost performance can be a valuable diagnostic tool to remedy the real issues. What’s needed is for senor managers to stop focusing on ‘cost’ and start asking deeper questions about performance and risk. I know many readers of this blog will say this already happens in their organisations, but I also know that far too many other managers focus on the symptom of cost performance rather than the under-laying problem to the detriment of their businesses.

Earned Schedule

In the March 2003 edition of the PMI College of Performance Management journal, The Measurable News Walt Lipke published his seminal paper “Schedule Is Different” and introduced the world to Earned Schedule (ES).

The challenge of predicting the likely completion date for a project is fraught with issues. There are no established protocols for scaling the remaining durations in a CPM schedule to take account of actual performance to date and there is no way of dealing with the consequences of a ‘bow wave’ of non-critical tasks consuming float until after they hit the critical path.

Re-scheduling the project is the same as re-estimating the work, a practice long discredited by Earned Value (EV) professional as being less accurate and more expensive than using EV formula to calculate a predicted cost outcome. And, the SPI and SV calculations cease to have any validity as the original project completion date is approached. In short, SPI does not work and CPM is wildly optimistic.

Earned Schedule

Earned Schedule

Walt solved this problem at least in part with the invention of ES. ES uses standard EV data to calculate a set of schedule indicators, which behave correctly over the entire period of project performance. The methodology and spreadsheets needed for calculation are freely available from the ES website.

Now Walt has published a sensibly priced book that explains the concept of ES and additional advances to the theory and practice of ES including the “P” factor, a measure of schedule adherence and “Effective EV,” which discounts the EV accrued by EV earned out of the correct process sequence.

I downloaded a PDF version of Walt’s book from Lulu Publishing for under $15; printed paperback books are available from Amazon, Lulu and a range of other book sellers.

Used properly, ES is the bridge between EVM cost and network schedule analysis, improving and providing the base for further developments in cost-schedule integration. ES can’t replace scheduling (and does not seek to) but it does provide a useful insight above and beyond what’s achievable using either traditional EV calculations or traditional CPM scheduling.

This is a book serious project control professionals cannot afford to ignore!