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Earned Value: A Risk Integration Indicator

The earned value management system (EVMS) is a method used to plan, schedule, and monitor cost and schedule performance. Earned value systems are used to ensure that risk of schedule and cost variance is monitored.


Measures work progress to the plan, identifying potential risk impacts

Integrates cost, schedule, and technical performance

Leads to root cause analysis to identify risk causes

Aids in making informed decisions on corrective action to mitigate risk

The Risk of "Unaccountability"

Here we discuss some organizational and management tools that facilitate risk integration: responsibility assignment matrix (RAM), the organization structure, and the cost account manager.

The RAM is the document that integrates the organizational structure and the WBS into a usable matrix for assigning work responsibilities within any given organization working on the program. The RAM may be referred to as a single point verification of authority for a given organization to expend effort on an assigned program task. Without the RAM, there is risk of performance breakdowns because of unclear accountability.

The cost account manager (CAM) concept stresses accountability for work performance and cost control at the work package level. The CAM and the support team are responsible for planning, managing, and tracking technical, schedule, and cost performance for one or more control accounts. Risk impacts are cost overruns and cost variance. The CAM:

Participates in the identification of scope

Is responsible for schedule and budget development

Reports status cost and schedule performance

Explains and documents variances to the plan

Develops work-around and recovery plans

Reviews and updates estimate at completion (EAC)

Supports internal and customer reviews

Responsible for maintenance of EVMS reports

Identifies, tracks, and mitigates technical, schedule, and cost risk

Is responsible for budgeted cost of work scheduled (BCWS), budgeted cost of work performed (BCWP), and actual cost of work performed (ACWP) of control account

Project Manager Integration Roles

The project manager is responsible for integration of risk into the project decision making process. The project manager:

Integrates project work scope, schedule, and cost objectives

Provides for an objective assessment of accomplishments against the prospect of risk impacts

Summarizes risk data to higher levels (roll-ups) for management, critical path analysis, and decision making

Enables analysis of significant variances from the plan forecast impacts

Project managers use vertical and horizontal traceability to verify integration.

Vertical traceability occurs when all subelement tasks that support a summary element start and complete ontime.

Horizontal traceability occurs when a stated milestone or event from one schedule is identified and coordinated with another schedule. This is also referred to as project interface management, for instance, the mitigation of risk through coordination of similar milestones across projects.

Integration Issues in Budgeting

Undistributed budget. Budget that has been authorized by a contract but as a result of an incomplete related task, has not been released to the contract team for use.

Management reserve. Stated amount of the authorized project budget that is being held in reserve by the project/program office for contingencies and unknown unknowns. Sometimes referred to as the buffer in critical chain management, it is a "tap" on the project budget that the project manager uses to offset risks and resource bottlenecks.

Work package. Time phased and budgeted tasks that are assigned to a specific work group, team or other entity to be accomplished. Typically the work package contains the lowest level of identifiable and budgeted tasks within a given project.

Planning package. Planning package represents tasks that have not been planned in detail and is typically a holding package for budget that is yet to be identified in discrete tasks.

Rolling wave. Technique for providing a plan of action and discrete budgeting and scheduling once a better definition of how to accomplish the effort is known. Typically the rolling wave is accomplished in six-month modules.

Why Integrate Risk?

Risk management is an organized systematic decision-making process that efficiently identifies risks, assesses or analyzes risks, and effectively reduces or eliminates risks to achieve program goals. Risk assessment should not be a separate process but rather an integrated part of the project planning and management process.

The purpose of risk management:

■ Spans all phases of the project

■ Provides an iterative process

■ Is not an option or a project add-on

■ Should be developed to the specific project

Integrating question. The key risk issue is "what could go wrong in the project and how can contingencies, e.g., mitigation actions be developed and integrated into the schedule so that should the risk occur, the actions to offset the risk are an integrated part of the project plan and schedule?"

Risk management planning. The process of setting up the organization to do risk management as an integral part of the project planning process.

Risk identification. Risks are identified during development of the WBS, in the definition of tasks in a generic WBS "data dictionary."

Risk analysis. Assessing the qualitative and quantitative characteristics of the risk occurs during the planning process.

Risk planning/mitigation. Contingencies to deal with risks are integrated into the WBS task structure and corrective actions scheduled into the program and project.

Risk tracking. Earned value indicators are used to monitor risks, e.g., those risks identified in planning that will have schedule impacts are monitored when negative schedule variance indicates their impacts.

Integration and Sensitivity Analysis

Sensitivity analysis is the process of looking at what variables—project tasks, costs, materials, fixed costs, are most likely to affect project outcomes such as on-time delivery or cost control. Sensitivity analysis is integrated into project scheduling by identifying key variables in the project and their impact on costs and schedules. It can be useful to use MS Project to model a trial and error process, making changes in task durations to quantify impacts on project due dates.

Monte Carlo Risk Analysis : Quantitative Risk Integration

Here is a listing of expectations from Monte Carlo analysis.

1. How likely is any date, but particularly the critical path method date or any imposed date, to occur given the current plan?

2. Which activities contribute the most to schedule overrun risk in the project?

3. What is the exposure to risk, which is the same as asking, "How much schedule contingency do I need to drive the risk to an acceptable level?"

Four distinct steps in a Monte Carlo analysis are required in order to gain the benefit of a network:

Create a solid network.

Apply most likely optimistic and pessimistic durations for activities. Run the Monte Carlo simulation. Interpret results.

Special Challenges of Integrating Risk into a Software Project

Integration of risk takes on a special meaning in the case of software development projects simply because the performance record for software projects is not good. Software presents particular integration obstacles in designing and testing.

The risk in software development is that failures turn up too late to resolve. Risk integration in software development requires that testing and verification be integrated in the design phase. This means that software engineers must be trained to iterate their designs early into the customer platform and "setting." Further, unless software engineers document their designs and communicate them early, software integration typically fails.

Third party intervention is sometimes necessary to "force" integration issues early. Text cases using customer requirements are used in such cases. In addition, change impact analysis is used to evaluate integration impacts of code and design changes.

A good integration plan includes a scheduled integration phase with gate reviews at particular milestones, including design, coding, and testing. In addition, the project team is made aware of the need to communicate across functional areas to make sure that software engineers, certification engineers, quality assurance engineers, electrical engineers, and mechanical engineers are all talking during software development.

Errors detected in integration are often difficult to address. Thus, a parallel verification process is managed to identify errors early in design, usually by another software engineer acting as a quality assurance reviewer. The purpose of verification activities is to detect and report errors that may have been introduced during the software development process. Verification activities consist of developing requirements-based test cases and procedures; executing test cases and procedures; and reviewing and analyzing requirements-based testing, structural coverage analysis, and formal qualification testing. The software engineer may serve the role of a certification engineer, generating test procedures and running tests when independence is not required.

Finally, verification should include requirements-based test cases and procedures, carried out by third party "certification" engineers. This ensures an objective integration process later in the project cycle.

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Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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