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Simon.dekker.vance kotrla
Simon.dekker.vance kotrla
Simon.dekker.vance kotrla
Simon.dekker.vance kotrla
Simon.dekker.vance kotrla
Simon.dekker.vance kotrla
Simon.dekker.vance kotrla
Simon.dekker.vance kotrla
Simon.dekker.vance kotrla
Simon.dekker.vance kotrla
Simon.dekker.vance kotrla
Simon.dekker.vance kotrla
Simon.dekker.vance kotrla
Simon.dekker.vance kotrla
Simon.dekker.vance kotrla
Simon.dekker.vance kotrla
Simon.dekker.vance kotrla
Simon.dekker.vance kotrla
Simon.dekker.vance kotrla
Simon.dekker.vance kotrla
Simon.dekker.vance kotrla
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Simon.dekker.vance kotrla

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  • Secy of Defense at the time was Dick Cheney
  • Transcript

    • 1. Accepted Standards and EmergingTrends in Over Target Baseline (OTB) Contracts • Presenter: Simon Dekker • 2012 NASA PM Challenge • February 22-23, 2012 • Orlando, Florida
    • 2. UNDERSTANDING OVERTARGET BASELINE (OTB)• OTB Explained• History• Definitions and Process• The Customer Perspective• Recent OTB Findings © 2011 Dekker, Ltd. 2
    • 3. OTB: The Essentials Project or program that has run significantly over budget Requires “formal reprogramming” • Complete re-planning • Must be re-baselined at a cost exceeding the original contract price, without affecting scope • Established, well documented process in Earned Value Management (EVM) practice Ramifications • For the customer (agency) • For the contractor © 2011 Dekker, Ltd. 3
    • 4. “Reprogramming”“Reprogramming” is more than simply increasing a budget, it is a fundamental reassessment of a program or project. © 2011 Dekker, Ltd. 4
    • 5. OTB History Highly publicized cost overruns on major Defense programs in the late 1980s Contract termination vs. Reprogramming • Navy A-12 terminated by Secretary of Defense in 1991 • Air Force C-17 allowed to continue under strict conditions to solve cost/schedule overruns Boeing (McDonnell Douglas) C-17 Globemaster III © 2011 Dekker, Ltd. 5
    • 6. OTB History (cont.) OTB process began to take shape • Perform cost/benefit analysis • Quantify remaining work under original scope Over Target Baseline and Over Target Schedule (OTB/OTS) codified in DoD/DCMA, Defense Acquisition University (DAU), and other EVM documentation © 2011 Dekker, Ltd. 6
    • 7. OTB Definitions Terminology and AcronymsTotal Allocated Budget TAB Contract cost. At the beginning of a project, Total Allocated Budget is equal to the negotiated contract cost and contract budget baseline.Negotiated Contract Costs NCC Contract price less profit/feesAuthorized Unpriced Work AUW Work contractually approved, but not yet negotiated/definedContract Budget Base CBB Sum of NCC and AUWOver Target Baseline OTB Sum of CBB and recognized overrunProfit/Fees Fixed price contracts include a profit, whereas cost reimbursement contracts include a feePerformance Measurement Baseline PMB Contract time-phased budget planManagement Reserve MR Budget withheld by PM for unknowns/risk managementUndistributed Budget UB Broadly defined activities not yet distributed to CAsControl Account CA Lowest WBS element assigned to a single focal point to plan and control scope / schedule / budgetSummary Level Planning Package SLPP Far-term activities not yet defined into CAsWork Package WP Near-term, detail-planned activities within a CAPlanning Package PP Far-term CA activities not yet defined into WPsTable 1. Source: Defense Acquisition University EVM Gold Card © 2011 Dekker, Ltd. 7
    • 8. OTB Definitions (cont.) © 2011 Dekker, Ltd. 8
    • 9. When is an OTB Recommended? The standard rule-of-thumb is that an OTB isappropriate on a contract that has exceeded 15% in terms of Projected Cost Growth 𝐸𝐴𝐶 − 𝐴𝐶𝑊𝑃 − 𝐵𝐴𝐶 − 𝐵𝐶𝑊𝑃 = % 𝑃𝑟𝑜𝑗𝑒𝑐𝑡𝑒𝑑 𝐺𝑟𝑜𝑤𝑡ℎ 𝐵𝐴𝐶 − 𝐵𝐶𝑊𝑃 Customer and contractor must both agree remaining budget is “decidedly insufficient” (DCMA, 2006) to complete remaining work © 2011 Dekker, Ltd. 9
    • 10. OTB Process Formal process documentation written largely from the contractor’s perspective 10-step process (Bembers, et. al., 2003) • Begins with the contractor’s decision to pursue formal reprogramming, because – • Purpose of OTB is to help contractor regain control over ongoing work • Customer must then be notified immediately Provides an opportunity to address areas where the original contract may have been unclear or deficient © 2011 Dekker, Ltd. 10
    • 11. OTB Process (cont.) © 2011 Dekker, Ltd. 11
    • 12. Adding the Customer Perspective Very little has been written about the customer’s role in the OTB process Customer must take active role in deciding if an OTB is warranted • It’s about more than previous contractor performance • Customer must undertake its own audits or reviews of contract performance and risk items Granting an OTB should not be considered a “given” © 2011 Dekker, Ltd. 12
    • 13. The Customer Perspective Three questions loom large over OTB process • Once requested by the contractor, should an OTB be granted? • Should the customer consider other sources? • Should the program or project in fact be terminated? © 2011 Dekker, Ltd. 13
    • 14. Informing Customer Concerns (DAU) Is the project outcome still aligned to the critical, strategic goals of the organization? Does the program still offer the competitive advantage it did when the contract was awarded? Has senior management’s buy-in to the project or capability significantly eroded? Are there sufficient resources available to re- fund the revised Estimate at Complete? What internal and external risks are inherent to OTB? © 2011 Dekker, Ltd. 14
    • 15. Customer Assessment of the Contractor DAU recommends independently assessing • Contractor performance-to-date • “System discipline to maintain baseline integrity” (Bembers, et al., 2003) • EVM system and compliance System discipline is perhaps most crucial consideration • What indicators suggest past failures to control cost will be corrected? • If faith in the contractor is not there, contract can be canceled or re-bid © 2011 Dekker, Ltd. 15
    • 16. Recent OTB Studies Three recent studies from the Air Force Institute of Technology • Analysis of predictive growth models for Estimates at Complete (EAC) • OTB’s effect on EVM’s Cost Performance Index (CPI) • Trying to predict which contracts will need OTBs Findings have universally called into question the value of OTBs © 2011 Dekker, Ltd. 16
    • 17. Recent OTB Findings: EAC Establishing a new EAC (Trahan, 2009) • Predicting EAC for contracts in need of OTB reprogramming • Compares “nonlinear growth modeling” to traditional EVM Cost Performance Index (CPI) • Actual Cost predicted more accurately in 63%-79% of contracts examined using growth modeling • Not an effective early warning indicator, though Conclusion: non-traditional calculations can help better predict ultimate OTB costs © 2011 Dekker, Ltd. 17
    • 18. Recent OTB Findings: Benefits Theoretical benefits of OTBs rarely realized in practice (Thickstun, 2010)(Jack, 2010) • Formal OTB reprogramming in DoD contracts undertaken fairly randomly • Using CPI as an indicator, contracts experience no statistically significant performance improvement after formal OTBs Conclusion: Given the costs incurred by the OTB process, the customer receives little if any tangible benefit Recommendation: Barring significant changes to the process, formal OTBs be disallowed © 2011 Dekker, Ltd. 18
    • 19. Conclusion The OTB process is an accepted part of EVM practice OTBs should not be granted by rote – the customer must take an active role in determining if an OTB should take place Complete audit and cost/benefit analysis are necessary, but often overlooked Significant changes must be implemented to ensure future performance will improve © 2011 Dekker, Ltd. 19
    • 20. © 2011 Dekker, Ltd. 20
    • 21. BibliographyBembers, I., Boord, M., Byrnes, T. A., Finefield, T., Gran, W., Haupt, E., et al. (2003). Over Target Baseline and Over Target Schedule Handbook. Fort Belvoir: Defense Acquisition University.Defense Acquisition University (DAU). (2010, September). DAU EVM Gold Card.Defense Contract Management Agency (DCMA). (2006). Earned Value Management Implementation Guide.Evans, D. (1993, March 29). Pentagon to Air Force: C-17 Flunks. Chicago Tribune .Jack, D. E. (2010). Contract Over Target Baseline (OTB) Effect on Earned Value Managements Cost Performance Index (CPI). Wright-Patterson AFB, Ohio: Graduate School of Engineering and Management, Air Force Institute of Technology (AU).Mahnken, T. G. (2008). Technology and the American Way of War. New York: Columbia University Press.Thickstun, K. E. (2010, March). Predicting Over Target Baseline (OTB) Acquisition Contracts. Wright-Patterson AFB, Ohio: Graduate School of Engineering and Management, Air Force Institute of Technolgoy (AU).Trahan, E. (2009, March). An Evaluation of Growth Models as Predictive Tools for Estimates at Completion (EAC). Wright-Patterson AFB, Ohio: Graduate School of Engineering and Management, Air Force institute of Technology (AU). © 2011 Dekker, Ltd. 21

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