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Deltek Insight 2012: Schedule Margin – Contingency for Schedulers

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Project Teams today have to go above and beyond to manage every aspect of their projects. Cost reserves are common place and a dollarized reserve is on most projects, but putting reserve in the …

Project Teams today have to go above and beyond to manage every aspect of their projects. Cost reserves are common place and a dollarized reserve is on most projects, but putting reserve in the schedule is that even possible? Schedule reserves, schedule margins, or buffers can be used interchangeably and are talked about in the GAO Cost Estimating Guide, referenced in DID 81650, as well as the PMBOK. So it seems as if there is a requirement for schedule contingencies to be a part of the Integrated Master Schedule (IMS)? Yet how many of us are actually utilizing methodologies for calculating schedule margins on the projects we manage? Can we actually have schedule margin and still truly comply with the ANSI standards? Is rigorous risk management actually being performed on the project if there is not consideration for risk measurement in the schedule? In this session we will discuss methodologies to calculate schedule margin and ways to implement it on projects. We will discuss the issues that schedule margin may have on EVM and possible solution paths. In addition, we will discuss the conditions a schedule must have in order to truly utilize schedule margin as a management tool. Come join us and learn how to start using the concept or methodology of schedule margin to deal with contingencies to the plan allowing project teams to have better predictability and more control over their projects. Beginner Level.

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  • 1. Schedule MarginContingency for SchedulersJohn Owen, Product Manager, DeltekGC-436
  • 2. AgendaIntroductionsPresentationQuestion and Answer2 ©2012 Deltek, Inc. All Rights Reserved
  • 3. John OwenBackground in Project Management in Oil & Gas EPC 1981Joined Welcom to help launch Open Plan in Europe in 1986Vice President of Development 2003Manager of Sustaining Engineering 2009Product Manager for Schedule and Risk 20123 ©2012 Deltek, Inc. All Rights Reserved
  • 4. The Presentation
  • 5. Contingency / Management ReserveLet‟s start with a question… Have you ever seen a project without any Contingency (for known-unknowns) or Management Reserve (for unknown-unknowns)?There‟s probably a literal answer and an honest answer to this question.The literal answer may unfortunately be no but is that the honest answer?While having an identified „ear marked‟ contingency/MR makes sense, it‟s oftenburied in a „fee‟ or some other overhead because organizations like the DMCAwon‟t allow Management Reserve to be included in project baselines because theyfear it may impact reliable Performance Measurement.So most everyone would agree that Contingency or Management Reserve fundingexists to deal with the cost of risks and uncertainties associated with our projects.5 ©2012 Deltek, Inc. All Rights Reserved
  • 6. Schedule ReserveYou have probably heard the suggestion that „The only certain thing about a projectcompletion date calculated by Critical Path Method is that it will be wrong‟So why don‟t we also hear about a Schedule Reserve to deal with the time impactsof those same risks and uncertainties? We may even be doing Schedule RiskAnalysis to quantify those impacts – but what, if anything, do we do with thatinformation?One of the most common ways to model this uncertainty in our schedules isduration estimate padding. Unfortunately this type of approach has several flaws:  Contingency is spread across the project without any way for managers to identify or control when it is being utilized  Parkinson‟s Law (Work Expands so as to Fill the Time Available for its Completion)6 ©2012 Deltek, Inc. All Rights Reserved
  • 7. Schedule MarginSo we need a way to model schedule reserves in our projects without simply hidingit in overstated durations and addressing the concerns of our customers and theregulatory authorities regarding performance measurement. Schedule Margin is one such waySchedule margin is an approach for calling out a reserve in our schedules to protectboth contractors and customers from unplanned delays. Key features are:  The purpose of the Schedule Margin is to protect project deliverables  Various mechanisms to determine an appropriate amount of reserve  A way to manage/approve the utilization of the reserve  A mechanism to track remaining reserve7 ©2012 Deltek, Inc. All Rights Reserved
  • 8. How Does it Work?Schedule Margin is simply a buffer between when you expect to complete the workand when you will commit to have finished to your customerThe margin buffer goes between your „work‟ tasks and your contract deliverableIt can be used both for Interim and Contract Completion DeliverablesThe size of the buffer is related to the uncertainty surrounding the work to becompleted. It may either be based on manager estimates or calculated usingtechniques like Schedule Risk Analysis. The more uncertainty, the bigger the bufferIt is important that the buffer and its purpose is clearly identifiedThe exact implementation can vary depending on the type of contract and how itwill be regulated8 ©2012 Deltek, Inc. All Rights Reserved
  • 9. This Sounds Like Critical Chain…Critical Chain (derived from Goldratt‟s Theory of Constraints) does have some similarfundamental concepts to Schedule Margin.SimilaritiesBoth techniques encourage realistic „unpadded‟ duration estimatesBoth techniques create buffers/margins/reserves/contingency to protect projectdeliverables.DifferencesCritical Chain determines buffer size/location based on key resources and percentagesof durationSchedule Margin places margin to protect project deliverables and the size of thosemargins is often calculated using Schedule Risk Analysis So Schedule Margin is NOT Critical Chain Note to self: Stop calling the Margin a Buffer!9 ©2012 Deltek, Inc. All Rights Reserved
  • 10. What Do the Experts Say?Industry Bodies such as the PMI suggest that Contingency Funds and ManagementReserve are indeed a best practice both for Cost and Schedule. It‟s a prudent riskmitigation strategy but we unfortunately still hear comments like: “One of DCMA‟s primary concerns regarding schedule margin is that it will be inappropriately derived, applied and mask schedule issues.” “A schedule must accurately reflect critical and driving paths in the project. Whenever I see schedule margin applied I will work that much harder to understand how it‟s being used or misused.” “Schedule Margin feels like schedule management reserve which better be clearly justified and understood.”So it‟s a good idea – but regulators have concerns / misgivings10 ©2012 Deltek, Inc. All Rights Reserved
  • 11. Federal RecognitionDID: DI-MGMT-81861TITLE: Integrated Master Schedule (IMS)Approval date: 20120620 Schedule Margin. A management method for accommodating schedule contingencies. It is a designated buffer and shall be identified separately and considered part of the baseline. Schedule margin is the difference between contractual milestone date(s) and the contractor’s planned date(s) of accomplishment.This is not new! The previous IMS DID (DI-MGMT-81650) from 2005 contained thesame language11 ©2012 Deltek, Inc. All Rights Reserved
  • 12. Industry RecognitionNational Defense Industrial Association - Program Management Systems Committee (PMSC)Planning & Scheduling Excellence Guide (PASEG) Version 2.0 201206225.12 - Schedule Margin - Manager‟s ViewThere is an increased emphasis on execution to schedule resulting from both the government‟s initiativeson affordability and the overall changing economic climate. As such, program management teams areexpected to deliver their programs on time, on target, and on cost. One optional technique available tothese program management teams is the establishment of schedule margin within the IMS. Program teamscan establish schedule margin by creating a buffer prior to an end item deliverable or any contract event.The time allotted in this buffer can be used to offset unforeseen issues identified during program execution.Description - Program teams should follow the following guidelines when using Schedule Margin: Schedule Margin should be represented in both the Baseline and Forecast schedules Schedule Margin should be controlled by the Program Manager When represented as a task, Schedule Margin should be clearly labeled as “Schedule Margin” in the Task Name/Description. Schedule Margin should be placed as the last task/activity or gap before a contract event or end item deliverable.12 CONFIDENTIAL ©2012 Deltek, Inc. All Rights Reserved
  • 13. Defense Contract Management AgencyWhat does the DCMA say?Although the DCMA has not published formal guidance on the use of ScheduleMargin we have received the following feedback:“The NDIA Planning and Scheduling Excellence Guide V2.0 guidance regardingSchedule Margin was reviewed by the DCMA.Basically, schedule margin as a task is okay as long as it does NOT have anydiscrete successors anywhere down the logic chain, either directly or indirectly.DCMA prefers that schedule margin be represented as a calculated difference (i.e.float) rather than a task. Also, any properly used schedule margin task(s) shouldstill have their duration(s) zeroed-out during SRAs and Critical Path Analysis.”13 ©2012 Deltek, Inc. All Rights Reserved
  • 14. Schedule Margin CalculationAs mentioned earlier, the purpose of Schedule Margin is to protect projectdeliverables. So to calculate the margin we need to understand when we hope tofinish versus a date we will commit to in our contracts. If there was no uncertaintythen these dates would be the same but as uncertainty increases the margin shouldbecome bigger to afford the deliverable more protection.If you have experienced project managers they may simply be able to suggest amargin which they feel is adequate. For more complex or innovative projectsSchedule Risk Analysis (SRA) can be used to suggest margins.Using Schedule Risk Analysis gives business managers an opportunity to definetheir appetite for risk since Schedule Margin is simply the difference between thedeterministic (usually unrealistically favorable) completion suggested by CriticalPath Method and the expected finish date suggested by Schedule Risk Analysis fora specific confidence factor.14 ©2012 Deltek, Inc. All Rights Reserved
  • 15. Schedule Margin CalculationIf the deterministic (from Critical Path Method) completion for a project is calculatedas September 26, 2012……and your company policy is for a 95% confidence that you can achievedeliverable dates you sign into contracts…and Schedule Risk Analysis suggests you have a 95% chance of completion byOctober 2, 2012Then the schedule margin that needs to be included in the project is 4 workingdays.This will protect the project from up to 4 days of slippage in the tasks preceding thecontract deliverable.15 ©2012 Deltek, Inc. All Rights Reserved
  • 16. Schedule Margin Example16 ©2012 Deltek, Inc. All Rights Reserved
  • 17. Does Schedule Margin Affect Earned Value Management?There are a couple of common questions:Question #1Schedule Margin often shows in schedules as a discrete entity with novalue, units, or cost. How does this impact performance measurement? Margin has no value and should have no costs, and will not partake in performance measurement.Question #2If we have Schedule Margin in the schedule does this impact the Programmanagement baseline and when performance is taken? Since we are not allowing ‘work’ activities to be directly influenced by schedule margin, the PMB and performance measurement are unaffected.17 ©2012 Deltek, Inc. All Rights Reserved
  • 18. Our Little Survey…During a recent Projects at Work (www.projectsatwork.com) presentation onSchedule Margin the attendees were asked the following two questions:Do you use Schedule Margin? 22% responded YesDo you use Schedule Risk Analysis? 52% responded YesSo my question is: What are the 30% doing with the results from SRA?18 ©2012 Deltek, Inc. All Rights Reserved
  • 19. Question and AnswerDiscussion
  • 20. Thank You! johnowen@deltek.com http://forums.deltek.com/ http://kona.com