Risk and Earned Value Management

APM Risk SIG

Risk and Earned Value Management

“Working Together in Projects”

Jury’s Inn, Nottingham

Thursday 27th January 2011

Introduction

The first APM Risk SIG Event of 2011 was held on Thursday 27th January at The Jury’s Inn in Nottingham’s City centre. The subject of the day was the focus on the synergies between Risk Management and Earned Value Management (EVM); two principle project management controls that feature prominently in the APM Body of Knowledge.

In 2008 the APM released the publication “Interfacing Risk and Earned Value Management” authored by leading Risk and EVM practitioners. This APM Risk SIG Event, although not officially billed as a joint event with the APM EVM SIG, aimed to review the subject matter highlighted in this publication but with a greater emphasis on the outputs and effect on risk management in projects.

The event was fortunate enough to have several of the authors of “Interfacing Risk and Earned Value Management” in attendance; Daniel Wynne, Turner & Townsend; Edwina Hayward, BMT Hi-Q Sigma; Peter Campbell, Risk Advantage.

Unfortunately in the days leading up to the event two of the keynote speakers Alex Davies, Ministry of Defence and Michael Higgins, Eurocopter, both pulled out due to work and personal reasons respectively. The agenda of the event was rescheduled and Peter Campbell, Risk Advantage and APM Risk SIG Chairman, kindly stepped in to present at the last minute.

Attendance

The event was first advertised in October 2010 and immediately had a positive take up on bookings. The venue had a conference capacity of 60 people and the event had sold out by early January. It was a positive sign that delegates were representing a diverse range of industries; Defence, Energy, Transport, Logistics, local and central Government, which also covered both private and public sectors.

A full delegate list can be found in Annex A.

Objectives

The event had three key objectives:

1. Introduce those previously unaware of the synergies between Risk and Earned Value Management
2. How the outputs from Risk and Earned Value Management can direct management to make informed decisions
3. Open the debate on the successes and failures of implementing Risk and Earned Value Management

The event was to follow the structure of a mix between keynote speakers highlighting their professional experiences in the relationships between Risk and EVM , and group workshops to open the debate on current practices in Risk and EVM.

Presentation One - Tim Warren, Managing Consultant, BMT Hi-Q Sigma and APM Risk SIG Committee Member /

The event was being facilitated by Tim Warren who is a Committee Member of the APM Risk SIG. Tim is a Managing Consultant at BMT Hi-Q Sigma and has nearly 10 years experience of risk management in both private and public sectors.

Tim’s presentation was an introduction into the key subjects of Risk and EVM, defining what is Risk, what is EVM. One of the main focuses of Tim’s presentation was highlighting the misconceptions of Risk from an EVM practitioners perspective and also the misconceptions of EVM from a Risk Managers perspective. Tables 1 and 2 list the misconceptions and the possible counter arguments.

Misconceptions of EVM from a Risk Manager’s Perspective / Counter Argument
Only Government Agencies and Contractors Need to Implement Earned Value Management / - EVM Many have started in government agencies but private sector firms run projects in the same way
-Public sector need to keep the tax payer happy, private sector need to keep their shareholders happy
Implementing EVM creates a lot of extra hard work / -EVM does not require any data that good project managers are not already collecting
-The requirements of EVM reinforce good project management; WBS, OBS Scheduling etc
EVM is only useful for large or long term projects / - The theory is the same for both large and small projects
-Break down larger projects into smaller parts
-On smaller projects increase the frequency of reporting
There is such a thing as “EVM Lite” / - Do you do “Risk Lite”?
-Any project control can be sold to the uniformed (usually management!) as a quick win or box ticking exercise
-The information collated will be managed and poor decisions will be made
EVM is too rigid / -Because of ‘upfront planning’ some are scared off
-EVM is very flexible allowing for major scope changes
-Demonstrated well in Defence and Construction

Table 1

Misconceptions of Risk from a EVM Practitioner’s Perspective / Counter Argument
Misusing contingency reserve / -Contingency reserve should only be used when a planned risk materialises
-The contingency reserve should not be used for any unplanned risk
-Management reserve is used for an unplanned risk impacting
-Programme Management – HANDS OFF!
Risk management is done once / -Risk management is undertaken throughout the project life cycle
-Risk management plans and strategies are in place to ensure agreed structure is adhered to
Risk management is only speculative / -Proper risk identification, quantification and qualification assists project planning
-Opportunities can help drive down cost and time and improve performance
Assign all the risks to the Project Manager / -The risk management plan outlines that the ownership of risk runs throughout the whole project team
-A good risk culture is vital to project success
-RACI matrix can ensure roles and responsibilities are clearly defined

Table 2.

To conclude Tim explained that the basic synergies between Risk and EVM are based around eight key activities undertaken within both disciplines that complement each other, ensuring an overall benefit to project control.

1. Organisation
2. Scheduling and Resourcing
3. Budget and work authorisation
4. Sub contract management
5. Accounting
6. Managerial analysis
7. Change control
8. Integrated baseline reviews

Presentation Two – Daniel Wynne, Associate Director, Turner & Townsend and co-author of “Interfacing Risk and Earned Value Management” /

The second presentation was delivered by Daniel Wynne who is an Associate Director with Turner & Townsend Programme Management & Project Controls. Daniel is one of the co-authors of the APM's “Interfacing Risk & Earned Value Management” guide and currently leads a multi discipline programme controls team on a large infrastructure airport construction project.

Daniel’s presentation was titled ‘Earned Value Harmony’ and detailed some of the basic concepts of Risk and EVM integration whilst highlighting some of the common 'pit falls'.

It was suggested that the basic concepts of Risk and EVM integration are:

-Performance Measurement Baseline (PMB)

-Budget Model

-Setting the baseline

-Executing the project

Performance Measurement Baseline (PMB)

-EV is Achieved against the PMB

-Schedule Variance (SV) and Schedule Performance Index (SPI) are Measured against the PMB

-Cost Variance (CV) and Cost Performance Index (CPI) are a measure of the cost of the achieved EV against the PMB

It is important that all parties have a clear understanding of what is in the PMB

Budget Model

Daniel listed 3 golden rules regarding the budget model; i) Have a Budget Model, ii) Everyone must adhere to the Budget Model, iii) Define Ownership & interfaces within the Budget Model.

The makeup of the project budget model was clearly demonstrated showing how the basic project budget (Figure 1) evolves through the incorporation of management reserve (Figure 2) giving you a performance measurement baseline. What Daniel went on to explain was how to divide the management reserve into specific and non-specific risk provision (Figure 3).

Figure 1

Figure 2

Figure 3

Setting the Baseline

To successfully set your baseline it was suggested that you will need to undertake the following Risk and EVM tasks in order;

N.B.

Risk tasks = red

EVM tasks = blue

Risk and EVM Tasks = black

-Establish project context

-Develop SoW & Initial WBS

-Develop TD budget & schedule

-Identify strategic risks

-Initial risk analysis

-Revise TD Budget & Schedule

-Integrate OBS/WBS

-Create control accounts

-Develop initial PMB

-Update and baseline risk register

-Agree PMB and MR

-Approve Project Baseline

Executing the Project

Figure 4 shows the risk review process in project execution

Figure 4

Figure 5 show the PMB transfer during project execution

Figure 5

Workshop 1

Following on from Tim Warren and Daniel Wynne’s presentation the delegates were split into 5 groups and asked to discuss the following;

-What Challenges do your projects have in putting together your Performance Measurement Baseline (PMB)?

-How are you overcoming these?

-What improvements remain?

Presentation Three – Laura Smith, Senior Consultant,
BMT Hi-Q Sigma /

Throughout the Event the focus had been on the relationship and synergies between Risk and EVM. Laura Smith, a Senior Consultant at BMT Hi-Q Sigma, brought a new dimension to the Event when her presentation looked at the cultures within our organisations and how this could restrict the successful implementation of Risk and EVM.

Laura got the delegates to think about the ‘softer’ factors within their business and asked the following questions;

•Why is culture so important in projects?

•What is the ‘right’ cultural environment?

•Why does change threaten culture?

•What are the common reactions to change

•How can we cause resistance?

•What are the typical reasons for resistance?

•How can we overcome resistance?

Laura discussed the common cultural pitfalls facing organisations when trying to implement new project control processes such as Risk and EVM. Laura found that there are 5 key solutions to overcoming such resistance to change to day-to-day operations in projects.

1. Have a ‘Vision’

–Why change?

•Identify and publicise the benefits of the new system

–What is the change?

•Define the new system/process and how it differs from the current one

–Who does the change effect?

•Define clear roles and responsibilities

1. Have a plan

–Identify measurable progress milestones

–Map the benefits to the milestones

–Track and communicate progress regularly

1. Collaborate on the design

–Don’t re-invent the wheel – do other projects already use the process?

–Avoid duplication – is the data already reported on elsewhere?

–Incorporate lessons learned – draw on experience from within the project team

–Present options – if people have ‘chosen’ an option they are more likely to support it

–Make it a team effort - ‘This is Our Process’

1. Communicate

–Be open

–Be consistent

–Be positive

–Address concerns promptly and fully

–Encourage discussion and feedback

–Talk face to face – get to know people

–Offer advice and guidance without judgement

1. Practice what you preach

–Monitor and report on your progress

–Be honest and transparent in your reporting

–Request the same data at the regular time intervals

–Make exceptions rarely

–Operate a fair and consistent escalation policy

To conclude it was suggested thatthe ‘right’ Culture for a successful EVM and RM system requires:

–A clear process with clearly defined roles and responsibilities

–The benefits should be well understood

–An open and honest approach to sharing data

–A sound understanding of RM and EVM principles and data

–Poor variances, threats and opportunities should be openly shared without fear of criticism

–Lessons learnt from the past should be identified and incorporated into current planning activities

–Review of RM and EVM data should form part of regular project meetings

Presentation Four – Peter Campbell, Risk Advantage Consulting, APM Risk SIG Chairman and co-author of “Interfacing Risk and Earned Value Management” /

Peter Campbell kindly stepped in at the last minute after cancellations from Alex Davies from The Ministry of Defence and Michael Higgins from Eurocopter. Peter demonstrated how to take risk management and EVM data and apply it to strategic decision making.

Question & Answer Panel
Panellists:
Edwina Hayward, Principle Consultant, BMT Hi-Q Sigma and co-author of “Interfacing Risk and Earned Value Management” /
Daniel Wynne, Associate Director, Turner & Townsend and co-author of “Interfacing Risk and Earned Value Management” /
Peter Campbell, Risk Advantage Consulting, APM Risk SIG Chairman and co-author of “Interfacing Risk and Earned Value Management” /

The event concluded with a question and answer session which was opened up to the floor. The delegates fired questions at the panellists, mainly continuing themes from earlier discussions during the day.

The main issue that still concerned delegates was how to factor in contingency within your management reserve. Daniel Wynne’s presentation in the morning had started to cover this area but it had not apparently answered all the queries delegates had on how to successfully secure mitigation contingency as part of the wider management reserve.

APM Risk SIG Event – 27th January 2011Page 1