could forecast that even that much money wouldn’t be enough.
BURN RATE 101 For professional military officers, it cer- tainly isn’t easy to admit failure, or to predict that you’re going to be a failure in 18 months or less. It took us the bet- ter part of a year and about four more meetings of the non-milestone DAB to formally re-baseline the program—recal- culate and revise the costs and schedule for the remaining work—by deferring our production and recoloring the near-term money, etc. It was painful.
One of the main difficulties was not only projecting how much more money we would need to finish development, but how much more time as well. Red teams, blue teams, tiger teams—the bureaucracy assigned any number of “experts” to help us figure it all out. Te Office of Cost Assessment and Program Evaluation, back then called the Cost Analysis Improve- ment Group, was heavily involved in getting to the root causes of our troubles and identifying the resources needed to proceed. We had been spending about $10 million per month, and we were going to need about $180 million more. What no one seemed to be able to decide was how much more time should be added to the original 36-month schedule.
Tere were 40-month estimates, and 42- and 48- and finally 54-month versions of the revised EMD phase. We finally arrived at the 54-month estimate—18 additional months for the additional $180 million. How about that! We could’ve done some pretty simple math to arrive at that sched- ule figure once we got the latest revised bottom-up engineering estimate. But believe it or not, there weren’t that many people who even considered the burn rate in their estimates of the schedule needed.
Te idea of burn rate, or spending rate, was an important takeaway for me from all this. (See Figure 1.) EVM “gold cards,” provided by Defense Acquisition Univer- sity, and their published instructions tell you all about various ways to figure out a new estimate at completion (EAC). But the EVM readings and formulas available to all of us don’t adequately teach us how to estimate schedule when they take us through these concepts of planned, actual and earned value. Te squiggly lines and values typically guide us toward estima- tion of a new budget at completion or EAC, but they don’t elaborate on how much more time might be needed. And time is indeed money.
It’s possible, perhaps, to apply cost perfor- mance index and schedule performance index calculations against the original budget to project a new version of the program schedule. But current EVM instruction is really lacking when it comes to how to deal with the extra funds you receive if you’re unlucky enough to need them and lucky enough to get them.
It turns out, as I discovered during the Javelin recalculations, that once develop- ment programs get underway, their staffs of various engineers burn resources
at
a fairly consistent rate. For us, we were involved with knowledge work at that point; no missiles had yet flown. But lots of chemical, mechanical, electrical and software engineering was in flow, as well as all the work of the business types: admin, scheduling, management and indirect costs, for example.
LESSON WELL LEARNED Frequently, we work EVM problems here at the Naval Postgraduate School. I ask my students how much more money and time will be required for a program run- ning behind schedule and over budget. Unlike common stock shares’ technical
analysis charts, EVM is indeed a predic- tive tool. And as with an artillery shell just one millimeter off its deflection or azi- muth, a cost or schedule variance vectors out over distance to become quite large depending on range (or time remaining).
Most often, students come up with a nice combined index formula for a pessimistic estimate—maybe the more pessimistic, the better—but then they expect to spend many more millions of dollars in only a few months added to EMD. It just isn’t likely to happen, because practically, industry cannot simply add staff to “crash” the program and finish it rapidly. Tey’ll most likely continue at their current systemic rate of cost and schedule inef- ficiency. Hopefully, the earned value you attain during the extension will be the same or better than what it’s been so far— but we can’t expect miracles.
Tis knowledge would serve me well a few years later when I took over my own program. It was amazingly similar to the
I thought, “How could we be in so much trouble? And how could the boss know at this juncture that we were going to fail to stay within budget for the remainder of the program?”
ASC.ARMY.MIL 241
COMMENTARY
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