I Can See Clearly Now (The Risk Is Gone) — Managing and Denying Risk in PM

Just returned from attending the National Defense Industrial Association’s Integrated Program Management Division (NDIA IPMD) quarterly meeting.  This is an opportunity for both industry and government to share common concerns and issues regarding program management, as well as share expertise and lessons learned.

This is one among a number of such forums that distinguishes the culture in aerospace and defense in comparison to other industry verticals.  For example, in the oil and gas industry the rule of thumb is to not share such expertise across the industry, except in very general terms through venues such as the Project Management Institute, since the information is considered proprietary and competition sensitive.  I think, as a result, that the PM discipline suffers for this lack of cross pollination of ideas, resulting in an environment where, in IT infrastructure, the approach is toward customization and stovepipes, resulting in a situation where solutions tend to be expensive, marked by technological dead ends and single point failures, a high rate of IT project failure, and increased expense.

Among a very distinguished venue of project management specialists, one of the presentations that really impressed me by its refreshingly candid approach was given by Dave Burgess of the U. S. Navy Naval Air Systems Command (NAVAIR) entitled “Integrated Project Management: ‘A View from the Front Line’.”  The charts from his presentation will be posted on the site (link in the text on the first line).  Among the main points that I took from his presentation are:

a.  The time from development to production of an aircraft has increased significantly from the 1990s.  The reason for this condition is implicit in the way that PM is executed.  More on this below in items d and e.

b.  FY 2015 promises an extremely tight budget outlook for DoD.  From my view given his chart it is almost as if 2015 is the budgetary year that Congress forgot.  Supplemental budgets somewhat make up for the shortfalls prior to and after FY 2015, but the next FY is the year that the austerity deficit-hawk pigeons come home to roost.  From a PM perspective this represents a challenge to program continuity and sustainability.  It forces choices within program that may leave the program manager with a choice of the lesser of two evils.

c.  Beyond the standard metrics provided by earned value management that it is necessary for program and project managers to identify risks, which requires leading indicators to inform future progress.

This is especially important given the external factors of items a and b above.  Among his specific examples, Mr. Burgess demonstrated the need for integration of schedule and cost in the development of leading indicators.  Note that I put schedule ahead of cost in interpreting his data, and in looking at his specific examples there was an undeniable emphasis on the way in which schedule drives performance, given that it is a measure of the work that needs to be accomplished with (hopefully) an assessment of the resources necessary to accomplish the tasks in that work.  For example, Mr. Burgess demonstrated the use of bow waves to illustrate that the cumulative scope of the effort as the program ramps over time up will overcome the plan if execution is poor.  This is a much a law of physics as any mathematical proof.  No sky-hooks exist in real life.

From my perspective in PM, cost is a function of schedule.  All too often I have seen cases where the project management baseline (PMB) is developed apart from and poorly informed by the integrated master schedule (IMS).  This is not only foolhardy it is wrong.  The illogic of doing so should be self-evident but the practice persists.  It mostly exists because of the technological constraints imposed by the PM IT systems being stovepiped, which then drive both practice and the perception of what industry views is possible.

Thus, this is not an argument in favor of the status quo, it is, instead, an argument to dump the IT tool vendor refusing to update their products whose only interest is to protect market share and keep their proprietary solution sticky.  The concepts of sunk costs vs. prospective costs are useful in this discussion.  Given the reality of the tight fiscal environment in place and greater constraints to come, the program and project manager is facing the choice of paying recurring expenses for outdated technologies to support their management systems, or selecting and deploying new ones that will reduce their overheads and provide better and quicker information.  This allows them to keep people who, despite the economic legend that robots are taking our jobs, still need to make decisions in effectively managing the program and project.  It takes a long time and a lot of money to develop an individual with the skills necessary to manage a complex project of the size discussed by Mr. Burgess, while software technology generations average two years.  I’d go with keeping the people and seeking new, innovative technologies on a regular basis, since the former will always be hard and expensive (if done right) and the latter for the foreseeable future will continue on a downward cost slope.  I’ll expand on this in a later post.

d.  There is a self-reinforcing dysfunctional systemic problem that contributes to the condition described in item “a,” which is the disconnect between most likely estimates of the cost of a system and the penchant for the acquisition system to award based on a technically acceptable approach that is the lowest bid.  This encourages unrealistic expectations in forming the plan once the contract is awarded, which eventually is modified, through various change rationales, that tend to bring the total scope back to the original internal most-likely estimate.  Thus, Procuring Contracting Officers (PCOs) are allowing contractors to buy-in, a condition contrary to contracting guidance, and it is adversely affecting both budget and program planning.

e.  That all too often program managers spend time denying risk in lieu of managing risk.  By denying risk, program and project managers focus on a few elements of performance that they believe give them an indication of how their efforts are performing.  This perception is reinforced by the limited scope of the information looked at by senior personnel in the organization in their reports.  It is then no surprise that there are “surprises” when reality catches up with the manager.

It is useful to note the difference between program and project management in the context of the A&D vertical.  Quite simply, in this context, a program manager is responsible for all of the elements of the system being deployed.  For the U.S. Navy this includes the entire life-cycle of the system, including the logistics and sustainment after deployment.  Project management in this case includes one element of the system; for example, development and production of a radar, though there are other elements of the program in addition to the radar.  My earlier posts on the ACA program–as opposed to the healthcare.gov site–is another apt example of these concepts in practice.

Thus, program managers, in particular, need information on all of the risks before them.  This would include not only cost and schedule risk, which I would view as project management level indicators, but also financial and technical risk at the program level.  Given the discussions this past week, it is apparent that our more familiar indicators, while useful, require a more holistic set of views that both expand and extend our horizon, while keeping that information “actionable.”  This means that our IT systems used to manage our business systems require more flexibility and interoperability in supporting the needs of the community.



APolitical DoD Budget Blues – Part II

The folks at the Center for Strategic and Budgetary Assessments are hyperventilating about the contradictions in the 2015 defense budget submitted by the Administration.  At the center of their concerns is that the budget was modified at the last minute to propose an Army and Marine Corps end strength of 440-450,000 and 182,000 respectively, and Navy carrier levels at 11.

Instead, the Pentagon decided to propose $115 billion above the budget caps for DoD to support modernization programs with force levels at 420,000 and 175,000 for the Army and Marine Corps, with Navy carriers falling to 10.  This is the tradeoff that I highlighted in my last post on the budget–between the costs of sustainment for an aging standing force to meet immediate contingencies versus longer term investment to maintain the technological edge.  What bothers CSBA is the last minute change, which would need at least another $20 billion to fully fund.

Secretary Hagel has not explained the contradiction but what could it be that would cause the Pentagon to adjust its tradeoff at the last minute with an asterisk?  One word in my mind: Ukraine.  Perhaps several, including Chinese designs against Japanese territory, among other world issues that could destabilize national interests and lead to regional war–or worse.

Total discretionary (non-social insurance) spending is $1.014 trillion in FY 2015.  Of this, DoD spending is proposed to be $495.6 billion–about half.  Another $20 billion would represent 2% of the total discretionary budget.  So, given that the bill needs to be run through Congressional committee and the budget process, is it really necessary to go back to the drawing board when the CSBA suggests that the budget as it stands is probably DOA?  I think not.

Overall, for R&D programs, spending is up 1.7% above the previous fiscal year.  This is not a windfall by any means, nor does it restore things to pre-sequester levels.  But we are living through a period in American history of pretend penury.  The U.S. can more than afford to fund those needs to mitigate the effects of the great recession AND spend sufficient funds to protect the interests of itself and its allies today and into the future.  Even taking the growth projections of the Congressional Budget Office into account at 3% per year (given the CBO has been consistently wrong about such projections for almost a decade now), plus inflation of 2%, U.S. deficits in the range of 3 to 4% are sustainable well into the future.  If incomes were to keep pace with productivity gains, and with modest adjustments to revenues during periods of growth when full employment returns, the U.S. could easily begin to run budget surpluses as it did in the late 1990s.  We are still a very rich country.

I am not entirely convinced that comparing budget deficits and debt to a percent of GDP actually means anything.  If the frequent comparison to a household budget were to be equivalent to the spending patterns of Americans, U.S. deficit spending would be well above 100% of GDP, given the average mortgage, personal, and credit card debt held by private individuals.  With the debunking of Reinhart and Rogoff this tie, I believe, is even less valid.  Even if it did matter and R&R had not been so thoroughly proven wrong, much of what we project as debt is held by the public.  As Dean Baker has proposed, if there is a magic percent of GDP lurking out there that will suddenly cause our deficits to be unsustainable, Treasury could simply reduce the percentage through bond purchases.

Thus it appears that, if the Administration’s budget is at least used as a baseline, that there is much hope here that the U.S. maintains its technological edge while it attempts to figure out how to handle the next immediate crisis.  The risk to project management during the hearing process is that $20 billion will be carved out of R&D, which would negate the gains in the Administration’s proposal.  Thus, going into 2015, project managers will still need to be vigilant to find opportunities to substitute newer and less expensive technologies for old ones, and to aggressively use methods such as cost as an independent variable (CAIV) where they can.  Carry-over may once again be vital.

I’ll have more analysis as details emerge and the process works out.


Apolitical DoD Budget Blues

Still going through the Pentagon’s 2015 Defense budget, along with other sections of discretionary spending. First impression is that the emphasis is on research and development in lieu of production. This places that much more pressure on project managers to get the most value from the dollars being spent and to do so in segments that provide deployable systems.  The basis for this thinking goes back to analyses from World War II and other major conflicts where there were opponents of roughly equivalent capability.  For example, during World War II Germany and Japan had the technological advantage in deployed units, especially in tanks for the Germans and aircraft for the Japanese, and scored early victories against the Allies.  The United States had a small standing military force but a robust technological base.  Sustainability costs were higher among the Axis and the tradeoff of resource commitment between operations/maintenance and R&D favored the former.  By the time 1943 and 1944 rolled around the newer systems that the Allies deployed, particularly given the U.S. industrial base, was key in the destruction and total defeat of the Axis.  The key now is to still meet worldwide commitments given the evolving role of the United States in world geopolitical stability, while expanding flexibility and maintaining our technological advantage.  Major Power disagreements like the current one in the Ukraine highlight the limits of military power since nuclear weapons still make major conventional conflicts unthinkable, thus the QDR seems to be focused on the threats that can be realistically addressed.  I’m not wild about the personnel benefit and pay cuts, which always seems to have a misplaced place in the heart of the Beltway insiders–must be their patrician bias against the common working man and woman.  “Supporting the troops” is easy when it doesn’t cost anything.  Both the left and right are already playing partisan football with the budget with the usual suspects taking usual positions but, in the meantime, I’ll defer the early scoring to Lawrence Korb and company over at the Center for American Progress until I have something important to say.