It s a great pleasure to be with you this morning. I would like to congratulate the sponsors [National Security Industrial Association, Performance Management Association and the Society of Cost Estimating and Analysis] on the continued success of this international management conference.
The large number of people in the room shows that your program on integrated program management tools is important -- not only to the defense acquisition community, but to other government agencies and the private sector as well. I would also add a special welcome to the many representatives from other countries. I believe international attendance at this conference is important because we will be applying earned value management tools to our international cooperative programs -- a growing trend as I look to the future.
Your conference theme, Integrated Program Management: The Manager s Tool for Success, relates directly to the cultural change we are attempting to make in the department s program of acquisition reform.
Change is easier said than done, and making it happen may be compared to the voyage of a supertanker. When the captain decides to change course, it takes a long time for such a huge vessel to respond -- provided the rudder is connected to the steering wheel. This may not be the case if there is not buy-in for the cultural change in the field. To be effective, there must be acceptance and buy-in from the top to bottom as a team.
Shortly after I assumed my current duties last year, I made a visit to each of the OSD [Office of the Secretary of Defense] staff organizations that directly report to me. In the acquisition program integration shop, Irv Blickstein [director, acquisition program integration] and Gary Christle [deputy director, performance management] described to me the ongoing initiatives in earned value management -- initiatives that many of you have been working on for some time.
I was pleased to discover how much has been done and how well it fits with my own view of integrated cost, schedule and technical performance management. It is clear that you have gone beyond talking about why and how, and are deeply into the doing part. At the time, my message to Irv and Gary was to place a high priority on broad implementation.
In January of this year, I signed memoranda to the services and industry that underscored the following points concerning earned value re-engineering:
- Earned value management is generally accepted by industry, but we in the department have mandated excessively detailed overimplementation, and this has become an obstacle to effective use of earned value measurement systems.
- Therefore, we in the department will work with industry to identify and eliminate nonvalue-added requirements imposed in the past and work to achieve an environment where industry accepts responsibility for management systems standards as a reliable substitute for our current practice of reviewing contractor management systems in detail.
With more than 100 contractors operating under the Department of Defense s Cost/Schedule Control Systems Criteria, those points sound like a very large order. And indeed they are.
But if one glances at the four-day conference program, it is readily apparent that very important things are happening. Presenters from government and industry are here not just to offer opinions on how things ought to be done, but to share with you real-life success stories about how they have been done.
Perhaps the most important message I can deliver to you today is that the C/SCSC earned value management process remains the tool of choice in the Department of Defense for managing our large, risky contracts. You will find the requirements restated in the new draft of DoD Instruction 5000.2, which is available to you on the Worldwide Web under the home page for acquisition program integration.
But my message here would be incomplete if I simply told you where to find the policy. Let me explain what the term earned value management process means to me. It means that whenever the department puts public funds at risk on large cost-based contracts -- either cost-type or fixed-price incentive type contracts -- a process exists to manage those resources wisely.
Let me repeat: I expect public funds to be managed wisely. The key word is managed -- not accounted for, monitored or reported, but managed.
It was for this reason that the C/SCSC approach was developed many years ago. Unfortunately, we have fallen short of this objective in our implementation of C/SCSC criteria over the years. We now have an opportunity to reinvent the process and get it right. This time we have more going for us -- the earned value management process is widely understood, and we have computer tools available to us that were unimaginable just a few years ago.
It is my view that as responsible stewards of public funds, we must jointly and continuously assess the risk of meeting program cost, schedule and technical requirements. Throughout the life of a program, cost must be estimated realistically and we must be prepared to manage within our budgets. That requires a willingness to make the hard decisions to trade off schedule or technical performance when necessary. I call this concept Cost as the Independent Variable.
When a contract proposal is submitted to the department, it is my expectation that the accompanying risk management plan was prepared with contract execution in mind. To me, this means that the link between cost, schedule and technical objectives is established at an appropriate level of detail well in advance of contract award. For the successful offerer, I believe this early integration would help ease the difficult task of assigning realistic but challenging budgets to the teams responsible for performing the work.
After contract award, earned value management would appear to be a key consideration as the contractor assigns contract resources to the work breakdown structure and time-phased work plan. When the contractor and the government customer sit down together and discuss the plan, an integrated baseline review is held. ...
During contract execution, earned value information should be supplied by the contractor on a periodic basis to the program manager for early and continuous insight. For the very largest and most critical programs, the information is also reported to my office once each quarter in the Defense Acquisition Executive Summary.
My point here is that the earned value information used by the contractor to integrate cost, schedule and technical performance should be acceptable if the contractor s business practices are sound. There should not be a need for a separate or government-imposed system.
Sound business practice and logic would also indicate that we build quality and excellence into our earned value management systems from the start and not try to inspect in quality shortly before a government review. Until we reach a condition where government C/SCSC reviews are unnecessary entirely, we should be maintaining our earned value management systems in continuous good health such that there is never a reason for the government to conduct a C/SCSC subsequent application review.
I believe the best way to do this is through joint surveillance by the contractor and the local Defense Contract Management Command organization. This local empowerment has already shown that it can replace the traditional practice of large government teams performing subsequent application reviews for two weeks at every major contract award.
Another concept we continue to emphasize is that of tailoring. There is lots of flexibility in the 5000 series directives. The issue is to incentivize change away from a one-size-fits-all classical mold. We must tailor the process to fit the specific circumstances of individual programs. In the earned value management process, that means we must make sure that the desire for reasonably consistent implementation does not become inflexible implementation. There is no reason to treat every contract circumstance identically from an earned value management standpoint. But there is every reason to tailor our earned value management system to specific contract circumstances.
Let me take a few moments to share with you how earned value management is a key part of another important DoD acquisition reform initiative -- the formation of integrated product teams within OSD and the service acquisition staffs. The department s senior leadership -- Secretary [of Defense William J.] Perry, Deputy Secretary [John M.] White and I -- are all committed to successful implementation of the IPT concept.
Earlier this year, on April 28, I issued a memorandum directing an immediate and fundamental change in the role of OSD and component staff organizations in performing review and oversight of acquisition programs. In that memorandum, I laid out the following objectives for forming IPTs:
- To create an acquisition system that capitalizes on the strengths of all participants in the acquisition process to develop programs with the highest opportunity for success;
- To foster early, active and constructive participation of OSD and component staff organizations with program office teams to develop a sound, executable acquisition strategy;
- To identify and resolve issues as they arise, not during or just prior to the final decision meeting;
- To transform historically adversarial relationships, especially between headquarters staff organizations and program office teams into productive partnerships; and
- To renew emphasis on the importance of working as a cross-functional team to maximize overall performance.
Given those objectives, integrated product teams have been formed with members drawn from all the appropriate functional disciplines, including earned value measurement and performance. The focus for these teams is on delivering a product -- to provide the warfighter with more capability, sooner and at less cost.
In this context, the earned value staff specialist brings an assessment of execution performance to the decisionmaking table. The intent is to employ this staff expertise as part of a constructive solution, rather than as a tripwire to signal a problem in a gotcha fashion at a major milestone or DAES report review.
Again, such improvements are possible only through trust and cooperation, with team members empowered to speak for their superiors in the decision-making process. With regard to program oversight, the IPT approach will shift our process from one of oversight to early insight.
In summary, my thoughts regarding earned value management policy can best be summed up as follows:
- We must work together to eliminate excesses caused by overimplementation of C/SCSC criteria on current contracts -- and get it right on new contracts.
- We must emphasize prevention over cure. Let s identify and resolve compliance problems early and constructively. Quality has to be built into our earned value management systems right from the start.
- We need continuous insight. Our earned value measurement early warning system should provide reliable and timely identification of trends requiring corrective action.
The cost and schedule performance management community have engaged in a constructive dialogue that has produced many excellent results. But the task is not done, and there remain many issues to resolve. I encourage you to use this conference to help get them out on the table so we can continue to move forward.
This must be an ongoing team effort among program managers, functional specialists and industry. I ask you all to work with me to become agents of change in creating an integrated program management legacy for the future.
Published for internal information use by the American Forces Information Service, a field activity of the Office of the Assistant to the Secretary of Defense (Public Affairs), Washington, D.C. Parenthetical entries are speaker/author notes; bracketed entries are editorial notes. This material is in the public domain and may be reprinted without permission. Defense Issues is available on the Internet via the World Wide Web at http://www.defenselink.mil/speeches/index.html