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38 Long Range Planning, Vol. 16, No. 2, pp. 38 to 50, 1983 Printed in Great Britain

0024-6301/83/020038-13%03.00/O Pergamon Press Ltd.

Effective Planning and Control of Large Projects-Using Work Breakdown Structure

H. W. Lanford, Professor of Management, Wright State University and T. M. McCann, Manager of Operations, ANALYTICS, Dayton, Ohio

This article is designed to make planning managers aware of a concept and practice that offers great promise of assisting in the development of plans, particularly budgets, and allowing improved visibility in the control phase. The work breakdown structure (WBS) concept pinpoints individuals and organizations responsible for budget preparation in large and complex organizations and provides the management team with information on responsibility, costs and schedules.

Examples of Recent Applications of

WBS The Work Breakdown Structure has been strongly emphasized as a program planning tool by the U.S. Department of Defense successfully for more than a decade. Most of the major system developments have utilized the WBS’ as a primary mechanism for the definition of contract work and the basis for a management planning and control system. Where the concept has been rigorously applied there has been a general view that the system management task become more transparent and management attention more easily focused on the elements of the project most critical to successful completion. As an example, the U.S. Army Program Management for Stinger described the WBS-based management control system as ‘. . . a major factor restraining program cost growth.12 Many other programs in the Department of Defense have also described their WBS based management control systems as having made major contributions to their internal management capability.

H. W. Lanford is Professor of Management at Wright State University, Dayton, Ohio 45431, U.S.A. and Thomas McCann is Manager of Operations. ANALYTICS, Dayton, Ohio.

The WBS approach to planning has also been applied within the U.S. Department of Energy for application to large projects, especially reactor construction and demonstration. The large investment requirement, long project duration and

variety of organizations involved has created a need for strong baseline planning and project control mechanisms. Application of the WBS discipline is seen as meeting the challenge of work definition for this critical technology area. The use of the technique has also been adopted by some of the utility companies such as the Florida Power & Light Co. and GPU Service Corp. primarily in the area of major facility construction.

Other federal agencies have also adopted this planning approach. The Department of Transportation and the Federal Aviation Administration have applied this approach to their major projects. In each case, the application has been motivated by a desire for clarity in planning and a firm basis for project control.

An Overview of the Work Breakdown Structure The work breakdown structure is essentially a product-oriented family tree, from the final product or system at the top level through several levels of development, through major subsystems, major component parts, and the ultimate discrete pieces from which the system is assembled. The work breakdown system identifies each major subsystem and permits the development of sub-nets for each subsystem. The work breakdown system thus has the advantage of identifying every discrete part used in every subsystem. This product- oriented family tree may later be combined with the organizational structure to identify which

Effective Planning and Control of Large Projects-Using Work Breakdown Structure 39

specific group or individual will complete each specific task or work box. The master network chart most often follows the work breakdown structure but may be developed along organizational lines. Subnets may be generated around primary areas of activity. In Figure 1, the subdivision of tasks follows or produces a product- oriented family tree-called a work breakdown structure. For the sake of simplicity in demonstra- ting the Work Breakdown structure, attention is invited tc Figure 1.

Figure 1 develops an end item vehicle into a family tree of subobjectives, including the engine as shown, further developed into sub-subobjectives, including the high pressure turbine shown, which is further developed to show the component parts of the turbine, the first stage and the second stage. If necessary, the breakdown may be continued to the lowest level discrete part or piece.

The integration of the work breakdown structure and the organizational structure is necessary in order to assign functional responsibility for the tasks to be performed. Figure 2 shows a conceptual rotation of Figure 1, the work breakdown structure, and its overlay onto the functional organization. This integration may be the basis for determination of the nature of the particular approach to developing a project management matrix for the specific project.

The points of intersection of the work breakdown structure with the organizational structure represent ‘work packages’ as shown in Figure 2. These work packages are multi-dimensional depictions of the work content of the tasks, the performance objectives, and the resources required to accomplish the tasks. The work packages are the lowest level of the breakdown for: (a) estimating or planning performance, time required, and costs, (b) tracking progress in attaining performance, maintaining time budgets, and living within estimated costs, and (c) controlling performance, time and costs. The work package interface with the functional organization establishes responsibility and ac- countability for accomplishment. Other authors have defined the work package as a specific job which contributes to a clearly defined specific task of accomplishment toward the system objective.3

The work breakdown structure also provides a basis for allocation of performance characteristics or physical and functional constraints. This can be especially valuable if the project involves original design effort where the performance objectives for the total product or system have been specified and the component design must be accomplished on the basis of specified performance requirements. This disciplined approach can provide rational baselines for the apportionment of such parameters as reliability targets or constraints such as weight limitations. The fact that all planning, budgeting

WBS Level Work Breakdown Structure (Partial)

I 2 0.01

I I

I I 2.01 2.02 2.03

3 Compressor Combuster High Pressure Turbine

4

Figure 1. The process of the work breakdown structure

40 Long Range Planning Vol. 16 April 1983

Figure 2. Integration of the work breakdown structure and the functional organization

4 Engine

I r High Pressure Turbine

Work Packages

and performance allocations are based on the same work breakdown structure can also yield significant advantages as facilitator of communication among the various functional disciplines involved in the project. In addition, the integration of the work breakdown structure with the functional organization to develop work packages enables the costs associated with the various work packages to be identified with the responsible organization div- ision and by component, subobjective, and end item. Thus, during the control phase, there is the ability to measure summary cost data on a task basis, by summarizing UP the WBS, or to a specific functional organization. The concept developed by overlaying organizational structure on the work breakdown structure provides a powerful tool for work management systems. This allows different management levels to concentrate on planning, controlling, and developing individual work packages as coherent units. In addition, it interrelates functional

activities, shows the total project workload, and provides a sequential plan of action to indicate progress based on performance, time and cost.4

By reference to Figure 1, note that the engine subnet contains three subnets of its own, the compressor subnet, the cornbuster or burner subnet and the turbine subnet. The turbine subnet is reproduced as Figure 3.

The compressor and the burner should also be the subjects of subnets in the complete work breakdown structure.

Events which represent points of interface with another subnet are shown with the symbol of a ‘house’. This practice allows a rapid evaluation of subnet dependencies which might be lost in the maze of events if the sub-netting technique was not used. An illustrative engine subnet is shown in Figure 4.

, /’

1

cl Tur

\

From

First Stage Design

‘q 0 Turbine Fab +O Turbine Test,m

l f

Second Stage Design

2 cl Ew

Legend: Numbers in Houses Represent Subnet Numbers

Figure 3. Turbine subnet

To

3

cl Eng


From

cl 10

Veh

Legend: Veh - Vehicle Eng - Engine Corn - Compressor Bur - Burner Tur - Turbine

Figure 4. Engine subnet

As indicated in Figure 1, the WBS has broken the vehicle into component parts. The engine component was then broken into its component parts, and one of the engine components, the turbine, was broken into its first and second stages. These stages may be broken into their component parts, the blades, bearing, housings, etc.-the discrete parts from which the lowest level assembly is composed. By the conceptual overlay, the organizational entity having design, fabrication, assembly and test responsibility for each work box can be shown.

A question frequently arises concerning the definition of what is manageable or adequate for a given type of effort or, asked another way, will every organization break down a system or production in exactly the same way. The answer is no. Two producers of similar products might plan and control in quite dissimilar manners. Different organizations view their own efforts from different. perspectives.

Another frequent question concerns the amount or depth of detail required in the work breakdown structure. Rule of thumb guidance indicates that the detail required to adequately plan and control the system should be developed-no more, no less.

WBS Dictionary Many organizations find the development of a WBS dictionary at least desirable and in many cases mandatory. The WBS dictionary verbally describes ..he work to be accomplished so that all individuals and organizations understand the definition of work packages, the work content and meaning of

the, various tasks, the parties or organizations responsible for accomplishment, and the interrelationships of the WBS elements. The WBS dictionary should provide a definitive statement of descrip- tions of tasks or work packages, the relationships of work packages and the organizations responsible for each work package, and to whom or what organization the responsibility for accomplishment is assigned. It also serves as a definitive technical baseline for the project. The WBS dictionary should be prepared in sufficient detail to allow its use in pricing, in the preparation of statements of work, in the preparation of work releases, in preparing subcontract statements of work and in reporting the progress toward the achievement of objectives. The WBS dictionary is designed as a consulting tool. If properly prepared, an outsider can develop an understanding of the project by studying the dictionary and referring to the work breakdown structure.

Key Concepts of the Work Breakdown Structure The work breakdown structure method of planning and control embodies a number of important concepts. One important concept is that ofplanned value. Planned value is the estimated cost of the work package to be performed and is the budgeted cost of work scheduled, abbreviated BCWS. Another important concept is that ofearned value. Earned value is the planned cost or budgeted cost of work performed, abbreviated BCWP. Earned value includes the value of in-process work accomplished plus any previously completed work in the original budget of a particular work package.


Figure 5 is an expansion of an adaptation of Figure 2, wherein the work packages have been sequenced in time to depict the required project phasing and interrelationships that have been identified as a result of the network analyses of the type of Figure 3. The work packages have been made different sizes to show’that the amount of work varies from package to package. Some work packages may be accomplished in a day, others in a week, and still others in even longer periods ,of time, perhaps months. A ‘Time-Present Line’ has been added to Figure 5. This time-present line may be moved daily, weekly, monthly, or any other period desired by the project manager.

Planned value, the estimated cost of each work package, is equal to the budgeted cost of work schedule (BCWS) for each work package. (At the risk of redundancy, it is pointed out that the estimated cpsts of the proposal or estimate become the basis for budgeted costs once the project is approved or a contract received.) By applying the concept of earned value, the project manager takes credit for the amount of work completed (with the associated planned costs or budgeted costs) at the time the work package is completed. Attention is invited to the facts that (a) the time to complete the work package may be longer than estimated-and budgeted; and (b) the actual cost to complete a particular work package may be more than the planned or budgeted cost.

In Figure 5, discrete work packages are shown against a time schedule for a portion of the project or system. As the time-present line is positioned on the progress chart, the manager is faced with a decision as to how to credit earned value. Available options are: (a) credit full planned value as earned value when the work scheduled in the work package is begun, (b) credit full planned value as

I, Time Present Line

I

Time

Figure 5. Credit for work package content

earned value only upon completion of the work package, (c) in cases where the work packa_gr requires a relatively long period of time for accomplishment, divide the work package into segments, e.g. 25 per cent completion, 50 per cent completion and 100 per cent completion, and take credit for the corresponding percentage of planned value as earned value, (d) some organizations credit a value of 50 per cent of the planned value of a work package at the time of opening or beginning of the work package and 50 per cent at closing or completion of the work package, or (e) credit earned value based upon the completion of predefined milestones within the work package with specific percentages identified for each milestone.

Another important concept is that of actual cost. Actual cost is simply the actual cost of work performed, abbreviated ACWP. The actual cost represents the dollar value of resources consumed in the accomplishment of work performed. Actual cost can, of course, be greater or less than budgeted cost.

A difficulty in using a comparison of actual cost with budgeted cost for some specific point in time, is that the variance displayed is a spending variance. This spending variance can be composed of two elements: (1) a difference between actual cost of the work elements accomplished and the budget established for those elements and (2) a variance reflecting accomplishment of specific tasks during a time period different from that which was planned, either earlier or later.

To overcome the difficulty in interpreting this spending variance and to help in segregating cost and schedule variances, the manager can look to the work’ actually accomplished in some discrete time period and assess the worth or value of the work accomplished. If he determines that the amount initially budgeted represents the true value of the work or work box to the organization, then the value of each element of work is the amount originally budgeted for it. He must then find a way in which he can determine when this value has been earned, that is, when to take credit for the completion of that element of work, or, work box.

A relatively simple example may serve to illustrate the use of these concepts. Let us assume that the task to be accomplished is the design, fabrication, and test of the first stage of the pressure turbine of the engine. The total estimated cost is $lOm and the estimated time required is 10 months.

The design-task l-is expected to require 15,000 hours and will require 3 months for completion. We expect to spend at the rate of $lm per month. The fabrication of the first stage-task 2-is expected to require 20,000 hours (for a cumulative hour total of 30,000) and 4 additional months (for a


cumulative total of 7 months). The test program- task 3-is planned to require 15,000 hours (for a cumulative total of 50,000) and 3 months (for a cumulative total of 10 months and $lOm). At the end of 5 months, S5m have been spent. At this point we appear to be on track with the spending target and the_ spending variance appears to be zero. However, the effectiveness of the effort can not be determined without information concerning progress toward achievement of the technical objectives. If only nine of ten equally costly subtasks scheduled to date have been successfully complete, and we determined that the expenditure rate per time period was constant, then we are behind schedule. We should have completed 10 subtasks for the expenditure of $5m but we have successfully accomplished only nine subtasks. We have spent $5m to accomplish what we planned to spend f4.5m to accomplish. We are over budget by $500,000 at present. The overrun condition portrayed emphasizes the need for accurate cost estimates at the inception of the project-which serves to emphasize the advantages of the work breakdown concept in defining who is responsible for what. This clarification of responsibility can result in greatly improved project estimates.

A question that arises from time to time is, what if this is the organization’s first experience with this particular item, how can accurate or realistic cost estimates be obtained? The usual practice is to break the item into its discrete parts, and examine each part closely. How much more difficult is each individual part than parts most nearly similar that the organization has developed, designed, and manufactured in the past? What item with which the organization has experience is most similar to the new item? Through such comparisons a more accurate analysis of new items may be made.

The construction of a planned value curve to help control progress and costs is desirable. The first step is the development of a table to show planning information for the tasks involved. Table 1 sets forth the planning information for the design, fabrication, and test of the first stage of the turbine.

Table 1. Planning information for the planned value curve

Planned value Cumulative Planned (1000 (1000 (time Cumulative hours) hours) (months) (months)

Task 1 (design) 15

Task 2 (fabrication)

20 Task 3

(test) 15

15 3 3

35 4 7

50 3 10

In Figure 6, task 1 is shown to require 15,000 hours and 3 months for completion, task 2 is planned to require 20,000 hours in an additional 4 month period for cumulative total of 35,000 hours and 7 months. Task 3 is planned to require 15,000 hours and 3 months for completion, with a cumulative total of 50.000 hours and 10 months.

50 -

40 -

G g ; 30- 0

E

.s e 20- a I

lo-

t I I I I

0 2 4 6 8 10

Months

Figure 6. Time required for tasks

Figure 7 shows that the estimated cost to completion is $lOm and the expected flow of money expenditures over the period. For the sake of simplicity, we have assumed that two subtasks should be completed each month with a total of 20 subtasks comprising the total project.

---- Plan

- Actual

8

E .o Value of FE zz 6

Subtasks

.r Completed /

20 Subtasks Planned 1

I /

I 0- /

/ /

I I

0 2 4 6 8 10

Time in Months

Figure 7. Actual value of subtasks versus planned value


In accordance with the plan, at the end of 5 months, $5m have been spent. The project is on track with the spending ‘target and the spending variance appears to be zero. However, only nine of the planned subtasks have been completed. These conclusions are relatively straightforward due to the simplicity of the project planning in this example, but where the project is composed of a large number of work tasks, a summary of this simple type may be impossible. When this is the case, we need some method of accumulating performance and cost information and summarizing it in a consistent manner to provide the basis for project control. Returning to our example, at this five month point 10 subtasks should have been completed at $500,000 per subtask giving a Budgeted Cost of Work Scheduled (BCWS) of $5m for 5 months. The BCWS is the sum of the planned cost or budgeted cost for all work packages making up a particular task-or cost account. Only nine subtasks were actually completed, so the Budgeted Cost of Work Performed (BCWP) is $4.5m (9 x $500,000 per subtask). The Actual Cost of Work Performed (ACWP) is the amount actually spent or $5m. From this data, we can develon the cost and schedule variances and some efficiency measures.

Figure 8 compares the project cost actuals, with time required versus shows the variances experienced.

estimates, and estimates, and

We can define the cost variance as the BCWP - ACWP, that is, the amount we planned to spend in accomplishing the work that was performed minus the amount actually spent. In this example, BCWP- ACWP=$4.5m-$5m=negative $0.5m, meaning we have a negative cost variance of $500,000. The variance is important to the project manager in two ways. First, the manager is made

Budgeted Cost of Work Scheduled /

Schedule v

Actual Cost

Performed *Cost Variance

‘\, Budgeted Cost of Work Performed

I I 0 2 4 6 8 10

Months

Figure 8. Schedule variance and cost variance

aware of the project progress-or the lack of it. A cost baseline has been developed (BCWS) and the project manager may seek specific reasons and actions to improve the variance. Second, the WBS allows the project manager to trace the ac- countability for the variance to the specific work package or box. We can also look at the schedule variance, defined as BCWP - BCWS, that is, the value of the work actually performed minus the value of the work scheduled. In this example, BCWP- BCWS=%4.5m- S5m= negative $0.5rn, a negative schedule variance of 30.5m. Again, the WBS format allows the program manager to trace this variance to the specific cause. We can also look at measuring the efficiency of the project performance to date. A Cost Performance Index, or CPI(E), may be defined as the ratio of the planned cost to actual cost. For our example,

CPI(E) = BCWP=$4.5m

=0.9. ACWP=S5m

If the CPI(E) 1 is ess than 1, then E is unfavorable; if E equals 1, then a dollar is being spent for every dollar budgeted; and if E is greater than one, there is a favorable rate of work accomplished versus budgeted costs.

Likewise, a schedule performance index may be defined as the ratio of planned cost to earned value for a particular time period or

BCWP SPI(E) = BCWS.

If the SPI(E) is less than 1, the work is behind schedule. If the SPI(E) equals 1, the work is on schedule, and if the SPI(E) is greater than 1, the work is ahead of schedule. In our example,

4.5m SPI(E) = - =0.9. \ I

5m

A performance efficiency concept may also be developed to determine the actual cost (of work) for each dollar budgeted or planned. The cost performance index or

ACWP CPI(P) = BCWP.

For our example BCWP = $4.5m, then

ACWP = $5m, and

55m CPI(P)=-= 1.1.

$4.5m

When the CPI(P) 1 is ess than 1, there is a favorable rate of spending for work performed. When CPI(P) equals 1, the actual costs equal planned or budgeted costs, and when CPI(P) is greater than 1, the project of system is in an overrun condition.

We can also use this information to establish some measure of the percentage of project completion. There are a number of ways to estimate the


percentage completion. One way is to compare the BCWP with the Budget at Completion (BAC). BAC represents the total budget which was initially established to complete the project and could represent the total BCWS for the entire project. By taking

BCWP percentage complete = ~

BAC

we get a measure of the percentage of the initial budget that has moved from planned value to earned value. To illustrate, for our example, $lOm is the total estimated cost and BCWP is $4_5m. Then the

percentage complete is z= 0.45 or 45 per cent.

More evaluative relationships will be developed below to illustrate the range of inferential information which may be developed from a planning and control system utilizing the planned value. and earned value concepts.

Project Control Using Planned and Earned Value It has been pointed out that each of the tasks comprising a work package has a planned value based upon the sum of the various costs-labor and material. Emphasis was placed on this very important conceptualization, highlighting the fact that if the work package is to be accomplished for the first time, estimates must be developed from tasks most similar, applying past experience to current technology to estimate the difficulty and costs of tasks to be performed in the future. Then, as each of the tasks and work packages are completed, an earned value accrues independently of actual costs to accomplish the job. In repetition, as the work package is completed, credit is taken for the planned value (or estimated valuejof that particular work package and is termed earned value or BC WP. If the actual cost is less than or greater than the planned value, then this cost differential will show up as a positive or a negative variance.

Figure 9 demonstrates how differences between planned values and actual costs may be shown as variances.

Figure 9 shows a plot of the earned value or BCWP against the budgeted cost of work scheduled (BCWS) for the time period concerned. As the work is actually accomplished, credit is taken for completed work packages as earned value. As the earned value (BCWP) is credited (and plotted) so is the actual cost of work performed (ACWP). In Figure 9, the actual cost of work performed exceeds the earned value of work performed and a negative :ariance is shown.

The time variance is the difference in time actually

consumed in the accomplishment of certain work packages compared to the time planned for that work package. The time variance in Figure 9 is derived by drawing a line from the intersection of time present line and the earned value curve, parallel to the time axis, to the intersection of the planned value of work scheduled curve. The illustrative project of Figure 9 is behind schedule and in an overrun situation.

In the illustrative problem discussed so far, the end item, or traction vehicle was developed into a master network and the engine subnet was selected to analyze in detail. The engine subnet had three sub-subnets and one of these sub-subnets, the turbine, was selected for further analysis. Table 2 is illustrative of the type of planning information required for a project of this nature.

Table 2 shows that six types of engineering effort are involved in the first stage turbine design. The responsible departments are shown (derived by a conceptual overlay of the project with the functional organization to show interfaces), the number of labor hours estimated for accomplishment of the particular functional task, the cost of the labor hours, the estimate of materials and services, and the information giving most visibility for control purposes-the total cost of each task and the estimated time for accomplishment (in weeks, in this illustration). Table 2 illustrates the necessity that the most knowledgeable individuals-those specialists who will accomplish the work-make the estimates for task completion.

A planned value schedule may be developed, as shown in Table 3.

The planned value schedule was determined by establishing a time sequence of events necessary to

t; s

Time Line - Present

Budgeted Cost of c

Work Scheduled (Planned Value)

( / B,CWS ) \/.’ ,

Actual Cost of Work Performed

_ cost Variance

Budgeted Cost of Work Performed (Earned Value)

(BCWP)

Time

Figure 9. Project control using planned and earned value


Table 2. First stage turbine design estimate

Task Dept.

responsible

Labor cost Material and Total Hours Dollars services cost cost Estimated trme

(000’s) (000’S) (000’s) (000’s) (weeks)

Mechanical 310 I.4 28 1 29 I.5 Aeronautical 410 5.1 102 3 105 2.5 Stress 430 2.9 58 4 62 1 .I Vibration 440 0.7 14 1 15 1 ,6 Heat transfer 420 2.4 48 2 50 2.9 Detail drawing 510 2.5 38 1 39 2.4

15 288 12 300 12

Table 3. First stage turbine planned value This project shows a negative cost variance of 13.4 schedule units, which indicates an overrun condition.

Week 1 2 3 4

Labor 18.6 29.8 40.8 40.8 Material and services 0.7 0.9 I.2 1.2 Total 19.3 30.7 42 42 Cumulative total 19.3 71 113 134

Performance measurement may be simplified by plotting the information of Table 4 on a graph similar to Figure 10.

complete the work package, and summing the estimated cost of labor and materials and services by week.

A performance measurement chart may be developed to compare achievements in the current week with cumulative achievements to date, as in Table 4.

In Table 4, this particular portrayal of performance shows, by week, through the current week, how the earned value compares with the planned value, and how the actual costs incurred compare with the planned costs (planned value). These comparisons may be shown as cumulative to date. This chart shows that at four weeks (the ‘time-now’), the BCWS is 134 units (000’s of dollars), the AC WI’ is 114.3 units, and the BCWP is 9&c) units. The cost variance (CV) relationship is:

In Figure 10, the value and cost axis is the vertical axis, the time axis is the horizontal axis. The planned value (BC WS) curve may be drawn, the earned value (BC WP) curve may be added, and the actual cost curve (ACWP) superimposed. The cost variance is the difference between the actual cost (ACWP) and the earned value (BCWP) at the time present intersection. As previously indicated, the cost variance is negative because the actual cost exceeds the earned value and as a result the project is in an overrun condition of 15.4 units. The time variance is the difference in time represented in dollars of activity actually consumed in the

:,-Time Present

140

120

CV=BCWP-ACWP =9x.9- 114.3 =- 15.4.

BCWP

Table 4. Performance measurement chart ACWP

Week 1 2 3 4

Current BCWS week (PV)

BCWP

(EV) ACWP

Cumulative BCWS to date (PV)

BCWP

(EV) ACWP

19.3 30.7 42 42

19.3 25.2 31.8 22.6

19.3 27 37 31

19.3 71 113 134

19.3 44.5 76.3 98.9

19.3 46.3 83.3 114.3

\ Time Variance 1.4 Weeks Behind

20

C

Time in Weeks

Figure 10. Performance measurement curves


accomplishment of work to date or time present compared to the time planned. Using the chart, a line may be drawn from the intersection of the earned value curve with the time-now line, parallel to the time axis. From the intersection of this line with the planned value curve, a line is dropped vertically to the time axis. In the illustration, the time present is 4 weeks; the point at which earned value equals planned value is 2.6 weeks. The time variance (TV) is determined by the following relationship :

TV = Time (PV = EV) - Time Now ~2.6-4 =- 1.4.

The time variance may also be expressed in terms of dollars by comparing our planned level of activity to date (BCWS) with the actual level of activity experienced (BCWP). This would yield a schedule variance:

SV=BCWP-BCWS =98.9- 134 = -35.1.

That is a schedule variance of - 35.1 units (000’s of dollars). If we compare with with the current rate of work accomplishment (BCWP of 22.6 in week 4) this indicates a behind schedule condition of 1.5 weeks. We can also develop a time variance from the relationship

Schedule Variance (Cum)

Time Variance = BCWP (Cum) .

Time Units to Date

For our example: 35.1

Time Variance = 98.9 = 1.4 weeks.

4

Other techniques may also be utilized to convert the dollar variance to a time scale. The critical issue involves the selection of the measure of current work accomplishment rate which is to be compared to the current variance.

It is normally of value to describe the cost variance and schedule variance in terms of percentages. These are generally determined from:

CV(0,) = & and

SV(%J) = &. For our example, we would have

- 15.4 cv(?o) = ~

98.9 = - 16O,

and

35.1 SV(%) = 134

= - 26’2,.

These tend to be useful measures to compare progress through the project time period to detect trends in cost or schedule performance which require managerial attention.

The project manager, having determined that at the time present, the project is 14-1.5 weeks behind schedule and in an overrun condition, desires to know the estimated cost to complete the project and the total cost of the project at completion.

The Future Perspective The following discussion will illustrate the second, and perhaps more valuable perspective of the performance measurement system, that of future projection. The first perspective, that of past activity, is of no small interest to the manager since it can be viewed as reflective ofhis performance, but it is the future with which his decisions are concerned. To assist the reader in working through the various relationships, Table 5 is provided showing values of the project elements from above.

Table 5. Values for use in formulas

BCWS (PV) 134 ACWP 114.3 BAC 300 cv -15.4 BCWP (EV) 98.9 SV -35.1

We can, from this data, develop Performance Indices, Specifically :

Cost Performance Index (Efficiency)

BCWP 98.9 CPI(E)= =-

ACWP 114.3

= 0.87.

Cost Performance Index (Performance)

ACWP 114.3 CPI(P) = =-

BCWP 98.9

= 1.16.

Schedule Performance Index (Efficiency)

BCWP 98.9 SPI(E)= =-

BCWS 134

= 0.74.

When we assess the estimated cost to complete the project, we often make the assumption that the level of cost performance which was exhibited to date will continue through the life of the project. Using this assumption and the outputs of the


control system, we can develop an estimate to complete (ETC) the project based upon the relationship :

ETC = Planned Value at Completion - Earned Value (Current)

Cost Performance Index (Efficiency) or

BAC - BCWP

CPI(E)

Using the information generated so far in Tables 3 and 4 and from Figure 10, and from the previous section, the ETC is determined to be:

399 - 98.9 201.1 ETC = =-..---231.1.

0.87 0.87

Note that the planned value at completion is the same as budget at completion or BAC. In this relationship, the numerator represents the work remaining to be accomplished and the denominator reflects the assumption that the efficiency in cost performance in the future will be the same as has been experienced to date on the project. Using this ETC as a basis, we can also develop an estimate at completion (EAC) based on the relationship:

EAC = Actual Cost to date + Estimate to Complete,

or

EAC=ACWP+ETC EAC=ACWP+ETC

= 114.4+ 231.1 = 345.4.

We can also develop the EAC more directly by rewriting the relationship as:

BAC-BCWP EAC=ACWP+

CPI(E) ’

Then, utilizing the relationship

BCWP CPI(E)==

we would have

BAC-BCWP

EAC=ACWP+ BCWP

ACWP

which would simplify to

EAC=ACWP+BAC(ACWP)- (AC WI’)

(BC WP)

or

EAC= BAC (ACWP) (BC WI’)

= 3()() (l 14.3) (9X.9)

=346.7, say 347.

,yote: differ’ence in EAC due to rounding ofCPI(E).

We can also raise the issue of the espected cost variance at completion. This cost variance ‘it completion can be developed from comparing the Budget at Completion with the Estimate at Completion. For the portion of the project sho\vn in Figure 10, we would have

BAC - EAC = 300 - 347 = -47.

We would therefore expect that an additional $47,000 would be required to complete this portion of the project.

In some cases, it may be true that the CPI(E) for the total project may not be a good measure of the expected future project efficiency. If problems were not encountered in previous time periods but are currently affecting the project and. are expected to continue the current period’s CPI(E) may be a more appropriate estimate of the future efficiency. For our case, we would have then an

EAC = BAC x Current week’s ACWP Nodal

Current week’s BCWP Table 4

31 =300x -=411.

22.6

This variation in EAC gives a tremendous emphasis to the proposition that the evaluation of future expectations requires more than simple manipu- lation of the cost performance data. Useful application of these techniques requires managerial insight and appreciation of the current and past dynamics of the project management environment. You will note that if we use this EAC, the variance at completion would be $111,000 instead of the $47,000 developed earlier.

Performance Index or CPI(P) Developing the estimate at completion (EAC) in this manner continues the assumption that the relationship between actual costs and budgeted costs will be essentially constant over the life of the project. However, if we wish to remove this assumption, we can approach the prospective analysis from another standpoint. Given that we have a project underway and that we have output data from the control system, we can raise the question of what level of performance, CPI(P), will be required to complete the project within the original budget. We can develop this from

EAC=ACWP+ (BAC- BCWP)CPI(P)

if the EAC= BAC then

BAC - ACWP CPI(P) =

BAC- BCWP’


For our example, BAC=300, ACWP= 114.3, BCWP = 98.9, and the CPI(P) for work accomplished to date is 1.6. The required CPI(P) to complete the project within budget is then

114.3 185.7 CPI (P) = ,300- =--- or 0.92.

300 - 98-9 201

To complete the project, the remaining work will require a performance with CPI(P) = 0.92.

This would represent a rather significant improvement in the cost performance being exhibited by the organization. The manager could then assess the likelihood of initiating actions which might yield this magnitude of improvement in performance. It might be possible that the nature of the work remaining for the project could be of substantially different cost risk. In large projects, it is often true that the initial work represents the exploration of new technologies and the identification ofunexpec- ted difficulties, while the later stages represent a more ‘direct exploitation of the results of the early effort. By analyzing the nature of the tasks accomplished and remaining, the manager can assess what changes in cost performance would be reasonable and use the revised estimate of CPI(P) to develop an EAC which would reflect the most probable outcome. Information of this type can also serve as source data for that program financial planning and reviews. If we presume that the project was initially established on the basis of an attractive return to the organization when compared with the cost ofaccomplishment and that the reality of the effort develops in a manner which increases the project investment cost, it may be appropriate to reopen the decision to make that particular investment, based upon the new relationship between cost and benefit.

Summary This article has discussed the work breakdown structure concept of control. By reducing an end item to its basic components, bits and pieces, it has been shown how the work box concept facilitates the preparation of budgets, the assignment of responsibility, and generally assists in both tbe planning and control of projects or systems.

In addition to facilitating planning and control, the work breakdown structure adds visibility in the achievement of project objectives by enabling deter- minations of completion dates, costs, past performance indices, and the level of performance effectiveness necessary to complete work within budget restraints. The work breakdown structure has been widely applied in military acquisitions

and is receiving increasing attention in the civilian sector. Parts of the work breakdown structure are being applied as the earned value concept. The advantages of the work breakdown structure concept make the concept a very attractive managerial tool.

Rcfcrerms

(1)

(2)

(3)

(4)

The authors acknowledge suggestions by John R. Dworschak, James J. Gasbarro and Sukhdev Nanda and dependence on Military Standard MIL-STD-881 A, 25 April 1975, Work breakdown structures for defense materials items.

Stinger Project Office, Summary of lessons learned, Army Missile Command, Redstone Arsenal, AL. September (1975).

David I. Cleland and William R. King, Systems Analysis and Project Management, p. 343, McGraw-Hill Book Company. New York (1975).

Daniel D. Roman, Project management recognizes R 61 D performance, Journal of the Academy of Management, pp. 1 O-l 1, March (1964).

Bibliography

(1)

(2)

Richard Beckhard. Organization Development: Strategies and Models. Addison-Wesley, Reading, Mass. (1969).

Richard B. Chase and Nicholas J. Aquilano, Production and Operations Management, Richard D. Irwin, Inc., Homewood, Ill. (1973).

(3) David I. Cleland and William R. King, Systems Analysis and Project Management, McGraw-Hill Book Company, New York (1975).

(4) David I. Cleland and William R. King, Systems, Organization, Analysis, Management:A Book of Readings, McGraw-Hill Book Company, New York (1969).

(5) Richard A. Johnson, Fremont E. Kast and James E. Rosenzweig, The Theory and Management of Systems, McGraw-Hill Book Company, New York (1973).

(6) See John F. Mee, Matrix organization, Business Horizons, Summer (1964), and David I. Cleland and William R. King, Systems Analysis and Project Management, McGraw-Hill Book Company, New York, N.Y., 2nd edition (1975).

(7)

(8)

JamesD. Thompson, OrganizationsinAction, McGraw-Hill Book Company, New York (1967).

Leonard R. Sayles and Margaret K. Chandler, Managing Large Systems, Organizations for the Future, Harper and Row, New York (1971).

(9) MIL-STD-881 A, Military Standard, Work Breakdown Structures for Defense Material Items, Department of Defense, Washington, DC 20301.

Articles

(1)

(2)

(3)

Stanley J. Baumgartner, C/SCSC: alive and well, Defense Management Journal. Vol. 10, No. 2. April (1974).

Ellery B. Block, Accomplishment/cost: better project control, Harvard Business Review, May-June (1971).

David I. Cleland, Project management-an innovation in management thought and theory, Air University Review, January-February (1965).


(4) Keith Davis, The role of project management in scientific (7) Daniel D. Roman, Project management recognizes R & D manufacturing, IRE Transactions on Engineering Management. performance, Journal of the Academy of Management, March September (1962). (1964).

(5) John F. Mee. Matrix organization, Business Horizons, Summer (1964).

(8) Arnold Ft. Saitow. CSPC: reportmg project progress to the top. Harvard Business Review, January-February (1969).

(6) Hilliard W. Paige, How PERT-cost helps the general manager, Harvard Business Review, November-December (1963).

(9) Winfield S. Scott, Tightening the reins on contract costs and schedules, Defense Management Journal, pp. 28-33, March-April (1979).

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