Cost Risk Impacts of Schedule Interdependencies Peter Frederic June 2004 SCEA Conference

1. Cost Risk Impacts of Schedule InterdependenciesPeter FredericJune 2004SCEA Conference Good [morning, afternoon] ladies and gentlemen. My name is ______________ It is a pleasure to be here and I appreciate this opportunity to talk to you about Tecolote Research. Good [morning, afternoon] ladies and gentlemen. My name is ______________ It is a pleasure to be here and I appreciate this opportunity to talk to you about Tecolote Research.

2. 2 Outline Introduction Caveats Implementation Algorithm Real-world Example Conclusions I will begin with general information about our company, followed by a discussion of our approach to doing business, our products and services, and some of our significant successes I will begin with general information about our company, followed by a discussion of our approach to doing business, our products and services, and some of our significant successes

3. 3 Introduction Correlations between cost element errors cause uncertainty in overall estimate to increase In development programs, schedule interdependencies are a significant cause of correlation Some advocate correlation factors capture this effect No WBS item can be completely de-staffed until integrated testing completed Schedule slip/cost overrun in any one WBS item will cause overrun in all WBS items Unfortunately, no degree of correlation can capture the full effect…

4. 4 Point Estimate with Schedule Durations and End Date Distributions Sum of most likely estimates for each WBS item No specific statistical significance

5. 5 Monte Carlo Iteration, No Correlation Monte Carlo used to establish statistical significance Single iteration shown Software very late, sensor slightly late, processor early No attempt to model interdependencies

6. 6 Monte Carlo Iteration, 100% Correlation Same as previous page, except 100% Correlation All item results pick from the same place in their individual distributions Cost significantly higher, but… Still no reflection of the delay before IA&T starts

7. 7 Monte Carlo Iteration, Schedule Links Enforced Same as previous page, except schedule links enforced directly instead of through correlation Sensor and Processor stretched until Software finish (IA&T start) IA&T stretched from left to reflect idle staff and equipment Total cost 34% higher than 100% correlation

8. 8 Caveats WBS item cost growth-to-schedule growth relationship not always 1-to-1 Some parts of cost growth not linked to schedule – materials, purchased parts, or FP subcontracts If 50% of cost is non-labor, then 50% cost growth = 100% schedule growth Staffing may be increased to prevent schedule slip (though often too late) Schedule growth-to-cost growth not always 1-to-1 If 50% of cost is non-labor, then 100% schedule growth = 50% cost growth Staffing may be reduced to same money in case of external schedule delay Schedule and cost estimate not always in concert Methodology described here depends on schedule and cost estimate being related through a realistic staffing plan

9. 9 Implementation Algorithm Using ACE RI$K, within each Monte Carlo iteration: Infer schedule slips based on cost growth for each WBS item Recalculate schedule milestones based on slipped durations and logical precedence relationships Recalculate costs based on slipped schedule milestones

10. 10 Inferring Schedule Slips Translate cost growths for individual cost elements into equivalent schedule duration growth Duration growth ? effort growth ? cost growth

11. 11 Recalculating Schedule Milestones Determine impact to overall program schedule Requires dynamic model of program schedule built into cost model Not excruciatingly detailed -- capture the slips or (advances) in key program-level milestones Typical development program Preliminary Design System PDR Detailed Design System CDR Fabrication, Assembly, and Unit Test System Integration, Assembly, and Test (IA&T) Cost impact of slips apparent at System PDR, System CDR, and System IA&T

12. 12 Recalculating Schedule Milestones (Cont.) Simple “finish-to-start” Milestone end dates calculated using existing MAX function in ACEIT

13. 13 Recalculating Costs Based on Schedule Slips Calculate cost impacts of major milestone slips on individual cost elements Each element must have time-phased expenditure profile based point estimate initial planned schedule As major milestones slip, expenditure profile stretches and cost increases “Stretch” User Defined Function (UDF) developed in ACEIT to model expenditure stretching effect

14. 14 “Stretch” Function

15. 15 Real-world Example Applied schedule risk methodology to an actual cost estimate in progress at Tecolote Test case estimate is for development, including first flight, of an advanced space vehicle All cost numbers and technical parameters have been adjusted to protect identity of system Key WBS items and schedule activities have been renamed

16. 16 Example Estimating WBS

17. 17 Schedule for Example Program

18. 18 Risk Distributions for Example

19. 19 Monte Carlo Results for Different Methods of Modeling Schedule Interactions

20. 20 Conclusions Modeling schedule interactions directly more completely captures cost risk impacts of these interactions than statistical correlation Correlation still a necessary capability in risk assessment tools: e.g. hardware commonality and engineering relationships between technical variables Direct approach to modeling schedule interactions can be implemented without adding an unreasonable amount of complication to an ACEIT cost model

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22. 22 Historical Cost Growth Data Intended to analyze historical cost growth data to uncover statistical evidence to support the relationship between schedule growth and cost growth However, “Schedule and Cost Growth” by Coleman, Summerville, and Dameron [1] found no statistic evidence of any relationship between cost growth and schedule growth! Why? Much of schedule growth in database may have been caused by budget constraints E.g. Program’s schedule based on spending $1M in one year, but only $500K available in that year and $500K in the next year; Program will take two years to complete. However, overall cost will not necessarily grow baseline schedule and baseline cost estimate for a program may not be strongly tied Schedules and cost estimates developed by separate teams Initial schedules determined by working backwards from perceived “need dates” Initial cost estimates developed using parametric CERs that are not often sensitive to schedule milestones