Interfacing Risk and Earned Value Management

Association for Project Management (APM)

• Publisher: Association for Project Management (APM)
• Year: 2014
• Print ISBN: 9781903494240
• eBook ISBN: 9781903494219
• Topic: Business
• Subtopic: Project Management
• Index: Business

This guide, written by the APM Risk Specific Interest Group and the APM Earned Value Specific Interest Group, examines in detail the interfaces between two key elements of the APM Body of Knowledge.Project management is sometimes compartmentalised into its discrete elements – product decomposition, planning, scheduling, cost estimating, requirements management, risk management and performance techniques such as earned value management. This guide looks at the benefits of looking at project management techniques as a cohesive whole.

1

Establishing the
project baseline

INTRODUCTION

The following provides a high-level description of how to create a project baseline. The establishment of the baseline requires the following steps:

•Establish the project context.

•Develop the statement of work (SOW), initial work breakdown structure (WBS) and initial organisational breakdown structure (OBS).

•Develop a top-down budget and schedule.

•Identify the strategic-level risks.

•Perform the initial risk analysis (schedule and cost).

•Revise the top-down budget and schedule.

•Integrate the WBS/OBS to allocate appropriate scope responsibility.

•Create control accounts and perform risk analysis.

•Develop and update the initial performance measurement baseline (PMB), i.e. revise control account plans to incorporate agreed risk response actions.

•Update and baseline the project risk register.

•Agree the PMB and management reserve (MR).

•Approve the project baseline.

In practice some of these steps may be combined or tailored to suit individual business and project processes. For example, it may be appropriate for some projects to adopt the principles of this guide without applying the full rigour.

Each step is described in detail below, and Figure 1.1 summarises the steps in a flow diagram.

Figure 1.1 Establishing the project baseline

WORKING ASSUMPTIONS

Definition of budget versus funds

Within an EVM system, the concept of budgets is different from the concept of funds. While a budget represents the cost performance target for a specific effort, funds represent the money available for expenditure in the accomplishment of the effort. Budgets are established for the relevant elements of the WBS and are time-phased.

Example: you budget for a house build totalling £240K taking 6 months; halfway through the project the estimated total build cost has increased to £300K, although the project scope has not changed. The extra £60k must be funded, but your budget does not change. You may revise your estimate to complete the project – funding forecast or estimate at completion (EAC) – to some appropriate value that exceeds £240K, but your budget still remains £240K. It is valid to change the budget only if you add scope to the house build, for example by including an extra bedroom or a garage.

1.1 ESTABLISHING THE PROJECT CONTEXT

This is the first stage in establishing the project baseline. It is important to ensure there is a thorough documented understanding of the project. As a minimum it should be possible to answer the following questions:

•What are the project objectives?

•What are the project requirements?

•What is the project scope?

•What are the project budget and schedule targets?

•What assumptions have been made?

•What are the possible trade-offs?

•What is your risk appetite?

Although the initial risk appetite is formulated at this stage, it will mature throughout the baseline process. Risk appetite is a determination of how much risk the project is prepared to accommodate in total, the level of confidence to be used to create baseline items, how much is to be held within the risk register and what risk exposure will not be supported by management reserve.

Tip: this information should be documented in either the project management or risk management plan.

Output: documented project context.

1.2 DEVELOP THE STATEMENT OF WORK AND INITIAL WBS

The statement of work is a high-level statement of requirements, including deliverables for the project, that underpins the product-based WBS. This provides a structure for scoping the project, developing detailed budgets and schedules, and identifying risks.

Example: the statement of work for the WBS in Table 1.1 is for a project to add a new garage to an existing home and complete all landscaping and other integration activity to present an appealing and functioning site. The scope includes all project management and facilities interfacing to the site.

Output: statement of work and initial WBS.

Table 1.1 Example WBS (based on Haugan 2002)

WBS element	WBS description
1	Incorporate garage
1.1	Project management
1.1.1	Project planning & control
1.1.2	External permits & inspections
1.1.3	Project coordination & sub-contract management
1.2	Garage
1.2.1	Garage design
1.2.2	Foundations
1.2.3	Walls
1.2.3.1	Windows
1.2.3.2	Egress
1.2.3.2.1	Car door
1.2.3.2.2	Personnel door
1.2.3.3	Walls
1.2.3.4	Wall assembly
1.2.4	Roof
1.2.4.1	Structural roof elements
1.2.4.2	Weather protection
1.2.4.2.1	Roof covering
1.2.4.2.2	Gutters & drains
1.2.4.3	Roof assembly
1.2.5	Services
1.2.5.1	Electrical
1.2.5.2	Plumbing
1.3	Garage integration
1.3.1	Driveway
1.3.2	Landscaping

1.3 DEVELOP THE TOP-DOWN BUDGET AND SCHEDULE

With reference to the WBS and SOW, the top-down (TD) budget and top-down schedule are developed. At this stage these outputs exclude risk ev...

Table of contents

• Cover
• Title
• Copyright
• Contents
• List of contributors
• Foreword
• Acknowledgements
• Introduction
• 1 Establishing the project baseline
• 2 Integrated baseline change management
• 3 Analysis and decision making
• 4 The importance of culture
• Appendix A - Supporting information
• Appendix B - Combined ‘best practice’ matrix
• Appendix C - Glossary
• Bibliography
• Back Cover