Unformatted text preview: e NCC and the AUW is what is called the "Contract Budget Base" (CBB). This corresponds roughly but not exactly to the Client Budget, as explained in Chapters 2 and 3. The government also realizes that it is unlikely that the CBB will be met because there is something called "Overrun." The overrun is, of course, the end result of what we recognize as quantification deviations and productivity deviations. In fact, the overrun is essentially the sum of all the quantification and productivity deviations. Rather than attempt to document the most significant of these deviations as variances and attempt to manage them as described in Chapters 3 and 4, the government managers prefer to lump them together as overrun and insert them in their cost model as one of the components of the TAB. This gives the ap- Page 220 pearance of a single budget, but it hides the detail of the variances that need to be managed. The author views this as a significant weakness in this project management philosophy. This is one of the places where the government could learn a practical lesson from commercial-sector best practices. The sum of the CBB and the overrun is the "Over Target Baseline" (OTB). The OTB corresponds roughly to the Forecast, rather than the Control Budget, even though it is used like the Control Budget in Chapters 3 and 4. The failure to differentiate between quantification overruns and productivity overruns does not allow government managers to compute the control budget. By now the reader has no doubt realized that if they do not compute the control budget and instead base their earned value performance calculations on something that is more like a forecast, they are corrupting their earned value computations. The result of all this is that commercial earned value computations and government earned value computations (what is called Budgeted Cost of Work Performed— BCWP) are usually not the same. Theoretically, they use the same formula, but in practice the formula is applied to budgets that have been calculated differently. The unfortunate effect of this miscalculation is that it encourages cost overruns for productivity reasons. Since the productivity deviations are not factored out of the budget calculations before the earned value formula is applied, the government method of earned value computation gives credit for productivity deviations. In other words the government method of computing earned value results in a larger amount of earned value than would have resulted from the calculations presented in the rest of this book. 8.3.2— The Meaning of WBS As pointed out in the previous section, the model depicted in Figures 8-1 and 8-2 emphasizes the cost, rather than the work. We now need to consider what this emphasis leads to in government work breakdown structures. The WBS hierarchy con- TE
Team-Fly® AM FL Y Page 221 sists of control accounts (equivalently cost accounts in their vocabulary), which in turn contain work packages . This is similar to the relationship between control packages and work packages that we explained in Chapter...
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This note was uploaded on 01/11/2011 for the course ACC 9 taught by Professor Yeetan during the Spring '10 term at Sunway University College.
- Spring '10