Transcript Preparing for Retirement
Preparing for Retirement
presented to 2011 Defence Cost Estimation Conference
PRICE Systems International
Who am I?
Andy Nicholls Senior Consultant PRICE Systems
Not here to try to sell you parametric tools ( although I’d be delighted to talk to you about that outside with our Australian agent Rubikon ) Background
Electronics/ Avionics SCEA certified CCE/A 37 years in UK Defence environment
27 years in cost estimating and forecasting complex projects/ programmes
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DISCLAIMER & ACKNOWLEDGEMENTS
The views expressed in this paper are mine and do not represent those of my employer.
This presentation follows normal English Spelling rules Pictures were obtained from the internet and copyright remains with the originators.
All sources of data used in later slides and graphs are taken from public domain materials. The author gratefully acknowledges their contribution in the construction of this paper and for their ‘non-profit’ use.
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Lets face it - Cost GROWTH is nothing NEW!
The media love ‘bad news’ and are never shy of reporting it!
The history of many projects over hundred's of years show a continuing trend of late completion, over budget and not delivering all that was promised.
The only difference across the years is the fact that today ‘bad news’ spreads almost at the speed of light!
Estimators are blamed routinely for “poor” (low) initial estimates, that provide false credibility that a project is achievable and may succeed.
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Commentary
It is claimed by that many projects are not delivered to their Time, Performance or Cost targets due to poor estimates provided by the Estimators
NAO,
GAO,
Politicians,
Press/ Media
Public
Are the Estimators to blame ?
Are the promises of the Suppliers/Builders too optimistic ?
Are some projects “Before their time” and too ambitious ?
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Reports – Example of Symptoms not underlying causes
2 Main root causes of Project failure
Immature estimation processes and techniques
Cost Estimation should be embedded in the end to end cost management process
Poor Project control
leverage estimate to provide project controls baseline
G.A.O. (Government Accountability Office) stated that:
The generation of reliable cost estimates is critical function
(begs the question of what happens to them and their usage)
“Without this ability, agencies are at risk of experiencing cost overruns, missed deadlines, and performance shortfalls”
Shades of DILBERT
In short… All of us (Me included) contribute to the general Growth malaise and therefore
ESTIMATORS are VILLAINS of the PIECE
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Some Examples
I have deliberately avoided recent and specific ‘Defence’ examples in the following slides about project failure because:
My objective is to illustrate:
the pervasiveness of ‘Growth’
consistency across time
in effectiveness of human ‘learning’ between generations
I have no solutions to the above!
The VASA (Swedish Navy)
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The VASA Armament -Changes -
A ship built for the Swedish King in 1623.
Contorted history with many changes ...
Original ship: Change 1: Change 2: 30 24-pound guns 32 24-pound guns 36 24-pound guns, 24 12-pound guns, 8 48-pound mortars, and 10 smaller guns.
Change 3: 30 24-pound guns on lower deck and 30 12 pound guns on upper deck
Change 4: 64 24-pound guns and several smaller guns (upper deck space built for 12-pound guns)
End state: 48 24-pound guns (gun manufacture could not deliver additional 16 guns) Requirement changed from 30 to 78 guns over the build period.
Sank on its maiden voyage in 1628.
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First Thames Tunnel
Thames Tunnel 1826 - 1843
~4 Times cost overrun
Initial estimate Final cost
9 years late £140,000 £480,000
Started by Marc Brunel and completed by IK Brunel (his son)
Introduced new tunnelling technology,
Lack of information on riverbed profile & geology led to 5 floods,
Over estimate on productivity and hence optimistic schedule
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The Suez Canal
The Suez Canal
20 times over budget
Cost 433M Fr.
10 years construction 1859 to 1869
Political problems with lease
Problems with the use of local workers
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The Eiffel Tower
On time & under Budget 5% under budget - A success!!
Designed to last 20 years, Built 2 years & 2 months, completed in 1889, Overcame Geology & Political problems, Good incentive - the builder to receive income for 20 years !
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Sydney Opera House
15 times over budget, $7M rose to $102M (Aus)
Initial construction estimate 4 years
Actual time 16 years (1957 – 1973)
12 years late
Over optimism in Engineering / Architectural design Architectural team resigned and was replaced
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Concorde
12 times over development budget
Final Development Cost £1,129M
3 years late into service.
Early STAC Development estimate £120 - £150M,
Problems
Over optimism in the time to solve engineering problems.
Certification for 1 st Supersonic Air transport.
International Collaborative tensions
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My Conclusions?
Desire to innovate means taking risks Technology evolution means taking risks.
Taking risks places budget and schedule in an awkward place Humans do not carry learning easily between generations Growth is not a new phenomenon, it is continuous & inevitable (as some economists state ‘zero growth = stagnation’)
Turning to Defence Programmes
Defence is about being able to project or withstand force to achieve a goal.
Defence requires capability (human, mechanical or cyber), this means creating policy, requirements and programmes / projects to deliver capability.
At a lower level we categorise and rank these programmes or projects according to cost.
Being human, Bad over-rides Good News especially where tax payers money is involved – so source data is biased.
Larger programmes receive more attention on delivery and performance.
Most reports therefore concentrate on the poorly performing programmes/ projects
COMMON THEMES
Accounting Offices Reports on Expenditures Some Expenditures are Mandatory, others Discretionary
Reports on most Defence communities identify poor performance, cost and time (PCT) achievements
Some Reports recommend changes to improve (and have done for many years) Some Nations are now actively trying to implement some changes to improve PCT
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Do any of these sound familiar ?
New Technology
Changing Requirements
Requirements Creep
Insufficient Engineering experience
Excessive Schedule Pressure
Limited Technical Specifications
Limited Project Plan Documentation
Budgetary influences
Political interference
Ignoring the Obvious
Ignoring Test Results
Are any of the above the responsibility of Estimators?
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MAJOR UK Reports (Project costs/delays) 1955 - 2010
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UK Costing Organisations, partial response 1955 - 2010
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Impact of Change initiatives on Cost Growth?
(Major Programmes/ Projects only)
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Impact of Change initiatives on Schedule Growth?
(Major Programmes/ Projects only)
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Unrelated cost / schedule illustrations are of little use
Project & Programme costs are inter-related with their schedule, so it is useless trying to assess change initiative success against just one parameter
Actions on cost alone may not improve schedule Actions on schedule alone will impact costs, some types of programme do not respond well to schedule change.
The following graph shows how cost & schedule over-runs match up across the years Of course the 3 rd leg is ‘Performance’, do users care if the project is a little late and over cost if it outperforms everything else? This analysis is not considered here.
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Combined Cost & Schedule Growth
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Some empirical guides (not recommended!)
On estimating duration (Westheimer's Rule)
"... multiply that figure by two and change the unit of measure to the next higher unit. So, in this way, you allocate two days to a one hour task.“
On Software estimating (Nicholls rule)
Take initial estimate add ‘zero’ and then multiply by 3 to obtain the lowest value outcome.
On calculating project costs (Susan Kramer, NASA)
"... multiply the result by pi (3.1416). I have seen this technique used more than once with decent results"
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So what impacts have 65 years of change brought?
Do programmes/ project still over-run?
Are estimates any more “accurate”? YES YES
Are Estimating Methods improved? YES, but their consistent application remains a concern
Are risks/ uncertainties accounted for?
Is short term expediency still necessary? YES YES
Is Political interference still a concern? YES
Do processes make Estimators responsible for the initial and subsequent numbers? NO
So, in short, has there been any real progress in cost management at all? A Definite Maybe!!
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My views on Progress
Interested parties now actively discuss the problems of ‘GROWTH’
Estimators have developed robust and reliable tools to assist estimation of new projects and programmes
Uncertainty & Risk are now routine inclusions in Estimates Databases are being created, validated and used to record historic, current and emerging projects/ programmes
Cost research is undertaken in many organisations and Government Departments
Information is more freely available
Estimators may now be accredited through recognised programmes to add consistency and credibility to their profession
Organisation responsibilities still fail to make Estimators responsible for budget numbers
Cost Estimators therefore need to have….
Basic Physics Engineering Management Logistics Production Processes Performance parameters Reliability & Maintainability Scheduling Systems Engineering CER development Early Estimating Learning curve application Normalisation Regression analysis Sensitivity Analysis Statistics Accounting Apportionment C/R/IRDEL Budgeting Cost Breakdown Structures Cost data analysis Financial Analysis Cost benefit analysis Cost risk analysis Economics Economic Appraisal Exchange rates Inflation Present value analysis
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Summary
Modern costing initiatives are now in their 7 th Decade
Workers retire (normally) at 65 Success of prior initiatives patchy, sometimes provoking unintended responses
Successes are short lived (until the next staff/ structure change)
Cost Estimators are VICTIMS of CHANGE not the VILLAINS
65 years is long enough, GROWTH like ‘Learning’, is continuous and inevitable therefore it is time to ‘Retire’ so called costing initiatives!
Root cause is no longer Estimating (methods or skills):
Look to your Processes of
Budget formulation,
Project Approvals,
Project Management & Control
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Any Questions?
Andy Nicholls +44 (0)7500 866822 [email protected]
PRICE Systems Ltd.
PRICE House, Meridian Office Park Osborn Way Hook, Hampshire RG27 9JY [email protected]
www.PRICESystems.com
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