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Performance Measurement

By Suhail Iqbal, PE, MCT

April, 2003 - Performance measurement is essential for effective management control.  It provides the feedback needed to evaluate system outcomes and take prompt corrective action when necessary.  A management information system that delivers timely, accurate operating and financial results is a requirement for meaningful performance measurement.  

Organizational planning should produce a time phased comparative standard or baseline for variance analysis and frequent performance evaluation.  Performance measurement must integrate operating, financial, and investment outcomes to provide a complete picture of current performance and a basis for estimating future results.  Performance measurement is the difference between managing for results and supervising a level of effort. 

Developing the Performance Measurement Baseline

 

The Performance Measurement Baseline is the time-phased plan based upon the total program/project schedule against which performance is measured. It should include all the work to be performed, regardless of the funding source (i.e., EM, other DOE, or external to DOE). The Budgeted Cost of Work Scheduled is a segment of the Performance Measurement Baseline for all control accounts for work scheduled to be accomplished within a specific period. A control account is the field's management control point at which actual costs are accumulated and performance determined. It represents one functional organization's assigned work as defined in one work breakdown structure element. The control account must contain the specific scope of work, definite schedule, assigned budget, unique identification, and a method of measuring performance.

 

Although there is a relationship between the planning and funding of programs/projects, the development of the Performance Measurement Baseline occurs well in advance of the funding authorization. Because funding is a yearly process, the field should consider using the "rolling wave" (tiered schedules) method in developing the baseline. This means that detailed planning is done incrementally, such as monthly, quarterly, or semi-annually. Using the rolling wave method will enable the development of detailed control accounts for a specific period (3, 6, 12 months or more) while maintaining the remainder of the budget in planning packages. A planning package is a unit of future work that is maintained at a higher WBS element, i.e., not yet divided into fully defined work packages. It consists of a work definition, an approximate schedule for performing the work, and a projected cost. This information is collected and stored in the field's program/project management system. (Use of the "rolling wave" method will not preclude the development and reporting of an annual BCWS, as required by PTS.)

 

The Performance Measure Baseline (PMB) is not a yearly planning document but represents a life cycle estimate to complete an effort; therefore, the PMB should not be revised to move work that was estimated and planned to be completed in a prior year to the current year. Cost and/or schedule variance should be reported until the effort is completed.

The field develops the Budgeted Cost of Work Scheduled at the appropriate level of the work breakdown structure. This information is collected and stored in their management control system.

 

In developing Budgeted Cost of Work Scheduled, it is assumed that the right work and the correct amount of work is being planned. Figure 1 illustrates the relationship between the Budgeted Cost of Work Scheduled and funding. The following guidelines should be observed:

 

  • The Budgeted Cost of Work Scheduled should be based on the scope of work and the estimated costs for that work, regardless of funding.
  • This is true even if the actual funding distribution is incremental, such as when the Office of Management and Budget, DOE, or EM have mandated that some funding be held for release later in the fiscal year.
  • Budgeted Cost of Work Scheduled should include all work planned, regardless of who will perform the work.
  • The Budgeted Cost of Work Scheduled should not include contingency or management reserve.
  • Contingency is held by EM to cover costs that may result from incomplete design and unforeseen and unpredictable conditions. Therefore, by its nature, it is not planned or distributed to the field or Work Breakdown Structure element.
  • Management Reserve is that portion of the contract or program/project budget controlled by the contractor for management purposes and not designated for the accomplishment of specific tasks. When management reserve is used, it is distributed to specific control accounts and Work Breakdown Structure elements. Management reserve is a program/project management term and has nothing to do with financial data. Contractors are required to document the use of management reserve and maintain a log for accountability purposes.

Symptoms of of inadequate performance measurement  

  • Uncertainty about the current status of the enterprise and what actions to take.
  • No clear correlation among operating, financial, and investment reports and results.
  • Ineffective communication among departments creating a silo or bunker mentality.
  • Reactive responses to events generating a continual firefighting atmosphere.
  • Unfocused, inconsistent, and hectic management activity.
  • Performance degradation due to a lack of timely or appropriate corrective action.
  • A general feeling of powerlessness and inability to control events.

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