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INNOVATION AND PROGRAM MANAGEMENT IN AEROSPACE AND DEFENSE INDUSTRY

MARIA V ROMANOVA, PHD (The State University of Management, Moscow, Russia The George Washington University, Washington, DC, USA)

Continuously changing market situations force companies to constantly reassess their business processes, their organization, and technology, especially with the aim to increase flexibility for project and program management. Companies are attempting to coordinate activities with partners and customers to respond quickly to changes in the market and keep operating costs low. The business environment is constantly changing and a faster response to issues makes the difference between success and failure.

The Aerospace and Defense (A&D) program can provide complete management or contracting services for an active program of about 1000 contracts at once. It causes to have the knowledge and tools to react to the changing market and business conditions to respond appropriately. The challenge is to sift through the sea of information and identify the key information components.

Russian A&D leading companies: KNAAPO, IAPO, UMPO and world leader company Boeing participated in developing ‘A&D solution’ and forms to adapt project management ideas to the Defense Industry. The concept is based on integrating their experience and specific models and features with the A&D business.

Created solution is not rigid, but has the ability to be adaptable to specific requirements and future changes.

There are four main areas to consider:

1. Multi Project Planning

Support Project grouping and planning by group

Provide excess/residual analysis and permanent cost transfers

2. Program Management

Establish and maintain project data

Establish and maintain WBS, cost accounts or Contract Charge Numbers (CCNs), and Work Packages

(WPs)

Provide cost collection at the intersection of the lowest WBS elements and OBS

Integrate Earned Value Management with Manufacturing and Distribution to establish work packages

3. Contract / Project Costing

Support actual costing for material and labor transactions

Provide consistent and unbiased costing methods

Provide accumulation and allocation of direct and indirect costs

Provide cost corrections and adjustment transactions

4. Configuration Management - Unit Effectiveness

Provide unit/version effectiveness control of BOMs and routings

Provide the BOM validation reporting or comparison

Contract / Program Structure Contract management consists of the definition, scheduling and control of a contract at the highest level, along with the control of the performance parameters describing the overall situation of the entire company. The conceptual A&D solution concerning program management solution offers the additional features needed to define and schedule projects.

In the following sections, analysis will be provided the structure of an A&D program and contract running within A&D solution. That structure is composed of a multidimensional hierarchy of entities that, from the program level down to the activities within a work package, split the program up to lower level parts and cost elements.

Program & Work Breakdown Structure (WBS)

The Program has two different purposes:

1. Part of the function of a Program is to be the repository of standard WBSs (Work Breakdown Structures) that

can be copied (partially or totally) to create the CWBS (Contract Work Breakdown Structure) for an underlying contract or contracts. For this purpose, no specific new features is required, since the Program Work Breakdown Structure can be stored in the system as either the WBS of an archived or closed project or as an estimate structure.

2. Unit effectiveness depends on the program code, since only the combination of Program/Item/Unit uniquely

identifies a part. The input of the program must be mandatory, since the unit effectiveness relies on the program

code.

Projects To support the breakdown of a large, complex contract into more manageable projects the use of the main

If a Contract is recorded as a “Main

projects and sub projects functionality in A&D solution is required.

Project”, a project (expression used within A&D to designate the “child” of a contract) will be recorded as “Subproject”.

If a contract is recorded as a “Single Project” no “Subprojects” will be attached to it.

The presence of Projects below a Contract doesn’t mean that the physical execution of the contract is controlled through projects only. Whether or not a contract consists of projects, the contract itself can still have its own CWBS, CCNs, actual costs, planned orders, etc.

Thus, from a logistical point of view, a contract is treated exactly like a project. The main differences between them arise in areas like invoicing and the monitoring of actuals.

Project Group and Project Type Every project is linked to a project group, in order to provide the planning engine with the required information

Project Groups are cross-referenced with the “project

data” table where the contracts will be maintained.

to perform the netting of orders within a project group.

The group definition rules:

There may be one or more projects in a group.

A project can only be in one group and all projects must be assigned to a group.

The project groups are only used for netting and transfer purposes within the A&D solution manufacturing planning engines (PGC-GRP and MRP); in order to achieve enterprise wide planning, all the projects would have the same group identifier.

Project types must be defined in a standard way, like planned, actual, and closed.

The following diagram visualizes relationships between these components within scope of a contract: Program Project
The following diagram visualizes relationships between these components within scope of a contract:
Program
Project Group
Contract/
Contract Data
Contract
Project Type
Project
Contract/ Contract Data Contract Project Type Project Contract Work Breakdown Structure (CWBS) The CWBS is the

Contract Work Breakdown Structure (CWBS) The CWBS is the Contract Work Breakdown Structure for a specific contract. The CWBS is formed by CWBS elements. In the Earned Value Method contracts, the elements of the CWBS are only summary points where the costs collected at lower level (Cost Accounts) are summarized. The CWBS elements and the hierarchical relationships can be maintained with available functionality within the Project.

Some changes are needed to conform the available Element structure in to the A&D’s CWBS concept; new checks must be introduced to limit the flexibility currently allowed in the setup of the element structure. The limitations to be built in are:

A “Child” element can be linked to one “Parent” element only (in other words, the same element code cannot

recur several times in the element’s structure).

A “Child” Element cannot be linked several times to one “Parent” Element (in other words, the “frequency” of

the relationship between a “Child” and a “Parent” should not be used)

The CWBS elements can be identified with alphanumeric codes.

CWBS 1 2 3 4 5 6 7 8 9 10 11 12 13 14
CWBS
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15

A Contract and the Projects below it can use the same CWBS nodes, Elements and Relationships as well as

different ones.

An example is shown below displaying two project CWBS’s belonging to one contract (the contract whose CWBS has been shown in the previous figure).

1 1 Project A 2 Project B 3 4 5 31 32 8 9 10
1
1
Project A
2 Project B
3
4
5
31
32
8
9
10
11
311
312
321
322

In the example of project A the actual costs can either be merged with the costs of the main Contract as well as

kept separated.

In the example of project B the actual costs can be merged at the level of element 3.

Statement of Work (SOW) & Contract Line Item Numbers (CLINs) The Statement of Work (SOW) is the description of a product or the services to be delivered under a contract.

The Contract Line Item Number (CLIN) is the number used to identify a specific Contract Deliverable Item. It

is primarily used as a common base to report to the Government cost and schedule performance and to determine

the amounts due for billing and funding purposes.

“Extension” can be used to store CLIN data, and the existing functionality for invoicing them will be kept available. The labeling of actual cost transactions will be based upon a mapping of the CLIN codes to elements

of the CWBS or to Cost Accounts.

It’s possible to map free the CWBS to CLINs at whatever level needed, and it will automatically update the blow down on the lower levels of the CWBS the CLIN code.

If a CCN is not mapped to a CLIN, the costs incurred under that CCN can only be invoiced at the project level.

Contract 1 Project B 1 2 3 3 4 5 6 7 31 32 8
Contract
1
Project B
1
2
3
3
4
5
6
7
31
32
8
9
10
11
12
13
14
15
311
312
321
322
B
C
E
F
N
O
P
R
D
A
G
H
L
Q
S
I
M
T
CLIN
CLIN 100
CLIN 110
CLIN 120
CLIN 160
130
CLIN 140
CLIN 150

Organizational Breakdown Structure (OBS) The OBS is the hierarchical structure that breaks the company into smaller subsets, much as an organizational chart does and can be related to a contract. The OBS is formed by OBS elements. The OBS defines the responsibilities involved in the realization of a contract at different levels in the company.

The OBS is not a single static structure used throughout all contracts. It can change from contract to contract, depending on the specific responsibilities that must be defined to accomplish the scope of the contract, and on the way those responsibilities are distributed within the company. When a new Contract is defined it must be possible to copy a standard OBS, an OBS from another contract, or to build a specific OBS for the contract.

Notice that, rather than OBS, the structure may also be called COBS, Contract specific Organizational Breakdown Structure, because it is virtually possible to have as many different OBSs as Projects. This architecture gives the flexibility to mold the OBS upon rapidly changing organizations, such as team oriented organizations.

Due to the possibility of using the same OBS in several projects, the A&D solution also provides support for the classic concept of company-wide static OBS.

It will be possible to link elements of the OBS structure with employees from the employee list.

Contract Charge Numbers (CCNs) The CCNs are identified at the intersection of the CWBS elements and the OBS elements (the matrix created by CWBS and OBS is called the Responsibility Assignment Matrix - RAM). The CCN is the highest level at which costs can be collected; depending on the type of cost some can be also collected at Work Package level (CCNs are often called Cost Accounts).

Even though the CCN can be identified by its position in the RAM there must be an independent code assigned to it. Other relevant data that must be stored by CCN are:

The Cost Account Managers (CAM) Name,

The Transfer Indicator.

The Start and End dates (that define when it is allowed to collect costs in the CCN).

The types of costs that can be collected on the CCN ‘On hold’ Indicator (yes/no).

The level at which actual costs are posted can either be the CCN or, for a grater detail, the WP (explained in the next sections). Parameters at project level determine whether the costs must be collected at WP level or simply by CCN. Depending on the value of this field a check will be performed to ensure that the sessions used to map actual costs to WP are filled properly.

On the other hand, when the whole contract is copied into a new contract the CCNs should then be copied as well. When defining the relationship of CCN (child) to CWBS element (parent) the same rules should apply as those described for CWBS elements (one child can only have one parent, etc.).

The relationships CCN-CWBS will be maintained in the same table where CWBS relationships are maintained. Enhancement in the sessions meant to maintain, display or print the CWBS/CCN structure will enable the user to distinguish between CCNs and CWBS elements. The link CCN and OBS elements requires:

1. The ability to link an OBS element to an existing CCN;

2. A check to ensure that the selected CCN is valid (it must be directly under a CWBS elements

in the CWBS/CCN structure);

3. A check for duplicate links within a project.

Every time an action (transaction) is performed (booked) in the system, that will affect a CCN (especially if it generates costs that will be posted to the CCN), a function should check the CCN status in order to verify whether the action is allowed or not.

The following information must be taken into account when verifying the status:

Does the code refer to a CCN or to a CWBS Element.

The Start and the Finish dates

Is it open for booking of the type of costs that the action (event) involves.

It is not “On Hold”

If the costs must be collected at WP level, then checks are performed to make sure that the WP is active and that it does belong to the right CCN.

Certain transactions can be performed only if the CCN status is set accordingly. These status are meant to control the costing aspect of the CCN. Work Packages (WPs), Planning Packages (Pps) and Milestones.

Description of WPs and PPs For planning, budgeting and control purposes, the CCN is broken down into WPs (the tasks to be performed in the short and mid term) which is normally less than six months; and PPs (the tasks to be performed in the long term) six months and into the future. These WPs and/or PPs represent the actual way in which smaller units of work will be performed within the organization.

WP and PP are be maintained in BP as “activities”. The difference between WP and PP is marked by the status of the activity.

Actual Costs cannot be posted to PPs

If cost collection is performed at WP level, then costing links between ranges of units in the BOM

and the project will be established at WP level (Purchase orders and shopfloor orders will be pegged to WP and CCN).

Organization Breakdown Structure

A2 A A12 A1 A11
A2
A
A12
A1
A11

Contract Work Breakdown Structure

CWBS Elements (111, 112 & 12) CWBS Nodes(1 & 11)A2 A A12 A1 A11 Contract Work Breakdown Structure OBS Elements (A11, A12 & A2) 1

OBS Elements (A11, A12 & A2) 1 OBS Nodes (A & A1) Contract Charge 11
OBS Elements (A11, A12 & A2)
1
OBS Nodes (A & A1)
Contract Charge
11
12
Numbers (CCN’s)
Work Package
111
112
Planning Package
A2111
A2112
A212
A12111
A12112
A1212
CCN Schedule
A11111
A11112
A1112

Responsibility Assignement Matrix

The WPs are maintained in “Activities” in BP. However, some modifications are required to record the hierarchical relationships that bind/link WP (or PPs) to CCNs.

The CCN is not meant to be a key for the identification of the WP.

Milestones will be used to define the due date for master scheduled items in the element budget.

Cost Breakdown Structure (CBS) and Cost Elements (CE) In BP the existing hierarchical structure consisting of Cost objects (lowest level), Control Codes (intermediate level) and Cost Types (top level) will be kept unmodified.

It is possible to develop a multi level CBS whose lowest elements are mapped to Control Codes or Cost Objects. This way it is possible to report budgets, costs and estimates accordingly to various structures.

Cost Break Downs The cost history break down in A&D solution is structured along several key elements, which are stored for every cost transaction. The key elements are Project, Element, Activity, Extension, Cost Type, Control Code and Cost Component. An example of drill-down in the project cost history may be the following:

Cost Type Project Activity Element (CCN) Extension Cost Component Control Code Cost Object
Cost Type
Project
Activity
Element (CCN)
Extension
Cost Component
Control Code
Cost Object

All costs are stored along the five cost types listed below:

Material Costs

Labor Costs

Subcontracted Labor Costs

Equipment Costs (Rented and Owned)

Other Costs

In the case of material, the Item Code is stored in every transaction recorded in the cost history. In labor, subcontracted tasks, equipment and sundry cost transactions, a similar code is stored which is called the Cost Object Code. This allows tracking of every cost transaction within the cost history.

As depicted in the scheme above, every Cost Object Code is included in a hierarchical structure (cost type - control code - cost object) and in a relational cost grouping (cost component - cost object). Through the use of the two structures it is possible to drill down into the actual (and budgeted) costs of a project in a dimension complementary to the WBS and OBS.

All the transactions are stored in the cost history tables within user definable periods (e.g., monthly), in order to meet the need for time phased actual costs for Earned Value reporting.

Conclusion The A&D solution brings several new dimensions to the traditional concept of project management. The amount of information to manage big contracts is immense. The A&D provides the methodology and application functionality to effectively apply project management to integrate with specific features of defense industry and achieve a true business advantage. Enterprise computing via contracts is in its early stages that allow companies the flexibility to adapt to changing market conditions. The challenge of A&D enterprises will be to provide Dynamic Enterprise Solutions to deliver the right information to the right person at the right time and at the lowest cost.

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