OSP MANAGEMENT INFORMATION STUDY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP71R00510A000200150009-9
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 74
• Document Creation Date: December 16, 2016
• Document Release Date: August 9, 2004
• Sequence Number: 9
• Publication Date: May 2, 1968
• Content Type: MF

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2PMY968
MEMORANDUM FOR: Director of Special Projects
SUBJECT: OSP Management Information Study
REFERENCES: (a) Memorandum OSP 1215-67 dated 6 Oct. 1967
(b) Memorandum OSP 0010-68 dated 26 Jan. 1968
1. The attached report describes the study conducted for
the Office of Special Projects from-October 1967 through January
1968.
2. Chapter IV presents the summary, findings, conclusions
and recommendations of the entire study.
3. As a result of our discussions of the study findings and
conclusions in January 1968, efforts have proceeded to implement
the recommendations of this study under the charter given to me
in OSP memorandum 0010-68.
4. I would appreciate the opportunity to discuss this report
with you at your earliest convenience.
Management icer
DDS&T
25X1 Attachment:
As stated
NRO review(s) completed.
?ni , _T
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DDS&T
MANAGEMENT INFORMATION SYSTEM
STUDY
THE OFFICE OF SPECIAL PROJECTS
(OSP) ,
DATED FEBURARY 20, 1968
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Although computers have revolutionized management information
systems, the existance of computers tends to overshadow the importance
of the interrelationships and interdependence of the management or
organization structure and the information system. Traditionally,
reorganizations have been accomplished without consideration of the
effects on existing information systems and conversely, information
systems have been designed and implemented without consideration of
the effects on the management structure.
This study was accomplished with due consideration of both the
management structure and the existing information systems as components
of the management system.
The OSP personnel who participated and contributed to this study
must be commended for their attitude and cooperation. Specifically,
I would like to commend Mr. John Crowley, the Director of OSP, who
rendered his full and total support so that the greatest benefit
could be generated from this effort. Mr. John McMahon, the Deputy
Director, emulated Mr. Crowley's support and provided valuable guidance
to me during the conduct of this study.
April 30, 1968
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I. Introduction Page
Importance of the Problem ........................ 1
Scope ....................................... '..... 2
II. Research Methodology .................................. 2
Secondary Research ................................. 2
Primary Research ................................. 3
III. Analysis of the Primary Research ...................... 3
The Organization Structure ........................ 4
Formal ........................................ 4
Actual ........................................ 4
The Operating Environment ......................... 5
The Management Control Center ................. 6
The C Program .7
................................
Design & Analysis Division .................... 25
Program Administration Division ............... 26
IV. Summary, Findings, Conclusions & Recommendations
Summary ........................................... 27
Scope & Methodology of this Study ............. 27
Findings .......................................... 28
The Organization Structure & Workings ......... 28
The Management Control Center ................. 28
The C Program .................................
28
Design Analysis Division .................... 31
Program Administration Division ............... 32
Conclusions ....................................... 32
Recommendations ................................... 37
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TABLE OF CONTENTS (Con't)
Page
A Management Information Systems ................ 40
Defining the MIS .......................... 41
Some Realities of Information Systems ..... 44
B Program Management ............................ 48
Anatomy of a Project ...... . ............. 49
The System Engineering Mgmt. Process ...... 51
Contractual and Program Relationships..... 52
The Contracting Process ................... 54
C Use of PERT as a Management Information System 59
Reports to Management ..................... 63
Reports to the Analyst .................... 71
Cost Application and Control .............. 72
Program Control ........................... 73
Reporting Frequency ................... 76
Information Center .................... 76
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PART III. Figure I - Organization Chart--OSP ........... 4a
1
APPENDIX A.
Figure I - The Organic Functions Cycle ........ 41
Figure 2 - The Management Functions Cycle ..... 43
Figure 3 - The Information Cycle .............. 44
APPENDIX B.
Figure?I - PERT Data Flow ..................... 52
Figure 2 - PERT Data Flow ..................... 53
Figure 3 - PERT Data Flow ..................... 53
APPENDIX C.
Figure I - PERT Management Summary Report ..... 64
Figure.2 - Work Breakdown Structure, Level 4.. 66
Figure 3 - Cost of Work Report ................. 68
Figure 4 - Cost Outlook Report ................ 69
Figure 5 - Schedule Outlook Report ............ 69
Figure 6 - Cost of Work Report ................ 75
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INTRODUCTION
This study describes the initial Management Information
System Study that was conducted within the Office of Special
Projects (OSP), one of the seven offices of the S&T Directorate.
Importance of the Problem
cost and to its specification.
Yet, each task needs to be completed on time, for its budgeted
thousands of interdependent tasks, usually single-occurance tasks.
to the user. Such programs involve complex systems containing
original concept through manufacture to delivery of the vehicle
ment programs or projects that involves all effort from the
OSP is primarily involved in the management of develop-
part of the management information system.
the objective problems would have been surfaced as an integral
more time for management to solve the subjective problems because
tool for all levels of management. Such?a system would provide
information to decision makers can be an invaluable management
responsibilities and accountability providing the relevant
operating in an organizational environment reflecting definite
consistent data base reflecting sound policies and procedures,
to the problem. A management information system built on a
Management activity, with due regard to the Academy of
Management Theorists, is a problem-solving activity. Every
manager spends more than 50 percent of his time either solving
problems or contributing to the solution of problems. The act
of solving a problem depends upon two elements, i.e., the man-
ager's knowledge in the problem discipline and the ability of
a management information system to provide information relevant
Program management leans heavily on relevant information
from numerous sources.
The accomplishment of a program cannot be judged by
the rate of expenditure of money, but by the achievement
of successful events. We can spend or obligate money like
mad, but if certain things do not happen successfully at
the time that they should occur, the project is sick.
Down to the smallest act which, if not performed, will cost
precious time to accomplish, the project manager must know
what is to happen, when it must occur, and who is responsible.
By an infinity of means he can assure himselt that it is
happening when it should. Note the stress on "is happening,"
not "happened." Highly successful project management depends
upon the manager knowing in advance whether a scheduled
accomplishment is a yellow light far enough in advance of the
red light of danger to permit taking action--bringing addi-
tional resources to bear on redirecting effort--in time to
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keep the main stream flowing on schedule. 1
The concept of a management information system never ex-
cludes personnel because it is people that not only accomplish
the tasks but are an extremely important source of information.
One of the most prevalent and most dangerous threats
to successful project management is the human tendency for
everyone--scientist, designer, engineer, or personnel
recruiter--to'keep his problems to himself until it is too
,late to correct the situation, even with intense application
of effort and resources. This enemy must be fought every
hour of everyday. The manager must instill confidence that
the provision of help based on a confession of difficulty
will not bring criticism or castigation. Here machines
and canned techniques cannot help--only people and personal
relations. Costs must, of course, be kept under control in
proper fashion. The measure for this is also in the anatomy
of the project schedule we have reviewed. However, cost is
a consequence, not a cause, and the schedule of events is-
the only really effective measure of final results. If the
schedule gets out of whack and cannot be enforced, costs will
go off as an absolute consequence. If the cost schedule is
adhered to with finality and the events do not occur, the
project is still a failure. 2
Scope
This phase of the study was limited to the Office of Special
Projects (OSP) and the management information system study con-
ducted within that office. The primary research involved inter-
views with selected managers in OSP and their responsible repre-
sentatives to provide insights into the actual workings and
relevant information requirements constituted by the present
structure.
Research Methodology
The methodology of this study was divided into two phases:
(1) secondary research and (2) primary research:
Secondary Research:
This phase of research involved the study of agency direc-
tives, regulations, handbooks, and headquarters notices pertinent
1
to the delegated areas of responsibility and authority of the
1Maj. Gen. J.B. Medaris, US Army Ret. "The Anatomy of Program
Management," Science, Technology and Management, ed. Kast and
Rosenzweig (New York: McGraw-Hill Book Co.) Inc.,1962), p. 127
2Ibid.
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various levels of management in the S&T-Directorate and in
OSP.
Primary Research:
This phase of research involved the study of the actual
structure and workings of OSP via personal interviews with
selected managers and their designated responsible representa-
tives. The purpose of the interviews was to collect data
describing the actual structure, workings and relevant infor-
mation requirements constituted by the present organization
structure of OSP.
A preliminary meeting with the Office Director, Mr. John
-Crowley: (1) established the ground rules for the interviews,
(2) identified the Deputy Office Director, Mr. John McMahon,
as my direct point of contact in the office and (3) provided
the management support so vital to the accomplishment of this
study. The first meeting with Mr. McMahon provided the histor-
ical background of the office and helped to identify the indi-
viduals in OSP to be interviewed. Since I would be probing
into OSP problems, a fundamental ground rule that I insisted
on was to assure anonymity to those interviewed and to present
the findings of this study first to OSP. Interviews were
conducted during October, November, and December to tie in with
individual work schedules. All of the personnel interviewed were
extremely cooperative, most especially Mr. John Crowley who
succintly described his modus operandi for the entire operation.
Each person interviewed was asked to describe his: (1) area
of responsibility, (2) the basic principles of his operation,
(3) the data flow involved and (4) any problems pertinent to the
study. The data gathered from these interviews were assembled
and evaluated. If the preliminary evaluation revealed any dis-
crepencies or voids of information, a second short interview was
scheduled to resolve that particular deficiency and served to
validate the information collected. Continued evaluation pointed
to preliminary findings which were presented orally to Mr. John
McMahon, Deputy Office Director, and then with Mr. John Crowley,
the Office Director, in late December.
Analysis of the Primary Research
The identification of the OSP functions and responsibilities
was established from: (1) the DDS&T presentation in the Intro-
duction to Intelligence Course attended in April 1967, (2) from
an office briefing conducted by Mr. Crowley in June 1967 and (3)
from a preliminary interview with Mr. McMahon in October 1967.
The Headquarters Regulations, specifically contains a DDS&T 25
organization chart dated 27 March 1964 that does not show the
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Office of Special Projects' and (2) does-not contain a state-
ment of the OSP mission and functions.
The Organization Structure
The Formal Structure:
The organization charts published by OSP show a formal
project structure supported by a Design and Analysis Division
and a Program Administration Division shown in Fig. 1. There
was no indication whether office directors had total formal
authority to organize or reorganize their offices or whether
DDS&T approval was necessary. Although no formal specification
of OSP responsibility and mission was uncovered,
there
was com-
mon agreement from other sources previously cited
that
OSP was
primarily responsible for unmanned space flights.
The
degree of
project responsibility varies within each project
from
total
system responsibility to responsibility for subsystems as dis-
cussed later.
Job descriptions tend to be loosely defined under Mr.
Crowley's operating policy of dividing job responsibility into
three major categories:
1. The position in organization implies certain
responsibilities that one knows and recognizes by virtue
of the position.
2. There are responsibilities that cross organization
lines that will impact on immediate superiors and he must
be informed of accomplishments of this nature.
3. There are responsibilities that impinge upon the
individual position that are not within the authority of
the individual that must be redirected to superiors.
Traditional organization theory prescribes finite defin-
itions of responsibility via formal organization structures and
function or mission statements. If organization conformed to
rigid definitions, productivity would be impaired. Empirical
evidence supports the existence of the informal or social organ-
ization as that entity that provides the basis for cooperative
behavior. The social organization like the formal organization
has standards or norms of conduct, and enforcement methods called
sanctions. The norms of both may range from a definitive speci-
fication of output to what is acceptable moral behavior and what
is acceptable to one may or may not be acceptable to the other.
25X1 1 See
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OFFICE OF SPECIAL PROJECTS
DIRECTOR
Crowley
DEP. DIRECTOR
McMahon
NRO
25X1
PROJECT 'C'
25X1 FIG I - ORGANIZATION CHART - OSP
DESIGN & ANAL .
DIVISION
!ROGRAM ADMIN~
DIVISION
SECURITY
STAFF
NRO
PENTAGON
NRO
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25X1 The entire tenor of OSP is set by its social organization.
That social organization's membership centers in the Senior
Executive Committee com rised of Mr. Crowley, Mr. McMahon,
I land a Project Manager if and only if
a project problem is under consideration. The executive
officer is the junior member of this committee for the sole
purpose of providing a freshman's point of view.
The principle of compulsory staff advice is subscribed
tempered with centralized control. Mr. Crowley said, " I
make the final decisions." and "They must understand the kind
of advice that I am going to accept." He practices Fayol's
bridge concept of management in two ways. First, he issues
orders only to the project directors who in turn relay those
orders to the contractors. Secondly, he has established rigid
contact levels by maintaining definite crossrank equivalence.
His management philosophy consists of:
1. Know your boss well.
2. Know what he wants.
3. Get what he wants.
4. Make him like it.
25X1
Also, he rates people by these criteria. He purposely "under-
staffs," and his key people "stay until their job is done." He
depends heavily on personal meetings with individuals as primary
sources of information and prefers an informal atmosphere. He
constantly monitors the progress of'projects via weekly (always
on Monday) project meetings which appear to be the feedback
sessions for the informal daily sessions with each project direc-
tor or the designated project representatives. The actual structure
revolves very tightly under the centralized control of Mr. Crowley,
the Office Director. He constantly crosschecks information sources
to evaluate the effectiveness of his organization structure.
The Operating Environment
All contract decisions including make or buy and subcon-
tracts are made by Mr. Crowley. All hardware decisions not
impacting the funding are made in the projects. The projects
are delegated the responsibility of developing their program
monitored by the front office. All communications (except secur-
ity messages) emanating from OSP are signed by the responsible
party as authorizing official and released by Mr. Crowley or in
his absence by Mr. McMahon.
The judgment factors within limits of decision-making are
left to the key people and tend to vary in scope with the indivi-
dual's capability to assume the initiative in his position. The
effectiveness of the OSP operation depends heavily upon the
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assignment of work related to the individual's ability to pro-
duce results. Mr. Crowley believes in the understudy concept
of management and urges his subordinates to adopt this phil-
osophy. He takes a sincere interest in helping his subordinates
develop and attempts to provide an atmosphere similar to the
Harvard Case Study tank approach, applied to the real world.
The working relationships between OSP and its contractors
'vary over a large range extending from difficult to deal with
to extremely easy to deal with. These relationships vary within
projects and will be dealt with in more detail under each project
section and its information system.
Each Program Director serves in the role of program manager
responsible for the over-all planning, coordination and ulti-
mate outcome for his program. As a manager, he is concerned with
accomplishing specific projects that require participation by
organizations and agencies outside his direct control. Working
through the contractor's program managers., their authority cuts
through superior-subordinate lines of authority and may often
conflict with the functional managers who must share authority
in their functional areas for the particular program.
The contract negotiators organizationally reporting to the
contracting officer who heads the Program Administration Division
prepare, negotiate, administer, terminate, and settle formal con-
tracts and within this charter determine whether or not each
particular cost is reimbursable to the contractor as an allowable
item of cost.
The Management Control Center
The OSP management control center serves as a program status
display room and mainly as a conference room. Summary PERT
Networks, Gantt Charts, Cost Summary Charts, Line of Balance and
Configuration Status Charts contain data reflecting the status of
the three major projects are displayed in the control center.
The Program Controls Branch under the Program Administration
Division is responsible "for the logging, assembling, posting, and
display of all significant management controls information cover-
ing OSP programs."l The branch "shall continuously coordinate
with each of the individual programs to insure that complete,
accurate, and timely management controls data is received from
the various contractors. ...When the necessary planning and/or
reporting data specified by contracts is not forthcoming in a
timely mannerto the Management Controls Center, Chief, PCB shall
notify the appropriate program director through his TPA
1See OSP-306-66 memo dated 19 October 1966, Subject: Charter,
Programs Control Branch, OSP/DD/S&T, signed by Director, OSP.
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(Technical Program Administrator) and the appropriate contract-
ing officer through Chief, Contracts Branch....The continuing
objective shall be the maintenance of an optimum management con-
trols system to support maximizing management of all OSP programs.
All changes in the Management Controls System and/or the
Management Controls Center, which are of a policy nature shall
be made only with the approval of the Director, Office of Special
Projects.*1
Weekly project status meetings are held each Monday in the
25X1control center The status for Pro-
ject C is reported directly to Mr. Crowley by the TPA every
morning. In all of the meetings attended, the groups discussed
,recognized problems but it was not apparent to me how the problems
were discovered. Most of the problems discussed were primarily
technical in nature. The impact on schedules was referred to
only as dictated by the nature of the problems under discussion
since no one really referred to the charts available or addressed
the impact on costs.
The position of Chief of the Program Controls Branch respon-
sible for the control center has been essentially vacant since
August 1967. The responsibility for maintaining the charts has
been assumed by the individual project TPA's.
The C Program
The agency was given responsibility for the payload in this
program. The payload will be lofted by the Air Force with a
Douglas THORAD Booster and a Lockheed AGENA. Total system man-
agement is a shared responsibility. the Project 25
Director, stated that during the development phase of this pro-
ject, each of the three contractors, under contract to the agency,
developed individual PERT networks of approximately 400 events.
An integrated summary network of 500 events was maintained for the
project staff by one of the contractors and headquarters was
supplied with a summary network of 60 events. Costs were normally
tied into level of effort by the project staff since the project
staff knew: (1) the negotiated costs, (2) the physical progress
from PERT networks, and (3) the expenditure of funds.
25A
25X1 I Jconducts a managers' meeting monthly. He maintained
a prop em register of the activities and subsidiary events that
appeared or were in trouble. About three months before the pro-
duction or acquisition phase, a shift from PERT to Line of Balance
was made by the Project Staff. main-
tains a detailed Line of Balance Chart and forwards a LOB summary
monthly to headquarters. Monthly progress reports are received
by the TPA and are used to update the project charts in the control
center. All fiscal data are received by the contract administrator
' who proofs the figures and forwards copies to the TPA and the
1
See OSP-306-66.
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Program Administration Division office. All fiscal and manpower
data are supplied to the TPA by the Contract Administrator.
Lockheed, one of the contractors, maintains a system delivery
schedule for the entire program.
The 64-bar LOB in the control center displays 15 bars for
ITEK (panoramic cameras), 31 bars for General Electric (recovery
vehicle), 15 bars for Lockheed (system integration), and three
bars for Fairchild (DISIC). A Configuration Status Chart referred
to as the Operational Schedule shows what individual end items
are assigned to what launch dates in a fashion similar to a mod-
ified Gantt-type major milestone chart. Additional space is
provided on this chart for grease pencil notations.
All of the contracts are incentive-type with penalty for
overruns. The contract administrator stated that these contracts
call for progress payments-against ' deliverables, but in fact we
pay actual costs reported. The contract structure was described
25X1
w
A reserve of 30 percent is withheld on the fixed price con-
tract until liquidation.' Liquidation will start at first end
item delivery. Unit costs were set on work packages at negotiation.
Cost analysis is performed only on proposals and then by the audit
staff. No other cost analysis is conducted by the program staff.
The major problem cited by the contract administrator was in esti-
mating the cost of engineering support, specifically engineering
hours.
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25X1
Design and Analysis Division
This division s well-defined functions and responsibilities.
the division chief, maintains two notebooks
w is con a-in manpower activity information and project fund status
information.
The first notebook contains (1) the functions and missions of
the division and branches and (2) the activity plans for every
individual listing his task assignment by month for six months.
25X1 This notebook allows rapid access to individual work
assignments--"to know who is working on what."
The second notebook contains the organization charts, the
table of organization by branches, a list of all projects and their
funds by fiscal year and a funding summary. This notebook is
related to the program planning cycle covering a one-year plan and
a five-year plan.
25X1 believes that a plan of action with problem defin-
ition produced "for in-house projects." This plan should
include not only "written definition but also a verbal presentation
and a schedule of events."
25X1
' 25X1
1
Mr. McMahon said,"DNAD is unlike the projects, smaller in
scope with more numerous tenacles. It is unique,because of
and his ability to tell all in fifteen minutes. Much less eman -
ing than the projects. I is the father of
He is the most unique technical asset that CIA has, r, row ey
said,"I use as a Chief Technical Advisor."
The functions and mission statements in the notebook were
not approved by Mr. Crowley and discrepancies were noted between
the responsibilities described in the notebook and the responsi-
bilities described in the approved memorandum.2
1
See Memo. OSP 0043-67, dated 8 Feb 67, Subject:
Analysis Division Organization and Mission.
2Ibid.
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Program Administration Division
This division is responsible, in addition to the manage-
ment control center, for providing centralized support services
in logistics, personnel and contract administration. This
study concentrated on the management control center previously
discussed and on contract administration, because these functions
reflect the effectiveness of project planning and control.
The only formal statement of functions and responsibilities
25X1 for the contract branch was an undated memorandum issued and
signed by Chief of the Program Administration
Division, u not yet approved by Mr. J. Crowley, Director of
Special Protects 1 The only authorized contracting officer is
25X1 The contrac the broad
direction and policy guidance of is "responsible 25
for all contractual negot'iation,administration and contract
settlement required for the procurement of the necessary services,
material and equipment in support of approved... programs assigned
to or under the purview of the Director, Office of Special Pro-
jects.-2 The branch is principally "concerned with the functions
and techniques which involve the negotiation, preparation, admin-
istration, termination and settlement of formal contracts.*3
The three contract negotiators of the branch are assigned to
particular programs or projects to provide contract support to the
respective program directors and their staffs. They are charged
with the usual negotiation responsibilities including the liaison
and coordination of .contractual matters with program, project,
contractor and other personnel.
The contract negotiators strongly influence the programs and
the program management since they not only prepare and negotiate
all contracts but also determine whether or not each particular
cost is reimbursable to the contractor as an allowable item of
cost in the administration of each contract.
The majority of contracts and subcontracts under OSP are of
the Cost Plus Fixed Fee (CPFF) type. Historically, this is an
outgrowth of the original U-2 contract experience referred to in
the agency as the "skunk-works" approach to contracting. For that
particular procurement, time was important and cost was no object
since money was used to buy time.
1
See OSP-632-66 Subject: Functions and Responsibilities of
Contract Branch, Office of Special Projects.
2Ibid.
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Summary, Findings, Conclusions, & Recommendations
Summary
The primary purpose of this study is to ascertain the
relevant DDS&T management information requirements for each
management level, to examine the existing supply or flow of
information and to establish a specification for an inte-
grated management information system. Although automated
information systems have been accorded much attention, more
often than not such efforts have failed to recognize that
management information systems (whether automated or not)
and business organizations are actually related-through the
unseparable management functions of communication and
decision-making. Thus, management information systems and
business organizations exist and operate as interrelated
elements of the overall enterprise.
To accomplish the primary purpose of this study, the
following specific objectives were established:
1. To present a proposal to the DD/S&T describ-
ing the approach and benefits'of,accomplishing a
Management Information System Study.
2. To demonstrate the feasibility and benefits
of this new discipline within the Directorate by con-
ducting a Management Information System Study within
the Office of Special Projects (OSP), one of the seven
offices of the S&T Directorate.
Scope and Methodology of this Study:
This study involved approximately personnel
within OSP who were interviewed over a ree-month period
from October to December 1967. Additionally, numerous
project meetings and conferences were attended in this same
time period. Data was recorded during the interviews, meet-
ings, and conferences. Analysis and evaluation of this data
was conducted simultaneously with the data gathering phase.
Facts were cross-checked from at least two sources to insure
validity of some data, and follow-up interviews were conducted
to validate other data. Anonymity was assured to a practical
degree to further assure the validity of the interview data.
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Findings
The significant findings of this study are presented
as they relate to: (1) the OSP organization structure and
the operating environment and (2) the OSP office in general.
The Organization Structure and Workings:
The entire tenor of OSP is set by the executive com-
mittee headed by Mr. John Crowley. Mr. Crowley depends
heavily on personal meetings with individuals as primary
sources of information. He constantly monitors the progress
of projects and cross-checks information sources to evaluate
the effectiveness of his organization structure. All con-
tract decisions including make or buy and subcontract are
made by Mr. Crowley. All'communications (except security mes-
sages) emanating from OSP are signed by the responsible party
and released by Mr. Crowley or in his absence Mr. McMahon.
All hardware decisions not impacting the funding are made in
the projects. The effectiveness of the OSP operation depends
heavily upon: (1) the assignment of work related to the
individual's ability to produce results and (2) the indivi-
dual's capability to assume the initiative required by his
position.
Each Program Director serves in the role of program
manager responsible for the overall planning, coordination
and ultimate outcome-of his program.
The Management Control Center:
Although the OSP Management Control Center serves as a
program status display room, it is more often used as a
conference room. The charts and displays in the room reflect
the=status of the three major programs. In all of the meet-
ings attended in this room, no one except Mr. Crowley really
referred to any charts or displays in discussions of problems
involved in program management. The individual program meet-
ings conducted by the program directors are not held in the
control center. The comment that we have a later or more
recent figure than the one on the chart was frequently heard.
There was no evidence of data management. Displays of the
critical activities in each project were conspicuously absent.
The C Program:
This particular program is well into the production phase.
The development phase was managed via PERT and transitioned
into Line of Balance for production. The West Coast office
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maintains primary management control of-this program and
provides all data to support the project charts in the
control center.
The 64 bar LOB chart in the control center is compli-
mented by an Operational Schedule that displays major item
status in a Gantt-type fashion.
All of the contracts are pegged to incentives that call
for progress payments against deliverables. In fact, we pay
actual costs incurred as reported by the contract negotiator
and evaluation of cost data is not performed either by con-
tracts or the project staff.
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Design and Analysis Division:
This division has well-defined functions and responsibil-
Pities supported by mission and task plans for individuals in
25X1 the division, the division chief, maintains two
division notebooks so a he knows who is working on what and
is able to present a succinct status report in approximately
15 minutes.
It was noted that the functions and mission statements in
the notebooks were not approved by the Director of OSP. Also,
discrepancies were noted between the responsibilities described
in the notebooks and the responsibilities described in the
official office memorandum, its charter.
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Program Administration Division:
This study concentrated on the management control center
previously discussed and on contract administration, because
these functions reflect the effectiveness of project planning
and control. The three contract negotiators in the contracts
branch are charged with the usual negotiation responsibilities
including the liaison and coordination of contractual matters
with Program, Project, Contractor and other personnel. The
contract negotiators strongly influence the programs and the
program management since they not only prepare and negotiate
all contracts but also determine whether or not each parti-
cular cost is reimbursable to the contractor as an allowable
item of cost in the administration of each contract.
The majority of contracts and subcontracts under OSP are
of the Cost Plus Fixed Fee (CPFF).type.
A proposal describing a Management Information System
Study was presented to the DD/S&T and approval was granted to
conduct such.a study within OSP. The primary purpose of this
study was to demonstrate the feasibility of conducting a
Management Information System study for the S&T Directorate
by conducting such a study within the Office of Special Projects
(OSP). Based on the analysis and findings, the following con-
clusions may be stated:
1. OSP operates in an atmosphere of tight central-ized control of programs.
This type of control is largely due to the
vagarities of OSP manpower, the nature and type of con-
tracts, the sensitive nature of the program activities
and the operational philosophy established by the Direc-
tor, Mr. Crowley.
2. The Ditector of OSP, Mr. Crowley, uses actively
an informal type of communications network which depends
heavily on personal contacts and meetings with individuals
as primary sources of information.
This-type of operation is largely due to the
fluid nature of the various programs within OSP, the
vagarities of OSP manpower, and the level of control
desired by Mr. Crowley.
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3. The Management Control Center operates as a
program status display room and does.not function as an
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Every Monday program review meetings are con-
ducted by the program managers for Mr. Crowley. These
meetings Concentrate on the most current technical
problems with a review of actions in being and actions
to be taken by program personnel. In all of the meet-
ings attended, no one except Mr. Crowley referred to
the displays and charts.
Program personnel exhibited a lack of confidence
in the data displayed since the comment that we have a
later figure than the charts was often heard. Such is the
case when the TPA's rely upon official data and project
personnel have access to informal data long before such
data becomes formalized. This situation is further com-
pounded since the lack of interest by program personnel
does not motivate the TPA's to insure that such displays
are kept current.
Thus the Management Control Center does not .
function as a control center since: (1) it has not been
the focal point of current information and (2) no one
analyzes the data available to ferret out potential
problems.
4. There is a wide range of understanding of the
Systems Engineering Management Process.
This wide range of understanding is reflected
by the variations in the contractual documentation that
is required and/or exists from contract to contract and
from program to program. This is further evident in the
individual projects not adhering to some defined, gener-
ally acceptable singular process that provides guidelines
and guideposts as a type of checklist for program managers.
Such variation does not provide the necessary base to:
(1) effect systems management and (2) assess the effecti-
vity of program management.
The transitional phases between the conception,
definition, acquisition and operation of a system pose
problems not so much in what to administer but rather in
how to administer the systems engineering management
process.
Such an atmosphere lends itself to responsibil-
ity overlaps and gaps between the members of a Program
Management team.
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 The findings and conclusions of this study provided the
basis for the following recommendations:
1. That OSP undertake a redefinition of management
responsibilities and authorities to eliminate any
overlaps or misunderstandings that have developed in
the rush of solving daily problems.
Since a management information system must provide
relevant information to decision makers, then clearly
defined and understood areas of responsibility must be
a prerequisite to the implementation of an effective
management information system.
2. That OSP undertake an internally prepared and pre-
sented management development program covering large
systems management, the systems engineering management
process and the effective use of management systems in
program management.
Since there is a wide degree of understanding in this
area, such a program would provide a rapid and a long
range payoff because the knowledge gained could be put to
use immediately and on future programs.
3. That OSP shift resources to the OSP Management Con-
trol Room to undertake a planned effort to develop a pro-
gram predictive capability in concert with current program
status information for all OSP programs.
Such an effort should be directed toward establishing
the control room as the management information hub for all
projects and programs assigned to the office. The control
center must contain the latest official and unofficial in-
formation such that project personnel would become dependent
upon the control center for the latest information. As
prerequisites to this effort, the existing program informa-
tion requirements must be strengthened to provide the neces-
sary data flow into the control room with unimpeded access
to the control room assured for all programs.
4. That OSP make a concerted effort toward effecting incen-
tive contracts in development programs.
All development programs reach a point in time when the
probability of success becomes reasonably assured. When
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that point is reached, the application and acceptance of
incentives is more reasonably assured. The standard
argument of only CPFF for development programs places the
government in a weak position since the multitude of
resources required to effectively monitor a large program
are not economically feasible. For those programs requir-
ing state of art breakthroughs, a transition from CPFF to
CPIF can work toward reducing overall program costs.
Incentives provide a profit motivation for contractors and
demand of the government more intensive scrutiny of pro-
posal cost estimates submitted for negotiation. Effective
analysis by the government minimizes windfall profits
inherent in padded estimates that remain unchallenged by
government contract negotiators and price analysts.
5. That Contracts Branch prepare and present a seminar
on (1) incentive contracting and (2) the process of
negotiation.for the OSP Project Staffs.
Such presentations would develop a deeper understand-
ing of the contractual relationship requirements, the
interrelationships of program management and the contract-
ing process, and the importance of planning by the govern-
ment for negotiation.
6. That OSP provide selected individuals with short-term,
one-time specific training programs related to specific
assignments such as PERT for TPA's and Program Managers.
Such training would assure that management information
and control techniques would be used within their full
capabilities and limitations.
7. That OSP effect a shift of program resources from
engineering the system to system management of the program.
Such a shift will mark the effective interrelationship
of the program management with the management information
system of an operational management control center.
8. That OSP'rename the OSP Management Control Room to the
OSP Management Information Center.
Such an action will remove the psychological stigma of
the word control. As a word, control tends to have a spe-
cific meaning that detracts from the purpose of a manage-
ment information system.
9. For future programs, OSP must emphasize the importance
of the work statement, the specifications, and the contract
to the program management team.
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A concerted effort by a progra-m management team in
the preparation of these documents can eliminate many
problems for that program.
The program management team must give more emphasis
to the definition of program management requirements in
contractual documentation with particular attention to
the planning and control information and report requirements.
10. That OSP explore the possibility of utilizing the IBM
360 PMS (Project Management System) on existing and future
programs.
This conprehensive modular computer program incorpor-
ates interrelated time, cost, and manpower data for pro-
ject planning and control. The program provides the
flexibility of report generation on a random and/or routine
basis and'the ability to vary the amount of detail contained
in such reports.
11. Many of these recommendations involve simultaneous changes
in management processes and in information and must be care-
fully coordinated.
Information systems are related to organization structure
since information -is the basic ingredient and product of
communication and decision-making of management. Information
systems cannot be treated as a separate entity.
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APPENDIX A
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MANAGEMENT INFORMATION SYSTEMS 1
r
Management systems may be subdivided into two general types:
Resource Systems and Information Systems.
Resource systems are concerned with people, material, and capital.
These resource systems produce either goods and/or services, i.e.,
other resources to satisfy the wants or recognized needs of society.
Information systems deal in meaningful or useful data that
represent the resources of the resource system. Management depends
upon the information produced. by the information system to manage
effectively the resource system.
Since information is an abstract representation of resources and
since resources in terms of total utility to the customer involve time,
place, form, and possession utilities, in like manner the value of
information to the manager involves time, place, form, and possession
value.
Managers do plan, organize, and control the performance of resource
systems and depend upon the nonseparable function of communication via
information systems to accomplish the decision-making function. The
higher the management echelon, the more dependent is that echelon upon
information because it is further removed from the resources for which
it is accountable.
The ultimate goal of an effective management information
system is to keep all levels of management completely informed
on all developments in the business which'affect them. To
do this, the data processing personnel and those entering
information into the system should know exactly what data to
collect and which data to tabulate, and management on its
part has the obligation to be able to write down its actual
requirements for internal information.2
The material in this section was abstracted from: G. T. Shahin,
"The Grid Charting Technique for Management Information Systems"
(Doctoral Dissertation, Graduate School, The Ohio State University, 1965).
2 James P. Gallagher, Management Information Systems and the
Computer (New York: American Management Association, 1961), p. 17.
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Defining the Management Information System
When an electronics engineer designs a total electronic system,
his first task is to define the desired outputs of the system and
the required inputs to the system making it possible to generate these
outputs. The design of this complex system is generally done in its
broadest concept in terms of black boxes. The design problem
resolves the inner detail of the black boxes in such a manner that
they have the proper transfer characteristics required by the input
and output specifications. The design job can then be broken down
into the various levels of detailing the black boxes. The process
of. analysis and the building of models of management systems can be
done in analogous fashion to designing done by electronic engineers.
"There are three divisions whose presence is universal in any
organization: production, distribution, and finance." 1
Production.
Figure 1. The Organic Functions Cycle
According to Davis, th&se are called organic business functions,
an analogy taken from physiology, since the absence of any one of the
functions would cause the death of the organism or the collapse of the
concern. Within these organic business functions, the management
functions of planning, organizing, and controlling must operate and
are accomplished by each functional manager. Top management must not
only plan, organize, and control the enterprise by managing groups but
must also plan, organize, and control the dynamic factor interrelation-
ships between functions.
Ralph Currier Davis, The Fundamentals of Top Management, (New
York: Harper and Bros., Publishers, 1951), p. 207.
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For the management levels within each organic business function
there exists a major cycle of activities and within it a composite of
indentured or layered minor cycles of tasks and operations.
If we are to build an information system capable of
meeting the requirements of . . . a modern business, we
need to know the anticipated range and intensity of all
items of data which may be introduced into the system . . . .
The design of an adequate system presupposes a very complete
knowledge of short and long-term plans, and of the creative
potential of the business.
If the information system is to provide information to the manager
for control, then it must be well planned. An approach to planning
is to view the organic business functions as cycles and to determine
if such cycles contain the elements of.control. "The function of
control is to correlate and coordinate action in accordance with a
plan." 2 "Control depends fundamentally upon a comparison between
the results attained and the goals (or objectives) sought. There
can be no concept of control without goals, objectives, expectations,
or plans concerning the outcome that the operations should produce." 3
The function of control is not only dependent upon planning but
also upon the function of organizing. If resources cannot be organized
according to the specifications in the plan, either the planning goals or
the resource specifications must be modified or the control elements
will be ineffective. Control in turn serves to determine whether the
plans are being adhered to and acts where necessary either (1) to bring
results into conformity with plans or (2) to generate a need to replan.
These alternatives tend to increase the precision of the control process.
The first exerts a force on the factor of actual accomplishment with a
"conform-to-the-plan" effect. The second exerts a force to modify the
factor plan with a "conform-to-the-actual-accomplishment" effect. These
.interrelationships may be graphically portrayed.
1 Lionel E. Griffith, "An Outline of Organization for the Vice
President/Director of Administration," Shaping a New Concept of
Administrative Management (New York: American Management Association,
1961), pp.--37--5.
2 Davis, p. 630.
3 E. Wainright Martin, Jr., Electronic Data Processing (Homewood,
Illinois: Richard D. Irwin, Inc., 1961), p. 19.
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7~ L -I (UF' / 1 KUU31 UMUUULUU13UUUI- I
Objective
Organizing
Figure 2. The Management Functions Cycle within
each Organic Business Function
Once the information has served the control function, it may then
be used as a basis for future'planning.by validating or refining the
goals originally established in a prior planning cycle. This cycle is
also subject to management by exception.
The important point that must be recognized is the existence of an
on-going process. Even as economics deals with an on-going concern so
management deals with an on-going process. Any business viewed as an
on-going process will continue to survive so long as it provides the
values demanded of it by the society in which it exists. Within the
on-going process, information cycles can be identified for each function
at each level of management. These information cycles must be properly
interrelated between the levels of management they serve. Each informa-
tion cycle must be designed to meet the management information requirements
at each level. Thus integration of information cycles can be accomplished when
such cycles are properly interrelated and when the entire information struc-
ture rests on the broad base of information cycles at the lowest level of
the organization.
This recognition of information cycles inherent in the management
process can be diagrammed as shown in Figure 3. Once management has
reviewed its control reportss, such reports may influence changes in
management decisions and/or in the various plans. In this manner,
implementation of established objectives or goals for each level of
management can be evaluated if the information cycles are so time phased
with operations that current and factual reports are generated. To
accomplish this analysis phase, all business operations must be described
in some systematic way.
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Top
Mgt.
Plan
N
TOP
MGT.
REVIEW
OPERATIVE
1 Project Plans &
Control Reports
MGT. ~ 4-4 Task Plans &
REVIEW Control Reports
Figure 3. The Information Cycle
Some Realities of Information Systems
Often systems analysts whose experience has been in certain phases
have difficulty accepting a broader concept of systems and fail to
project their thinking into larger systems. The trend to think of a
computer when systems analysis is mentioned often leads to the mechani-
zation of established procedures that may be useless and outmoded for
current management needs.
There are certain dangers or realities of systems that management and
the systems analyst both must recognize in the analysis and design of
management information systems.
The Computer Complex
The computer today has become a management status symbol in many
instances. This is particularly noticeable at conferences and seminars
where the participants tend to rank themselves by the size of computer
in use in their organizations. Whether their information systems
require a computer or whether the computer is used effectively in no
way affects such ranking. In some instances, just having the largest
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computer on order is enough to place that representative in first
place in the hierarchy. Using the computer as a management status
symbol usually produces a chaotic search by the systems analyst for
applications for the computer soon to be delivered. The results of
such an illogical, irrational approach are poorly designed systems,
automation of existing but obsolete procedures, and high operating
costs.
The MIS Plan
The absence of a set of finite rules often subjects the systems
analyst to conflicts between system boundaries, the degree of information
integration, and the diverse demands of management for information.
These conflicts can be minimized by top management development of a
master plan of the component information systems with their data inter-
relationships discretely defined for the total information system of
the enterprise. The component information systems should encompass
related management activities in manageable segments such as payroll
and personnel, requirements planning and raw material inventory control,
or product distribution and production.
Systems Criteria--A Management Responsibility
As every weapon system must accomplish some set of operating
requirements or system criteria, so must every information system
accomplish its set of operating requirements or system criteria, such
as providing management with timely, accurate, and concise information
for control. These information criteria must be defined in quantitative
terms to facilitate the measurement of system performance. In either
case, the responsibility for establishing the list of criteria for each
system is a responsibility of the system purchaser. The system purchaser
of a management information system is management; therefore, management
is responsible for establishing systems criteria.
A more subtle aspect of the criterion problem is the danger that
the criteria adopted for a lower level system may be unrelated or
inconsistent with higher level criteria. For example, management must
not (1) measure the inventory system on the number of dollars invested
if the entire distribution system is measured on some level of customer
service or (2) measure the computer center on tons of paper printed if
a management information system is measured on the accuracy and timeli-
ness of relevant management information.1 Such inconsistent criteria
usually generate unnecessary conflicts.
For a more detailed explanation see: Roland N. McKean , Efficiency
in Government through Systems Analysis (New York: John Wiley & Sons, Inc.,
1963) Chapters 1 and 2.
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SECRET
I.
Concept of the Inventory of Resources
"Management often wants a management information system for the
purpose of aiding the decision-making process. However, when the
analyst tries to find out what information is required, at what levels,
and by what managers, he often finds that management hopefully expects
to be told what information they require to make valid decisions."l
The purpose of this section is to provide some meaningful infor-
mation design criteria for the analyst who finds himself in the
position of being such an internal captive consultant to management.
The concept of the inventory of resources and its information
design criteria have evolved from the traditional economic factors of
production and the concept that information is abstract representation
of economic resources.
The organic functions of any business can be portrayed as a
cyclical flow. Extending this concept, one can say that every functional
manager is responsible and thus accountable for some combination of resources
by which he is able to meet the demands of his customers. Resources,
according to the earlier classification, include people, material, and
capital; and customers may be internal and/or external to the organization.
The production manager, for example, with his accountable inventory
of resources must meet the internal demands for goods imposed by the
distribution manager. The ability of the production manager to meet
these demands is directly related to two limiting factors: (1) the
nature of the demands imposed by his customers for his goods and (2) the
inventory level of resources allotted to him. In a similar fashion other
managers, such as the accounting manager, the sales manager, the office
manager, the personnel manager, and the transportation manager, deal
with their accountable inventory of resources to meet the demands of
their respective customers.
In order to manage this. inventory of resources effectively and
efficiently, the manager must be provided with information that compares
the present and future status of his inventory'in relation to the present
and projected customer demands. Inventory states as used here means
the operational condition of the inventory of resources.
There are three basic actions that affect the operational condition
of any inventory of resources: (1) additions to the inventory of inputs,
(2) changes in form or place called status changes, and (3) deletions
from the inventory or outputs to meet customer demands. These basic
I -Daniel W. McElwee and James E. Fernandes, A Software Primer for
Managers (Washington, D.C.: Industrial College of the Armed Forces,
1963-196+), p. 3.
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actions, together with the form, time, place, and possession
utilities of the resources, provide a foundation for some management
information criteria. These information criteria devolve from a basic
management information need that every manager have access to infor-
mation that reports the identification, the location, the quantity,
and the quality of each of his allotted resources with respect to
time in each of the three basic action areas. This operational
condition of the inventory represents the status of the accountable
manager's inventory. If such information is to serve a control
function, each element or set of information that describes an actual
condition must be compared to the previously planned condition.
Therefore, "with respect to time" as used here includes not only
current status compared to current demands but also future status
compared to projected demands.
An effective analysis of-any information system requires an
intensive and thorough study of such information needs for every
management position at all management levels involved or affected by
the information system under study. The results of such a study must
include the determination of what information is needed, by what
activities or functions, in what form and sequence, at what points
in time, to make what kinds of decisions. The analyst must study not
only the continuity of information flows but also the nature of each
managerial decision if he is to be able to provide managers with
information they require to-make valid decisions. The concept of
the inventory of resources is an important keystone in the practical.
application of this philosophy of management information systems
because the concept identifies the general information requirements
of management. The next step is to build a model of the information
system that blends into one analysis all of the responsibilities,
authorities, information requirements and data processes of a management
information system.
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Appendix B
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Program Management
Program management is resource management of the
most complex form because it deals with the problems of
government-industry program management.
Program management involves the appointment of one
man, the program manager, who has responsibility for the
over-all planning, coordination, and ultimate outcome for
the.program. He is usually superimposed upon the functional
organization, and the imposition of this integrating agency
tends to create new and more complex organizational relation-
ships. The special role of the program or project manager,
which differentiates him from the traditional manager may
be summarized as follows:
1. As a manager he is concerned with
accomplishing specific projects that require
participation by organizations and agencies
outside his direct control.
2. Since the project manager's authority
cuts through superior-subordinate lines of
authority, he conflicts with the functional
managers who must share authority in their
functional areas for the particular project.
3. As a focal point for project activ-
ities, the project manager enters into on an
exception basis those matters necessary for
the succesful accomplishment of the project.
He determines the when and what of the project
activities; the functional manager, who sup-
ports many different projects in the organiza-
tion, determines how the support will be given.
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"Managing a Program
i
The accomplishment-of a program cannot
be judged by the rate of expenditure of money
but by the achievement of successful events.
We can spend or obligate money like mad, but
if certain things do not happen successfully
at the time that they should occur, the project
is sick. Down to the smallest act which, if not
performed, will cost precious time to accomplish,
the project manager must know what is to happen,
when it must occur, and who is responsible. By
an infinity of means he can assure himself that
it is happening when it should. Note the stress
on is happening' not 'happened'. Highly suc-
cessful project management depends upon the man-
ager knowing in advance whether a scheduled accom-
plishment is or is not likely to be on time. The
whole gamut of reporting means, from personal
visits to PERT, is of less than effective value
unless there is a yellow light far enough in
advance of the red light of danger to permit
taking action--bringing additional resources to
bear on redirecting effort--in time to keep the
main stream flowing on schedule.
One of the most prevalent and most dangerous
threats to successful project management is the
human tendency for everyone--scientist, designer,
engineer, or personnel recruiter--to keep his
problems to himself until it is too late to cor-
rect the situation, even with intense application
of effort and resources. This enemy must be
fought every hour of every day. The manager must
instill confidence that the provision of help based
on a confession of difficulty will not bring criti-
cism or castigation. Here machines and canned
techniques cannot help--only people and personal
relations. Costs, must, of course, be kept under
control in proper fashion. The measure for this
is also in the anatomy of the project schedule
we have reviewed. However, cost is a consequence,
not a cause, and the schedule of events is the
only really effective measure of final results.
If the schedule gets out of whack and cannot
be enforced, costs will go off as an absolute
consequence. If the cost schedule is adhered
to with finality and the events do not occur
the project is still a failure.
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As with a doctor, the project manager's
duty is to keep his patient healthy at all
times and to see to the curing of incipient
infections before they spread and become crit-
ical. To accomplish his mission he needs to
know that he starts with a fully developed
structure and that some important organ is
not missing. He must be intimately familiar
with every part and piece of that structure.
Given the proper professional background, his
probability of success is dependent upon the
quality, reality, and completeness of the
original anatomy--the complete project schedule.
The project manager must know that the
health of the patient can and must be deter-
mined constantly by the measure of the pulse,
the heartbeat, and the temperature. The
pulse of his project is the measure of events
by time, not by money and man-hours, which
are only part of the complexion, the surface.
The heartbeat is the pace and rhythm of the
endless small contributory tasks, each of
which is essential to the whole. Finally
the temperature cannot be taken by a ther-
mometer, but involves the skilled day-to-day
evaluation of the existence (or lack of it)
of that nameless, indefinable feeling of con-
fidence, smoothness, assurance, cooperation,
and purpose that must permeate a project
organization to assure its permanent health
and well-being. That evaluation is still a
product of experienced management intuition
and can never be computerized.
The right way is a lot of fun and pro-
duces immense satisfaction. The wrong way
produces ulcers, heart attacks, and financial
losses. If all projects could start with a.
strong and complete anatomical structure, they
could be managed with confidence."1
-Maj. Gen. J. B. Medaris, "The Anatomy of Program
Management," Science, Technology and Management. New York:
McGraw Hill Book Company, Inc., 1963, pp. 127-128.
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The System Engineering Management Process'
1
Systems engineering is basically concerned with
deriving a coherent total system design that meets stated
objectives. The interplay between the system engineers
and the engineering design specialists requires the closest
coordination and is a major management problem which must
be recognized and solved. Although no two systems are ever
alike in their development requirements, there is a uniform
and identifiable process for logically, arriving at system
decisions regardless of system purpose, size, or complexity.
This process begins with development and spans the system
life cycle.
The system engineering management process includes
the early identification of (1) the system objectives,
(2) the "design to" requirements necessary to meet these
objectives, (3) the "build to" requirements which describe
the configuration of the system to be delivered and (4)
the requirements for personnel, training, procedural data,
and logistical support.
System engineering management is usually initiated in
the latter part of the Conceptual Phase and continued
through the Definition Phase, Acquisition Phase, and early
Operational Phase of the system. This entire management
process depends upon the ability to establish and maintain
a system of documentation for positive identification and
effective control between interface requirements, design
requirements, and design solutions of the elements within
a system and between systems. The use of uniform documen-
tation, engineering reviews, and standard procedures can
assure an orderly transition from one major commitment point
to the next in the system engineering process. This trans-
sition is guided and monitored by three basic engineering
reference points, i.e.: Program Requirements, Design
Requirements, and Product Configuration. The Conceptual
Phase generates defined Program Requirements. Upon approval
of Program Requirements the Definition Phase generates
defined Design Requirements. Upon approval of the Product
Configuration, the Acquisition Phase continues from first
item acceptance through turnover of last item to the user.
'Abstracted from AFSCM 375-5, System Engineering
Management Procedures.
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In this manner, these three reference points represent
the progressive and evolutionary development of specifica-
tions and associated data. Since specifications evolving
from the general to the specific provide the standards for
design, a level of control must be maintained via a con-
stant closed-loop' relationship between the system and design
requirements and the total system requirements.
Contractural and Program Relationships
Information accuracy and data flow are affected by
the contractural and program relationships that emerge from
the organization structure established for each program.
The government/single prime contractor relationship
allows a relatively uncomplicated data flow, shown in
Figure 1, since most subcontractor's PERT will be processed
by the prime contractor and integrated with his data into
a single set of reports. In this case the government agency
with primary program responsibility must integrate a small
amount of data from the participating government agencies
and the occasional associated contractor who does not
report to the prime contractor.
Figure 1. PERT Data Flow
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When a number of contractors are involved, then either
one contractor is given the responsibility for Network
Integration or the government must assume this responsibility
as shown in Figure 2.
Sub
T
Network
.Integration
Figure 2. PERT Data-Flow
T
When many organizations are involved in a. program, as
shown in Figure 3, data integration becomes more difficult
and may affect the timeliness of the reported data or the
ability to merge data easily or both.
Sub Seib
Figure 3. PERT Data.-Flow
Gov't Agency
Contractor
Gov't Agency
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Obviously one government agency has been designated
as the program manager with responsibility for program
network integration. When data passes through several
levels of organization, the reliability and timeliness of
PERT data are affected. Direct reporting techniques such
as the Rainbow Reporting Procedures may be justified.
The relationship between System Engineering and
Program Management is that Systems Engineering insures
that the product or end item meets the performance speci-
fications while Program Management in addition must insure
that the product is produced within acceptable costs and
delivery schedules. It is during the Conceptual Phase that
a product-oriented, work-breakdown structure is established
and modified until an acceptable structure and level of
detail has been reached.* Prior.to the initiation of procure-
ment action, a Program Management Network prepared by the
Government Program Management Office based on the work-break-
down structure establishes the plan for the Acquisition
Phase. To be most effective, all of this planning must be
completed in advance of the preparation of Request for Pro-
posals or equivalent procedures so that interfaces and other
important data may be included and provide guidance to the
contractor. The contractors' proposal is thus tied to the
basic work breakdown, and contract negotiations can focus
on work packages.
The Contracting Process
The contracting scale runs from Firm Fixed Price
contracts (FFP) at one end to Cost Plus Fixed Fee contracts
(CPFF) at the other end. ASPR 3-402(6) revised in March
1962 states: "The firm-fixed-price contract is the most
preferred type, because the contractor assumes full contract
responsibility, and the relationship between cost control
and profit dollars is established at the outset of the con-
tract . . . . Its use will provide the contractor with a
maximum profit incentive to control costs of performance.
However, . . . in certain situations, the use of special
contract incentives may be more appropriate."
As early as 1936, the Nye committee reporting on the
CPFF contract system observed: " . . . there is absolutely
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no effective control of costs possible, without a huge
policing system of auditors and inspectors constantly on
the premises."1 In 1963, Mr. McNamara stated: "The
increasingly complex weapons, systems resulting from the
technological revolution of the 1950's led to a great
expansion in the use of cost-plus-fixed fee (CPFF) contracts.
However, both Department and industry officials agree the
CPFF contracts not only fail to provide incentives for econ-
omy, but actually deaden management efficiency by removing
the need for either the Department or the contractor to esti-
mate costs accurately, and to plan and control programs
tightly."2
Concerning the CPFF, the ASPR states: "This type of
contract normally should not be used in the development of
major weapons and equipment, once preliminary exploration
and studies have indicated a high degree of probability that
the development is feasible and the government generally has
determined its performance objective and schedule of comple-
tion. . . . In contracting for advanced development work, an
incentive contracting arrangement is preferred."3
In order to use incentives in contracts, the nature and
extent of the work to-be accomplished must be more rigidly
defined than under a CPFF contract. Within the limits of
the contract statement of work, the government must protect
itself against the award of incentive profits at the expense
of quality. The Incentive Contract must not become a trade
off of shoddy workmanship for incentive profits. The rela-
tionship between cost reduction and workmanship is clearly
sharing cost incentive with the government in that the con-
tractor keeps 100% of every dollar saved. Detailed specifi-
cations in which performance, schedule, quality and reliabil-
ity parameters are described establishes a high-cost risk go
or no go incentive for the contractor under FFP. Just as
the FFP provides 100% contractor cost risk at one end of the
contract spectrum and the CPFF provides 0% contractor cost
risk at the other end such that degress of contractor risk
lSena.te Report No. 944 Pt. 4, 74th Congress, Second
Session (1936) 324, p. 312.
2Secretary McNamara's First Armed Services Progress
Report to President Kennedy, July 8, 1963.
3ASPR 3-405.5(c).
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exist between these two contract types, so there are degrees
of work statement and specification definition across the
same spectrum. With complete detailed definition at the
FFP end the spectrum narrows to relatively little definition
at the CPFF end. The incentive contract falls between the
FFP and the CPFF in both cost risk and degree of definition.
A multiple incentive contract presents a wide variety of
possible outcomes to the contractor and allows the govern-
ment to remove itself from the decision-making process so
as not to interfere with the contractor's choice of alter-
natives which will maximize the contractor's profits. A
properly structured incentive contract insures that the con-
tractor would be motivated during contract performance toward
the set of objectives desired by the government. The unique
feature of the incentive contract is that the options or
choice of alternatives is e to e con rac or. is fea-
ture is not found in the an the C1 inn wT ich the con-
tractor has.little or no choice as to the nature and quality
of performance under the contract. Under the FFP contract
performance beyond the minimum acceptable levels, not
required under contract, would not be rendered in most cases
by the contractor since the precise performance result is
foreordained when the contract is signed.
Under the CPFF, the precision of specifications, draw-
ings, delivery date, and statement of work is generally-
lacking. With an obviously imperfect and necessarily impre-
cise description of the end item, the contractor commences
work toward an objective described in a performance specifi-
cation. Under the direction of the government at every step
of his labor, the contractor is subject to control and sur-
veillance over his efforts. If the government does not
emerge from a CPFF contract with precisely the end product
it wants, it has only itself to blame because of its failure
to give explicit directions and guidance in the course of
contractor performance. The CPFF differs from the FFP not
in the degree of instruction given to the contract but
rather to the time and method of giving the instructions.
In the FFP, the instructions are given with the FFP request
for proposal. In the CPFF, instructions are given during
contract performance as well as at the start of the contract.
Since OSP is involved in a majority of CPFF contracts,
two aspects of such contracts must be considered, i.e.:
(1) the impact of constructive changes and (2) overrun
tendencies.
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Constructive Changes -- For many years government
contracting officers had the power, under the changes
clause in government contracts, to make virtually any
changes in specifications within the scope of the contract.
Within the general scope of the contract, the variety of
changes the contracting officer is empowered to make under
the changes clause is almost infinite. It is not a problem
with formal changes but rather with a particular class of
change called a constructive change. "A constructive change
is a request of an informal nature by the contracting officer
or his representative for additional work over and above that
required by the original contract. It differs from a formal
change order in that it is not labeled 'change order' and the
contracting officer may stoutly deny that any change to the
contract was ever intended. Nevertheless, requests in let-
ters, telegrams or conversations may constitute constructive
change orders . . . . What are the types of constructive
change orders? First, any request however informal, for
additional work over and above that required by the original
contract may be a constructive change order. Then there are
specific types: acceleration; a direction to proceed in
accordance with defective specifications; erroneous inter-
pretations by the contracting officer requiring additional
work; limitation of the contractor's work method; excessive
inspection requirements; improper rejection and rework."
CPFF Overrun Tendencies -- The theoretical explanation
of overruns is that the contractor under a. prospective CPFF
knows there are no inhibitions inherent in the contract
against a possible human tendency to underestimate the dol-
lar amount of the contract and/or overstate the possible per-
formance characteristics and the delivery time of a. system.
Such overoptimism might better the contractor's change of
selection and/or enhance the budget approval of the project.
Ultimately, if the actual costs exceed the original estimates,
it would not be to the detriment of the contractor's profit
picture under a CPFF.
Additionally, because of the fixed overhead, CPFF's
placed where a mix of fixed and/or incentive contracts
exists, could be treated by the contractor as CPPC, Cost
Plus Percentage Contracts, where the contract "mix" could
induce the contractor to gain greater actual profit on his
1F. Trowbridge vom Baur, "Differences Between Commercial
Contracts and Government Contracts," American Bar Association
Journal, Vol. 53, March 1967, p. 250.
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fixed price and/or incentive contracts by overrunning
his cost-type contracts. The tendency of some contractors
to expand the dollar volume of their business activities,
since success is guaged by expanded gross sales as well
as increased profits, especially when involved in new or
growing endeavors. Share of market is always a medium
range objective just as profit may be a short range objec-
tive.
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Appendix C
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Use Of PERT As A Management Information System
A management technique or.device must be an integral part
of the management process. Logically, therefore, in any
discussion of any of the techniques such as PERT, a review
of the underlying management process will provide the founda-
tion for analysis and evaluation of the utilization and
effectiveness of PERT.
t
The function of management involves the continuous,
intelligent direction of people by determining and communica-
ting the primary and secondary objectives of the organization.
This function by its nature includes the development and
utilization of an integrated time-phased plan of action, demand-
ing reasonable requirements in the.way of resources and the
subsequent balancing of resources as they are made available
and used. The basic steps of this process are:
1. The determination and effective communication
of the primary and secondary objectives.
2. The development of a coordinated plan of action
for the accomplishment of the objectives.
3. The conversion of the plan into integrated
schedules within allocable resources.
4. The regular reporting and concurrent evaluation
of progress against the scheduled plan of time and cost
estimates.
5. The recycling of this process to incorporate
a desired new action into a new cohesive scheduled plan.
All organized activity must have as its motivating and
guiding force the attainment of some predetermined objective
or objectives. Given the objective, then planning sets the
nature, sequence, and interrelationships necessary to achieve
that objective by defining the structure and relationships of
units of required effort. Planning considers and answers
questions of capability by determining in-house versus subcon-
tracting effort and establishes the feasibility of meeting the
directed due date for successful achievement of the objective.
A broad operating plan, to be used by top management, must have
realistic requirements consistent with available resources and
time.. The planning function at each level sets forth the
important objectives of the kind, quality, and quantity for
the work to be accomplished. If this planning is not accomplished,
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there can be no assurance of a coordinated, balanced use of
resources. The bridge between planning and effective,
coordinated implementation is scheduling. Scheduling considers
the competition for resources within and between programs,
produces a time-phased plan consistent with desired completion
dates, and serves as the basis for continued evaluation of
program progress. Progress evaluation requires regular,
continuous, evaluation of actual performance against current
scheduled plans and the detection and isolation of significant
deviations from the scheduled plan as a forecast of time and
cost overrun.
The principle of significant reporting, which focuses
attention on the significant deviations from the scheduled
plan, only requires detailed analysis of the specific problem
covering: (1) What remedial action is being taken and by
whom? and (2) What results may be expected and when?
Programs can be managed most effectively only if managers
have a common framework from which to plan and to control the
schedules and costs of the work required to achieve the perform-
ance objectives. Managers at all levels need techniques at all
stages of a project to:
1. Define the work to be performed.
2. Develop realistic estimates based on the
resources planned to perform the work.
3. Determine where resources should be applied
to best achieve the time, cost, and performance
objectives.
.4. Identify developing problems in time to permit
corrective action.
The PERT technique in its entirety (time and cost) estab-
lishes a sound base for effective scheduling, costing, controlling
and replanning. It is flexible and can be tailored to the
specific work to be managed and the manager's need for information.
The most effective use of PERT requires the existence of
the following elements:
1. management policy and procedures for the
operation of the PERT system;
2. an orderly definition of the objectives in
the form of a product-oriented, work breakdown
structure;
3. a specification for each end-item subdivision
of the work-breakdown structure;
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4. an account code structure which establishes
number codes for the charging and summation of costs;
5. the work packages1 required to complete the
objectives;
6. a network flow plan that consists of the
activities and events and displays the interdependencies
and logical planned sequence of accomplishment to reach
the project objectives;
1
7. expected elapsed time estimates for activities
and identification of critical paths in the networks;
8. a schedule for the accomplishment of the work
efforts required to achieve project objectives that is
based on the network plan and resource availability;
9. cost estimates for the work packages associated
with the end-item subdivisions of the work breakdown
structure;
10. budgets keyed to work accomplishment and task
schedules;
11. analysis of the interrelated networks, schedules
and slack values as a basis for evaluation of project
status, forecast of overruns and underruns, and the identi-
fication of problem areas in time for management to take
corrective action;
12. summary reporting to meet the varying cost and
schedule information requirements for the different levels
of management;
t
'The work required to complete a specific job or process, such
as a report, a design, a documentation requirement or portion
thereof, a piece of hardware, or a service. A work package may
consist of one or more cost significant activities. The content
of a work package may be limited to the work which can be per-
formed by a single operating unit in an organization or may
require the contributing services of several operating units.
The overall responsibility for the work content of a work package
should be assigned to a single organization or responsible
individual. It is the lowest level of cost collection and is
represented by a charge number related to a single summary number.
In this way, the work package couples to the cost accounting
system through the charge number, and to the PERT network
through the beginning and ending event numbers of the package.
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13: continued forecasting through simulation of the
effects of both planned and actual decisions and actions
on the total project.
The program planning begins with the development of the
product-oriented, work-breakdown structure. The end itemsi
objectives of the structure are broken down into lower level
end items subdivision, then subdivided into the tasks required
to accomplish them. These tasks are called "work packages."
When the work packages associated with each individual end item
are identified, flow plans in the form of networks for the
corresponding parts of the program can be constructed. Network
activities are identified with the work packages they represent.
Separate cost estimates are not necessary for each activity in
the work package since this could result in excessive detail and
unrealistic accounting effort. Each work package will normally
be represented by one or more activities. The beginning and
ending of the work package can be'identified by the first and
last events in time associated with this work package. The
estimates are analyzed to eliminate unnecessary manpower costs
and premium payments for materials and services. For example,
the estimated monthly manpower requirements can be totaled by
skills and examined to minimize needless overtime and hiring
caused by unrealistic requirements. Therefore, manpower
redistribution is accomplished by the judicious scheduling of
slack activities when possible. The summarization of the work
packages into an overall plan can then be costed and compared
to a proposed schedule plan.
After a scheduled plan has been prepared, a firm cost
estimate is developed for each work package. This cost is
based on the resources required to perform the work package
within its scheduled time. Summarization up through the work
breakdown structure provides cost estimates for each end item
and for the total program.
The PERT system requires periodic evaluation of:
estimated, budgeted, and actual costs for each work
package;
estimated and actual time of each work package and
associated activities.
1
1The term "end item" is used to represent the hardware, documents,
services, equipment, or facilities that are deliverable to the
government or that are a commitment on the part of the supplier.
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This comparison significantly improves cost and schedule control
by establishing the cost and time status of the program and
identifying any potential cost overruns and schedule slippages
for work in process. Estimates of the cost and time needed to
complete work not yet started are also obtained in order to
predict future schedule slippages and future cost overruns.
This enables the identification of difficulties in the perform-
ance of critical work in sufficient time for corrective manage-
ment action.
The level of detail to which it is desirable to apply PERT
is largely a matter of judgment, and varies from program to
program, from one part of a program to another, and from the
proposal preparation stage to the execution stage of the same
project. Effective results from PERT depend on judicious
application in depth and breadth relative to the characteristics
of the program. Programs with significantly more complex
variables of performance, cost and schedules should receive a
broader and deeper application than other programs. Where
uncertainty of program output does not exist, other conventional
systems may be desirable.
Generally, managers at any level want only the information
from PERT which concerns their activities and responsibilities.
Reports to management may be presented graphically, orally,
written or in any combination of these three forms. In summariz-
ing information for display purposes at higher management levels,
the following guidelines should be observed:
1. Graphic displays are preferable to tabular
numerical values that require study and analysis.
2. All management levels require timely, clear and
concise summaries on the overall program status. Specific
levels need summaries of their specific areas of the
program.
3. The information should be predictive as well as
historical, and should be developed only to the level of
detail essential for apprising specific levels of manage-
ment.
Reports To Management
Periodic management reports make it possible for managers
to anticipate cost overruns and underruns. An example is the
Management Summary Report (Figure 1) which shows the overall
1A detailed discussion of reports is contained.
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LEVEL SUI:.'`Y li
S
SILE
1 /MISSILE
REPORTING ORC;N.
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TERM (SPAN): TOTAL 'ROJECI
CUT OFF DATE: 31 MAR 63
RELEASE DATE: 10 APR 63
C
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SCHEDULE
1
WORK PERFORMED TO DAT
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-
TOTALS AT COMPLETION
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A - ACTUAL COMYL DATE -
LATEST
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MOST
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L - LATEST COMPL DATE -- f
ACTUAL.
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10 MAY 64
LEVEL 2
22 OCT 63
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302DEV121
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INSTRUMENTATION
10 MAY 64
302DEV125
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TIME
NOW
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schedule and cost status of both the program as a whole and
of each of the major component items. It also'indicates the
;problem areas that require management attention.
The Report provides each manager with the following
information relative to his areas of responsibility:
the cost overrun or underrun to date
a measure o coperformance--)-,- through
a comparison of the planned costs with
actual costs for the work performed;
the projection of total cost overrun or
underrun which is obtained by comparing
a planned cost with the latest revised
estimate for the work segment or program;2
the amount of schedule slippage is indicated
by the difference between the established
schedule and the earliest scheduled com-
pletion date;
the identification of trouble spots -
that is, identification of those areas of
the program where the cost or time status
requires management attention.
1
a
i
Management Summary Reports are prepared for managers at
each level of the program structure. Each Management Summary
Report will normally be accompanied by a brief written analysis.
One report is prepared, for example, for the entire System
(level 0) based on the product-oriented work breakdown structure
shown in Figure 2. At level 1, a similar report is prepared for
each major element of the program, such as Facilities, Missile,
Training Program, Guidance, Systems Integration, etc. At the
next lower level, level 2, the major elements of the program are
subdivided again and a Management Summary Report is prepared for
each manager to whom responsibility is assigned. The Missile,
for example, is divided into elements such as Propulsion, Payload,
Missile Body, Instrumentation, etc. The Missile Body is further
subdivided and management reports are prepared at such lower
levels of the program as are considered necessary by the program
manager. In analyzing the status of a program, the responsible
manager would examine the reports for those end items where
trouble is indicated. He would then refer to the lower level
,reports as required to isolate the trouble. These reports present
back-up detail for all levels of management summary report in
various analytical formats.
2The planned cost and latest revised estimate will include approved
but "still-to-be" negotiated changes within fund limitations.
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WORK BRE/',l:DC'':i~ STRUCTURE, LEVEL 4
FACILITIES
MISSILE
NOSE
FAIRING
J
NING
PROGRAM
GUIDANCE SYSTEMS
INTEGRATION
MISSILE
BODY
INSTRUMEN-
TATION
FLIGHT'
CONTROLS
FIRST SECOND INTEf.STAGE E -` T
STAGE STAGE
WEAPON
SYSTEM
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 Approved For Release 264W-Si z CIA-RDP71 R0051 OA000200150009-9
Another management report is the Cost of Work Report
which shows the appropriate manager:
the planned costs to perform the work;
the actual costs to date;
the value of work performed to date;
the projection of costs to program completion,
based on actual costs to date and the latest
revised estimates for work not yet performed.
A comparison of the actual costs to date and the value of
work performed to date will show whether the work is being
performed at a cost which is greater or less than planned.
Figure 3 illustrates an example of the Cost of Work Report.
The Cost Outlook Report (Figure 4) and the Schedule
Outlook Report (Figure 5) show the trend of successive monthly
projections of the time and cost to complete the work. Each
month, new projections are obtained and these projections
provide new entries for the Cost and Schedule Outlook Reports.
The manager can obtain these reports for the total program
or any element of the work breakdown structure.. By relating
the trend of these projections to previous management decisions,
.the manager can observe the effects of these decisions on the
cost and schedule for the project. He can determine, on a month-
to-month basis, whether or not the actions taken to control
schedules and costs are producing the desired results.
The evaluation of these reports enables a manager to take
any of the following actions within his area of responsibility:
adjust the schedule of slack path activities
to minimize the need for overtime or additional
hiring;
redistribute funds from areas of underrun to
more critical areas;
revise the planned resources for work packages
by:
trading off interchangeable resources between
critical and slack path activities;
increasing or reducing the planned resources
for activities.
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Cos T OF WORT: REPORT
T 1 M E
NOW
L
PROGRAM {REPORTING O,:GN. CONTRACT NO. REPORT DATE: 3/31/63 E~
CMWS XYZ CORP 61-9865 TERM: PROGRAM LEVEL/SUMMARYi 1/MISSf LE CUT OFF DATE: 31 MAR 63'
RELEASE DATE: 10 APR 63
60, 000 T
PROJECTED OVERRUN $3.4M
SLIPPAGE 8.0 WEEKS
FIGURE 3.
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 COST OUTLOOK REPORT
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PROGRAM REPORTING ORGN. CONTRACT NO.
CMWS - AMO MISSILE XYZ CORP. I 61-9865
PRIOR YEARS ^ 3/63 6/63 9/63 12/63 3/64 6/64 * ,9/64 . 12/64
TERM (SPAN): TOTAL PQOG.
CUT OFF DATE: 31 MAR 63
RELEASE DATE: 10 APZ 63
SO Y@ A A Y A A V A A_ ~_ A iA A E @ A I P 1 I i V
61 62
SCHEDULE OUTLOOK REPORT
PROGRAM REPORTING ORGN.
CONTRACT NO.
REPORT DATES
CMWS AIO MISSILE
XYZ CORP.
61-9865
TERM (SPAN): TOTAL FROG.
CUT OFF DATE: 31 MAR 63
LEVEL/SUMMARY ITEM: )/MISSILE
RELEASE DATE: 10 APR 63
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YEARS
PRIOR
TARGET: 10 MAY 64
12 V A ~~n A n 0 A @? 1 A n A
61 62 3/63? 6/63 9/63 12/63 3/64 6/64 9/64
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revise network sequence or content by:
employing a greater or lesser amount of
concurrence in performing activities;
modifying the specifications or methods of
performing the work, thereby altering or
deleting or adding activities.
Since the actions that management takes to correct problems
often-involve revising plans, schedules, and budgets, provision
is made in PERT for necessary recycling through use of the
simulation process. The process of simulation. of alternative
courses of action can be carried out at any point in the manage-
ment process cycle by any level of management.
PERT is a management tool which, when used by a manager:
measures accomplishment against current
scheduled plans and objectives;
assists in identifying real time requirements
and provides limits for detailed scheduling;
fixes responsibility and assures continuity
of effort despite turnover in personnel, either
executives or operating personnel;
is a discipline which assures complete program
coverage and provides visibility from the total
program objective down to the lowest supporting
task;
spots potential future problem areas in time
for preventive action or for improvement;
uses the management by exception principle in
reporting to higher levels of management;
permits essential rescheduling and provides
periodic evaluation of plans;
provides capability for consideration of trade-
offs in funds, manpower, performance, and time
between critical and non-critical areas of
effort as a means of improving schedule and
cost situations for one or more programs;
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 Approved For Release 2004/ V,1 , RDP71 R00510A000200150009-9
makes it possible through its-simulation tech-
niques to evaluate and forecast outcome of
alternate plans before implementation. Simulates
and measures the effect of proposed changes in
scheduled plans and permits an early identification
of the most efficient plan when parallel approaches
are used;
provides historical data banks for the programs
which can be drawn upon for new programs.
Report To The Analyst
The standard computerized PERT Output Reports as a minimum
should include:
1. An Event Report--sorted by event number
sequence and expected date (chronological list of
events) sequence.
2. An Activity Report--sorted by ending event
sequence, beginning event sequence, expected date
(chronological list of activities) sequence and slack
sequence (negative to positive).
3. The Program/Project Status Report--provides
information similar to that of'the Management Summary
Report and contains more detail needed for the analyst.
Effective analysis of PERT data prior to presentation of
information to management is one of the keys to the successful
application of PERT. The computer program can do little pre-
analysis and computer outputs contain only raw data or partially
interpreted data. The function of the analyst is to analyze the
data, establish the status of the program, and present this
status to the program manager to enable him to accomplish his
decision-making function.
Some problems are of such a nature that they are not
apparent until reports are merged at the government or inte-
grating contractor level. Other problems, visible at the
contractor level, should be well documented in the Problem
Analysis Report which the contractor forwards to the government.
The complete array of reports are not required and the
appropriate level of reporting must be selected carefully.
For example, the Management Summary Report generates infor-
mation for end-item subdivisions and can be used by managers
at all levels.
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Cost management reporting involves costs generated in the
work package, the work package summed into its parent lowest
,level end-item subdivision, and automatic summarization up
'through the various work breakdown levels. In addition to end-
item reporting, there may be a. need for management to review
costs by function or organization. A Cost Category Status
Report meets this need by relating work packages or elements
of cost within work packages to the specific cost categories
identifying the function or organization segments. Summation
of such costs does not distort the work breakdown structure.
PERT does not require the contractor to develop a new cost
accumulation system although some modification may be necessary
to his current estimating and budgeting system. Indirect costs
are added to work packages when permitted by the existing
accounting procedure or required by contract. All other indirect
costs are prorated at the summary level. Data submitted to the
government should include all cost.
Cost Application And Control
The budgeting of costs by only calendar time period does
not provide an adequate base for measuring cost performance.
To provide a realistic base and accurate information low-cost,
well-defined, short-term. work packages are essential. Industry
has utilized such combinations for many years in efficient
dealings with its subcontractors.
The work package serves as the basic unit for:
1.
estimating costs,
2.
establishing budgets,
3.
accumulating actual costs,
and
4.
comparing actuals and estimates with budgets,
5.
writing the task description and
6.
authorization of work.
Of major importance to the accuracy of information is the size
of the work package. A valid work package cost variance can
be determined only when the work package has been completed, so
'that its total actual cost can be compared with its total
budgeted cost. In each report period, an estimate of value is
made of the completed portion of each in-process work package.
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This value is computed using the estimate-to-complete for the
work package. Since such estimates are not perfect, they
introduce some error. Short, work packages are advantageous
because at any particular reporting date:
1. a greater percentage of the work accomplished
is represented by completed work packages for which
valid cost variances can be established and
2. the estimates-to-complete errors will be smaller
since fewer in-process work packages are involved and the
estimates are made for smaller increments of future time.
Thus, the accuracy of cost performance is inversely related to
work package size. A target for most work packages is a maxi-
mum of $100,000 and three months, with clearly defined and
recognized tasks. Thus, the level of detail is a function of
the technical complexity, dollar value, significant milestones
and degree of accuracy desired by management.
Cost estimates loosely related to the specific work to be
performed can outwardly satisfy the requirements of PERT. By
counting organization personnel and multiplying by the scheduled
time duration of the work package, the manhours and cost repre-
sent only the payroll tb be covered and do not reflect the actual
manhours required to accomplish the work package. This practice
will render PERT or any other technique ineffective for generating
basic source data to measure cost and performance.
Program Control
Program control is exercised by Program Managers through
effective program appraisal and review reporting generally
labeled monthly progress reports. Two of the key elements of
such reporting are cost and schedule performance. What may
not be as widely understood is the futility of trying to judge
development performance (1) from only a cost performance report
or (2) from a cost report generated out of a traditional func-
tional structure and a schedule report generated out of a
product or end-item structure (PERT-time).
For example, if a contractor is having difficulty and in
reality overspending and behind schedule, the cost performance
report would show actual expenditure either below or equal to
planned expenditure and if far enough behind schedule traditional
accounting methods will show an underrun instead of an overrun.
Further, the schedule report would not readily disclose the
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R% E T
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behind schedule condition if (1) the network activities were
monitored at some aggregate work breakdown level or (2) reported
against a dynamic network or (3) reported-in a summary Gantt-
type structure. In such cases, particularly in development
programs, the final development article will very probably be
delivered late and the final program cost will exceed the budget.
Well-documented studies have drawn attention to the uncertain
nature of cost and performance predictions in CPFF weapons
systems. In the Peck and Scherer studyl actual development
costs averaged 220% higher than original estimate and ran as
high.as 600% on one of the twelve development programs studied.
The actual time exceeded time estimated by 36% on the average,
with one program as high as 230%. Of the 12 development pro-
grams, four were carried to production and production costs
exceeded original estimates by from two to 10 times. Other
studies conducted by Rand Corporation have produced similar
conclusions regarding overruns in.development programs.
The application of PERT in its entirety (time and cost)
provides a management system that directly relates schedule
performance to time performance for development efforts,
because information is generated out of a common base and
structure. For example in Figure 6, the comparison of actuals
to planned costs indicates a traditional $300,000 underrun.
However, a comparison of_ value of work to actual cost reveals
that $200,000 too much was spent and that actually a $200,000
overrun exists. If, in fact, the contractor was underspent by
,$300,000 then the time span between the planned and actual costs
indicates a nine-month schedule slip. Since time lost on a develop-
ment program represents work not accomplished, then additional
costs will be incurred to accomplish that work. The program,
as a result, will very likely suffer a nine-month slip and an
overrun. The estimate to complete extension of the actual cost
curve indicates a $200,000 overrun and a nine-month schedule slip.
PERT in its entirety provides (1) relevant information to
the Program Manager so that the Manager can exercise effective
control, (2) provides a common logic to both industry and govern-
ment, thus facilitating communication and performance evaluation
and (3) provides a meaningful "rate of return" measure via the
value of work performed.
'See Merton J. Peck & Frederick M. Scherer The Weapons Acquisition
Process Harvard University, 1962.
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 Approved For Release 2004/ 1A-RDP71 R0051 OA000200150009-9
COST OF WORK REPORT
PROGRAM `REPORTING ORGN.j CONTRACT NO.. I REPORT DATE: 3/31/63 J.i
CMWS XYZ CORP 61-9865 TERM: PROGRAM !I
CUT OFF DATE: 31 MAR 63 l
RELEASE DATE: 10 APR 63
-moo ?V'..._.,.._ e
o as 0 a~i?1 u~~ o O goal 911144 Al
?1961 1962 1963 1964 1965 1966
TIME
FIGURE 6.
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Reporting Frequency"
Due consideration must be given to the reporting interval
or frequency by operating management. A bi-weekly reporting
cycle is quite common, although weekly and monthly cycles are
often used. The performing levels and middle managers may
require more frequent reporting than top level management.
.The frequency of reporting may be influenced by the following:
requirements of the customer;
program duration;
magnitude and complexity of.the program;
criticality and dynamic nature of the
program;
time required for data processing;
degree of detail in the report;
status of this program in relation to
other priority programs.
Progress reports must be timely in relation to the cut-off
date used in preparing reports. An indication of an approaching
problem today is more valuable than a detailed blueprint of
the situation weeks later.
1
An information or management center can serve a variety of
purposes, such as a display room for program status and outlook,
'a conference room, a means of keeping participants aware of the
need for the review and control functions of management, or
ideally, as a complete coordination, communication, and
evaluation center for program managers. Management in govern-
ment and industry typically has found it desirable to hold weekly
briefings. Higher levels of review are conducted on a monthly
and on-call basis.
Presentations in the information center should be timely
and concise and should employ the most efficient communication
techniques. The various levels of managers responsible for the
work should explain the significance of any change from plan
and its effects on the ultimate objective. It is their respon-
sibility to provide appropriate and meaningful information for
management review and decisions by distilling information
transferred up from working levels of management.
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Visual aids in the form of PERT outlook reports, or similar
briefing charts, films, and other appropriate materials should be
utilized during the briefings. This serves to illustrate problem
areas quickly and thus avoid lengthy discussions concerning the
definition and relationships of these problems. Physical progress
of important installations, assemblies, etc., can be demonstrated
by weekly photographs. On other charts, color codes or other
related devices should be used to highlight any planned or scheduled
event which may potentially delay or impede the program. This
might include such things as labor, material, and funding shortages,
as well as technical difficulties.
Regularly scheduled meetings conducted within an information
center provide continuous effective communication. As a meeting
place for responsible managers, their key assistants, and
representatives of higher and lateral authority, the information
center can provide an'effective means for periodic transfer of
information to assure program integration. It can serve as the
focal point where management can bring together results from
channels of reporting, key participants, and higher levels of
management for program review. Executive attention can be drawn
to actual and potential problems, alternative or recommended
solutions, policy decisions, problems of coordination, or any
othel- situation which requires higher level management decision
or action. Major problems requiring action on the part of higher
or lateral authority can be identified and communicated to those
involved. On-the-spot decisions can be made and communicated to
those responsible.
Decisions and observation of the program manager and other
key.personnel are recorded and subsequently transmitted to those
responsible for action. The immediate objective of these meetings
is to correlate all efforts and keep them moving toward the program
objective, thus assuring that effective and efficient control over
the program will be maintained.
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25X1
25X1
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Distribution: (17 Oct 68)
Cys. 1&2 - PPB
Cy? 3 - CtDDS&T
25X1 Cy. 4 - Ch/P&P Br
Cy. 5 - Ch Budget Br
Cy. 6 -
Cy. 7 - OSA
Cyr. A 8&9 - DDS&T Registry
Cy. 10 - Budget Br Chrono
25X1
O/DD$&T/Comptj
(17 Oct 68)
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