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    Progress in Improving
  Project Management at the
    Department of Energy
                2001 Assessment
NOTICE: The project that is the subject of this report was approved by the
Governing Board of the National Research Council, whose members are drawn
from the councils of the National Academy of Sciences, the National Academy of
Engineering, and the Institute of Medicine. The members of the committee re-
sponsible for the report were chosen for their special competences and with
regard for appropriate balance.
This study was funded by the U.S. Department of Energy, Contract Number DE-
AM01-99PO8006. All opinions, findings, conclusions, and recommendations
expressed herein are those of the authors and do not necessarily reflect the views
of the Department of Energy.
Additional copies of this report are available for sale from National Academy
Press, 2101 Constitution Avenue, N.W., Lockbox 285, Washington, DC 20055;
(800) 624-6242 or (202) 334-3313 (in the Washington metropolitan area); also
available online at <http://www.nap.edu>.
The National Academy of Engineering was established in 1964, under the charter of the
National Academy of Sciences, as a parallel organization of outstanding engineers. It is
autonomous in its administration and in the selection of its members, sharing with the
National Academy of Sciences the responsibility for advising the federal government.
The National Academy of Engineering also sponsors engineering programs aimed at
meeting national needs, encourages education and research, and recognizes the superior
achievements of engineers. Dr. Wm. A. Wulf is president of the National Academy of
Engineering.
The Institute of Medicine was established in 1970 by the National Academy of Sciences
to secure the services of eminent members of appropriate professions in the examination
of policy matters pertaining to the health of the public. The Institute acts under the
responsibility given to the National Academy of Sciences by its congressional charter to
be an adviser to the federal government and, upon its own initiative, to identify issues of
medical care, research, and education. Dr. Kenneth I. Shine is president of the Institute of
Medicine.
The National Research Council was organized by the National Academy of Sciences in
1916 to associate the broad community of science and technology with the Academy’s
purposes of furthering knowledge and advising the federal government. Functioning in
accordance with general policies determined by the Academy, the Council has become the
principal operating agency of both the National Academy of Sciences and the National
Academy of Engineering in providing services to the government, the public, and the
scientific and engineering communities. The Council is administered jointly by both
Academies and the Institute of Medicine. Dr. Bruce M. Alberts and Dr. Wm. A. Wulf are
chairman and vice chairman, respectively, of the National Research Council.
          COMMITTEE FOR OVERSIGHT AND ASSESSMENT OF
        U.S. DEPARTMENT OF ENERGY PROJECT MANAGEMENT
KENNETH F. REINSCHMIDT, Chair, Texas A&M University, College
    Station
DON JEFFREY BOSTOCK, Lockheed Martin Energy Systems (retired), Oak
    Ridge, Tennessee
DONALD A. BRAND, Pacific Gas and Electric company (retired), Novato,
    California
ALLAN V. BURMAN, Jefferson Solutions, Washington, D.C.
LLOYD A. DUSCHA, U.S. Army Corps of Engineers (retired), Reston,
    Virginia
G. BRIAN ESTES, consulting engineer, Williamsburg, Virginia
DAVID N. FORD, Texas A&M University, College Station
G. EDWARD GIBSON, University of Texas, Austin
PAUL H. GILBERT, Parsons, Brinckerhoff, Quade, and Douglas, Seattle,
    Washington
THEODORE C. KENNEDY, BE&K, Inc., Birmingham, Alabama
MICHAEL A. PRICE, Project Management Institute, Newtown Square,
    Pennsylvania
Staff
RICHARD G. LITTLE, Director, Board on Infrastructure and the Constructed
   Environment
MICHAEL D. COHN, Project Officer
KIMBERLY GOLDBERG, Financial Associate
NICOLE E. LONGSHORE, Project Assistant
                                   iv
              BOARD ON INFRASTRUCTURE AND THE
                 CONSTRUCTED ENVIRONMENT
RICHARD WRIGHT, Chair, National Institute of Standards and Technology
   (retired), Gaithersburg, Maryland
MASOUD AMIN, Electric Power Research Institute, Palo Alto, California
GREGORY BAECHER, University of Maryland, College Park
JONATHAN BARNETT, urban planner, Washington, D.C.
MAX BOND, Davis, Brody, Bond, LLP, New York, New York
MARY COMERIO, University of California, Berkeley
PAUL H. GILBERT, Parsons, Brinckerhoff, Quade, and Douglas, Seattle,
   Washington
YACOV HAIMES, University of Virginia, Charlottesville
HENRY HATCH, U.S. Army Corps of Engineers (retired), Oakton, Virginia
JEREMY ISENBERG, Weidlinger Associates, New York, New York
SUE McNEIL, University of Illinois, Chicago
DOUGLAS SARNO, The Perspectives Group, Inc., Alexandria, Virginia
WILL SECRE, Masterbuilders, Inc., Cleveland, Ohio
DAVID SKIVEN, General Motors Corporation, Detroit, Michigan
DEAN STEPHAN, Charles Pankow Builders (retired), Laguna Beach,
   California
ERIC TEICHOLZ, Graphic Systems, Inc., Cambridge, Massachusetts
ZOFIA ZAGER, County of Fairfax, Fairfax, Virginia
CRAIG ZIMRING, Georgia Institute of Technology, Atlanta
Staff
RICHARD G. LITTLE, Director, Board on Infrastructure and the Constructed
   Environment
LYNDA STANLEY, Executive Director, Federal Facilities Council
MICHAEL D. COHN, Project Officer
KIMBERLY GOLDBERG, Administrative Associate
NICOLE E. LONGSHORE, Project Assistant
JASON DREISBACH, Research Assistant
                                    v
            Acknowledgment of Reviewers
     This report has been reviewed in draft form by individuals chosen for their
diverse perspectives and technical expertise, in accordance with procedures ap-
proved by the NRC’s Report Review Committee. The purpose of this indepen-
dent review is to provide candid and critical comments that will assist the institu-
tion in making its published report as sound as possible and to ensure that the
report meets institutional standards for objectivity, evidence, and responsiveness
to the study charge. The review comments and draft manuscript remain confiden-
tial to protect the integrity of the deliberative process. We wish to thank the
following individuals for their review of this report:
     Although the reviewers listed above have provided many constructive com-
ments and suggestions, they were not asked to endorse the conclusions or recom-
mendations, nor did they see the final draft of the report before its release. The
review of this report was overseen by Charles B. Duke (NAE), Xerox Research
and Technology. Appointed by the National Research Council, he was respon-
sible for making certain that an independent examination of this report was
carried out in accordance with institutional procedures and that all review com-
ments were carefully considered. Responsibility for the final content of this re-
port rests entirely with the authoring committee and the institution.
                                        vii
                               Contents
EXECUTIVE SUMMARY 1
1   INTRODUCTION                                      11
    Background, 11
    Scope of Work, 12
    Organization of the Report, 13
    References, 14
2   OVERARCHING ISSUES                                15
    Introduction, 15
    Involvement of Senior Management, 16
    Strategic Planning, 17
    Owner’s Role, 18
    Process Improvement, 19
    Organizational Structure and Responsibility, 19
    References, 21
3   FRONT-END PLANNING                                22
    Introduction, 22
    Assessment of Front-End Planning in DOE, 24
    Management Review, 29
    Front-End Planning Metrics, 30
                                      ix
x                                                                CONTENTS
4   RISK MANAGEMENT                                                       33
    Introduction, 33
    Risk Identification, 34
    Risk Analysis and Evaluation, 35
    Risk Response, 41
    Allocation of Risk and Contracting, 44
    Active Risk Management, 45
    Ongoing Project Risks, 46
    Development of Risk Management Excellence, 47
    Program Risks Across Multiple Projects, 48
    References, 49
6   INDEPENDENT REVIEWS                                                   57
    Introduction, 57
    Documentation of Review Procedures, 58
    Review Team Qualifications, 59
    Review Requirements, 59
    Review Evaluation, 60
    Project Review Management System, 61
    Findings and Recommendations, 61
    References, 63
APPENDIXES
A   Biographies of Committee Members, 89
B   Committee Fact Finding and Briefing Activities Through August 2001
       and Project Data Request in March 2001, 96
C   Phase II Report Findings and Recommendations, 101
D   Letter Report of January 2000, 108
E   Statistical Process Control with EVMS Data, 120
F   Acronyms and Abbreviations, 126
                      Executive Summary
                                        1
2                         PROGRESS IN IMPROVING PROJECT MANAGEMENT AT DOE
hensive project management system with clear definition of the specific roles and
responsibilities of all parties associated with a project.
     As noted in the interim letter report, the department has taken a number of
positive steps since the Phase II report. On June 25, 1999, subsequent to the
release of that report, the deputy secretary, as the DOE chief operating officer,
issued a memorandum announcing a project management reform initiative. This
memorandum directed a number of actions to be taken to improve project man-
agement capability. These included the formation of the Office of Engineering
and Construction Management (OECM) in the office of the chief financial officer
(CFO) and the formation and strengthening of project management support offices
(PMSOs) in the three major program secretarial offices (PSOs). On January 3,
2000, the deputy secretary issued an interim instruction to serve as policy guid-
ance on critical decisions by acquisition executives (AEs) and the Energy Sys-
tems Acquisition Advisory Board (ESAAB) and on the conduct of corporate-
level performance reviews. On June 10, 2000, DOE issued Policy P413.1, which
addresses project management accountability, the establishment of project man-
agement organizations, project management tools, and training of personnel.
DOE Order O413.3 was issued October 13, 2000, to implement the DOE policy
document. O413.3 covered department policies on project management; pro-
vision for project engineering and design (PED) funding for preconstruction
planning; reestablishment of the ESAABs; and other matters related to the man-
agement and oversight of DOE projects. Finally, the Program and Project Man-
agement (PPM) manual and a companion volume, Project Management Prac-
tices (PMP), were released in draft form in October 2000.
     The body of this report addresses certain specific areas that the committee
believes needed greater definition and follow-up since the Phase II report. Not all
the findings and recommendations in the Phase II report are repeated in the body
of this report, although the committee continues to endorse them, so this report
should be used in conjunction with the Phase II report.
                          OVERARCHING ISSUES
     The new secretary of energy, the deputy secretary, and the CFO were briefed
on the recommendations of the Phase II report (NRC, 1999) and the 2001 letter
report (NRC, 2001). All of these executives expressed their intention to gain
control over DOE projects and to change the prevalent project management cul-
ture within DOE and its contractors through active management attention and
oversight. Although DOE senior management has expressed the intent to achieve
early results, it is too soon to see any effects from these management changes, as
the new deputy secretary was confirmed only in June 2001. Accordingly, any
policies and practices put in place by the new management team at DOE lie
outside the scope of the present report, and their assessment must be deferred to
EXECUTIVE SUMMARY                                                                 3
a later time. Nevertheless, the committee is optimistic that if these stated inten-
tions are carried through, there can be positive change at DOE.
     The committee believes the efforts of the deputy secretary, the CFO, OECM,
and the PMSOs have unquestionably raised awareness of the importance of good
project management within the department. Briefings by DOE officials indicate
that new steps are being undertaken at all levels of the department. This is en-
couraging, and if the efforts continue, they can form the foundation of a coherent
project management approach for the department. By and large, these initiatives
are considered by the committee to be steps toward improving project perfor-
mance. However, change has been inordinately slow, and the committee has
found no evidence that DOE project management practice and performance in the
field have actually improved.
     The committee believes that the PMSOs in the Environmental Management
(EM), National Nuclear Security Agency (NNSA), and Office of Science (SC)
PSOs are having a positive influence on project management in their programs.
The committee recognizes the need for tailoring project management programs to
the different PSO mission requirements. However, some PSOs are improving
faster than others, and progress could be accelerated by stronger central oversight
and support using OECM as a unifying organization to assist the PMSOs and the
PSO projects and to validate the results.
     Department-wide, recognition of project management deficiencies and of the
effectiveness of initiatives for improvement has been inconsistent. The PMSO in
NNSA has been particularly active since formation of the agency. Excessive
administrative impediments and time required to get the OECM up and running,
along with the inadequate resources assigned to it, are symptoms of cultural
resistance to change and the lack of a sense of urgency. The committee is aware
that not all of the recommendations in the Phase II report could have been accom-
plished in the 2 years since it was released, but it does believe that much more
progress could have been made. The committee recommends that OECM should
be budgeted, staffed, and empowered to become the center of excellence in
project management and the central manager for oversight and approval of all
capital projects in DOE.
     DOE continues to rely heavily on contractors, not only for the management
of projects, which is to be expected, but also for project justification and defini-
tion of scope. DOE does not directly manage projects, unless the contractor is
simply working on a time and materials basis, as do some management and
operations (M&O) contractors. Although many projects are managed success-
fully, especially those identified as outstanding examples in the OECM October
2000 project management workshop awards, DOE is not in control of many of its
projects and in some cases has virtually abdicated its role of owner in project
oversight and management of contracts and contractors. As stated in the Phase II
report, DOE needs to become proficient in the role of owner; and DOE project
4                         PROGRESS IN IMPROVING PROJECT MANAGEMENT AT DOE
                          FRONT-END PLANNING
     The committee has received no evidence that new projects are getting off to
a better start than before the Phase II report was issued. The establishment of
PED funding and the development of the performance baseline at 25 to 30 per-
cent design completion are positive steps, but the committee’s review of new
projects authorized in FY2000 and FY2001 uncovered little documentation of
mission need, strategic requirements, scope justification, risk assessment, and the
other early steps that are necessary for project success. Industry studies consis-
tently correlate project performance with the quality of front-end planning (CII,
2000). The committee reiterates the Phase II finding that improvement in project
performance will require improvement in the front-end planning process, and that
any improvement in front-end planning will require positive, aggressive action
by all responsible parties. It should be noted that all the projects reviewed by or
presented to the committee were initiated prior to the activation of the OECM, the
establishment of the PMSOs, and the issuance of O413.3. Therefore, this nega-
tive assessment does not mean that these initiatives are ineffective. What it does
indicate, based on the evidence provided to the committee, is that the DOE
process has not noticeably improved since the 1999 Phase II report and probably
will not improve until the reforms have been implemented and have become
effective.
     The committee recommends that OECM assure that all program offices have
a documented front-end planning process that meets the intent of O413.3, and
that the information be used as input for Energy Systems Acquisition Advisory
Boards (ESAABs) and ESAAB-equivalent readiness reviews. The outcomes of
these reviews should be documented and used to assess project performance and
EXECUTIVE SUMMARY                                                                  5
                            RISK MANAGEMENT
     Risk management is probably the most difficult aspect of project manage-
ment, and for many DOE projects it is also the most critical. Discussions with
DOE project managers have revealed that DOE has not yet established effective
risk-management methodologies or systems, and managers lack the tools and
training to adequately address risk management for projects with high levels of
uncertainty. The acquisition risk management (ARM) pilot program by the DOE
Contract Reform Office is beginning to address many risk management issues
and has defined three iterative phases of risk management for DOE projects:
    1. Risk identification,
    2. Risk analysis and evaluation, and
    3. Risk response.
     The committee believes that all three phases of risk management are critical
to effective project management at DOE. The committee also believes that DOE
should undertake a department-wide assessment of risks for ongoing projects and
adopt procedures for program-wide management of contingencies and manage-
ment reserves.
     The committee has found that there is no consistent system for evaluating the
relative risks of projects with respect to scope, cost, or duration, which means that
the deputy secretary, the CFO, and the PSO managers have no objective basis for
knowing which projects are riskier (and therefore require more management
attention) than others. Probability analysis has been used and misused as a tool
for risk analysis. However, the failure to accurately identify the root causes of
risk, including technical, environmental, and human factors, and the potential for
common mode failure has led to underestimating risks on many DOE projects.
The committee recommends that DOE should identify or develop personnel with
the ability to perform qualitative and quantitative risk assessments and assign
6                          PROGRESS IN IMPROVING PROJECT MANAGEMENT AT DOE
                          INDEPENDENT REVIEWS
     The committee finds that DOE has made substantial progress in the imple-
mentation of reviews and resultant corrective action plans and in the formaliza-
tion and institutionalization of the review process. It continues to recommend the
use of formalized assessments of management, scope, cost, and schedule at
appropriate stages—from determining need for the project to determining readi-
ness for construction—as well as regular performance reviews.
     The committee examined the internal review processes documented by the
three PMSOs and noted some inconsistency in general approach and the degree
of recent process improvement. It strongly endorses a department-wide manual to
achieve consistency in process, nomenclature, and reporting. Department-wide
procedures would allow the lessons learned in reviews to gain broader recogni-
tion and would facilitate the ability of reviewers to participate in reviews in
multiple organizations. Any differences or distinct features pertinent to a particu-
lar program could be identified and articulated in the text or in appendixes.
     The committee is concerned that mandatory review for projects between
$5 million and $20 million total project cost may be consuming too many
resources and diverting too much management attention relative to the value it
adds. The committee understands that although O413.3 refers to the $5 million
level, OECM intends to waive the requirement if it believes a review would not
be cost effective.
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