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Executive Summary This report is the second in a series of three annual assessments of project management at the U.S. Department of Energy (DOE). The first annual report assessed progress through mid-2001 (NRC, 2001b), and this report continues the assessment through October 2002. The assessments are being made by the National Research Council's (NRC's) Committee for Oversight and Assessment of U.S. Department of Energy Project Management. The committee has also produced two interim letter reports (NRC, 2001a, 2002a) and the proceedings of a govern- ment/industry forum on the owner's role in project management and preproject planning (NRC, 2002b). All of these reports follow up on the recommendations made by a predecessor committee in its report Improving Project Management in the Department of Energy (NRC, 1999~. Although the detailed discussion, find- ings, and recommendations in the previous reports are not repeated in this report, the committee continues to endorse them, and they should be read in conjunction with this report. The reader who has persevered through this series of publications will have observed that it becomes more and more difficult to find new things to say about project management at the DOE. Chapter 2 discusses some fundamental issues in DOE's core competencies that are identified in this and previous reports. The fundamental best practices cited as the benchmarks in the 1999 report have not changed, and the committee's primary emphasis remains the importance of learn- ing the fundamentals of project management good practice and applying them consistently. Since the current committee was established, there have been a number of senior management and other personnel changes at the DOE, as well as changes 1
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2 PROGRESS IN IMPROVING PROJECT MANAGEMENT AT THE DOE in DOE's approach to project management. For the most part, the committee applauds these new directions in project management. The committee recom- mends that the project management changes in DOE Order O 413.3, Program and Project Management for the Acquisition of Capital Assets, in the draft Program and Project Management manual (DOE, 2000, 2002) and in other recent directives and memoranda be continued until they have had time to be effective. The committee's specific findings and recommendations regarding these docu- ments and procedures are given in Chapter 3 of this report. The summary message here is simple: DOE should persevere in its efforts to make project management a core competency and to achieve excellence in project performance. The com- mittee recognizes that the time required for cultural change in the DOE may be longer than that required in industrial companies, where market forces drive improvement. DOE needs to maintain the project management policies and procedures it has defined long enough to convince both DOE and contractor personnel that the changes are permanent. This report describes the progress the committee has observed and the issues that need further efforts to make DOE a leading project management organization. Since the earliest report (NRC, 1999), NRC committees have been con- cerned not only that DOE is doing projects right but also that it is doing the right projects. Perhaps the most important single point that the committee has stressed, and continues to stress, is the absolute need for DOE management to develop the strategic plans that define the need for capital acquisition projects. Although the committee's reports, this one included, have dealt with many specific issues affecting project success (e.g., front-end planning, risk management, and con- tracting strategies), the overriding critical success factor for projects is to assure that projects are essential to and aligned with the DOE's mission (i.e., that the right portfolio of projects is selected). DOE is perhaps improving, as indicated by the recent establishment of the Office of Management and Budget Evaluation (OMBE), and there has been some progress in the National Nuclear Security Administration (NNSA) with the integrated construction project plan (ICPP) and, more recently, in the Office of Environmental Management (EM), but the depart- ment is still lacking a continuous and strong portfolio planning and management process. Portfolio planning is to programs as project planning is to projects, at a higher level. With a functional portfolio management process, all echelons in DOE would know what projects to do and the priorities given to them. At least as important, a portfolio management process would implicitly define what projects not to do and would help to insulate DOE from the political pressures brought by would-be contractors and other economic beneficiaries to engage in unnecessary and unwarranted projects. The committee also emphasizes the role of DOE's senior management in inculcating the belief throughout the organization that projects can and will be managed effectively. The instrument in the hands of senior management that will lead to better project management is the Energy Systems Acquisition Advisory
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EXECUTIVE SUMMARY 3 Board (ESAAB) critical decision process. Chapter 7 discusses some means by which DOE management can determine whether even a first-of-a-kind project is ready to proceed. The role of senior managers in shaping DOE's project manage- ment culture is discussed further in Chapter 6 of this report. The committee finds that progress has been made in this area, but additional work is needed to achieve the desired cultural changes. The committee notes that NNSA in particular has made progress in defining its mission and developing a strategic direction. EM, since completion of its top- to-bottom review, has made considerable progress in recognizing that its projects are manageable an important first step and a prerequisite to any improvement in project management. The Office of Science (SC), too, recognizes the need for improvement of its project management. Additionally, the formation of OMBE has strengthened the strategic oversight of all DOE programs and projects and has justified the placement of the Office of Engineering and Construction Management (OECM) in the Office of the Chief Financial Officer (CFO). As recommended by the 1999 NRC report, there is now a headquarters organization with some responsibility for project management agency-wide. The committee also applauds DOE's steps to recognize improvements in project management (Chapter 10~. The committee believes that DOE has made some progress toward satisfying the recommendation made in the 1999 report namely, that DOE needs to be doing the right projects as well as doing projects right. DOE policies and proce- dures, at least, emphasize the federal government's role in deciding which projects to do, how to select projects from the large number of proposals, and how to manage the portfolio of projects, leaving the details of how to do them to the contractors. DOE expends about 95 percent of its funds through contractors. If this portion were reduced to 90 percent, it would be a reduction of about 5 percent for the contractors but an increase of 100 percent for DOE. Clearly, this is not going to happen; DOE will continue to remain dependent on contractors to run its facilities and its projects. Therefore, the committee, in the past and in Chapter 5 and Appendix D of this report, has strongly emphasized the owner's role in project management, by which DOE, as the custodian of public funds, should not abrogate to contractors project definition, acquisition strategy decisions, and project oversight. To effectively fulfill its project management responsibilities, DOE needs to expand its investment in human capital to develop a corps of qualified project managers commensurate with the value and complexity of its projects. The committee believes that an appropriate role for DOE as owner has yet to be completely defined. The DOE, by its own analysis (DOE Contract Reform and Privatization Project Office, 2001), draws on an ever-shrinking pool of contractors to accom- plish its work. DOE has stressed contractor competition as one of the means for overcoming its lack of project management experience. Where competitive bid-
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4 PROGRESS IN IMPROVING PROJECT MANAGEMENT AT THE DOE ding is determined to be the preferred method of procurement, DOE should take steps to obtain adequate numbers of bids if there are qualified contractors capable of undertaking the projects. However, there is a shrinking pool of qualified contractors, and this trend is alarming. As real competition declines, the need for knowledgeable, trained, professional federal project managers inside DOE increases. The apparent shortage of such personnel in DOE has been identified before and is addressed in Chapter 4, on human capital. Further findings and recommendations on acquisition and contracting are discussed in Chapter 9. This report continues to offer recommendations regarding project manage- ment methodology and project oversight, which are listed at the end of each chapter, where the relevant supporting information is presented. (See, in Chap- ter 1, "Organization of the Report," for an outline of the chapters where these specific recommendations are made.) These are essential tools, but they will be effective only insofar as there are competent DOE managers with the will to use them. The committee's view is that a corrective course has been set from the bridge, but it is still too early to tell if the ship is responding. REFERENCES DOE (Department of Energy). 2000. Program and Project Management for the Acquisition of Capital Assets (Order O 413.3). Washington, D.C.: Department of Energy. DOE Contract Reform and Privatization Project Office. 2001. Analysis of the DOE Contractor Base: Readiness, Willingness, Profitability, and Trends: A Focus on the Environmental Management Program. Washington D.C.: Department of Energy. DOE. 2002. Program and Project Management. Draft. Washington, D.C.: Department of Energy. NRC (National Research Council). 1999. Improving Project Management in the Department of Energy. Washington, D.C.: National Academy Press. NRC. 2001a. Improved Project Management in the Department of Energy. Letter report, January. Washington, D.C.: National Academy Press. NRC. 2001b. Progress in Improving Project Management at the Department of Energy, 2001 Assess- ment. Washington, D.C.: National Academy Press. NRC. 2002a. Progress in Improving Project Management at the Department of Energy, 2002 Interim Assessment. Letter report, May. Washington, D.C.: National Academy Press. NRC.2002b. Proceedings of the Government/Industry Forum: The Owner's Role in Project Manage- ment and Preproject Planning. Washington, D.C.: National Academy Press.