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Core Competencies INTRODUCTION A core competency is a capability without which an organization will fail to meet all or part of its mission requirements. Bruce M. Carnes, Director of the Office of Management and Budget Evaluation (OMBE) and Chief Financial Officer (CFO) for DOE, stated in briefings to the committee, "A major task of the Department of Energy is to manage contracts and projects to complete its diverse missions." This observation was echoed by Robert G. Card, DOE Under Secre- tary, at the November government/industry forum when he stated "DOE's core competency is big projects" (NRC, 2002~. The committee has also noted that project management needs to be a core competency of DOE as it strives to improve the performance of projects and achieve its stated mission.) AREAS OF PROGRESS Based on the information obtained in the past year of reviewing DOE's project management processes and programs, the committee observes that many actions in various sections of the department are supporting an improvement in project management. Change throughout DOE to improve project management, {Although the detailed discussion, findings, and recommendations in the committee's previous reports (NRC, 1999; 2001a; 2001b; 2002b) are not repeated in this report, the committee continues to endorse them, and they should be read in conjunction with this report. 9

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10 PROGRESS IN IMPROVING PROJECT MANAGEMENT AT THE DOE as with change in any large organization, will take time and persistent manage- ment effort. Resistance to organizational change is a common human trait. In DOE there is a tendency to wait for policies and procedures to change again in the next administration. The committee feels that it is imperative for DOE to con- tinue with the project management initiatives it has begun in order to maintain positive momentum within the organization. Organizational Issues The committee finds that the Office of Program Analysis and Evaluation (PA&E) and the Office of Engineering and Construction Management (OECM) are beginning to perform a vital function by enabling senior DOE management to determine that the selected projects are essential to and aligned with the depart- ment's mission (i.e., that they are the right projects) and that an appropriate approach for their development has been planned. The consistent management direction provided by OMBE has been a key factor in overcoming cultural resis- tance to increasing project management system discipline and accountability. Directives from the deputy secretary on November 15, 2001, Project Acquisition Plans and Critical Decisions; from the Director of OMBE on February 14, 2002, Mission Need Justification and Project Acquisitions Plans; and from the Director of the Office of Science on May 23, 2002, Office of Science Direction on Project Management, as well as the project management practices described in the NNSA report to Congress on its organization and operations, dated February 25, 2002, and the February 4, 2002, EM top-to-bottom program review are lending cred- ibility to the seriousness of senior department management regarding the issue of project management. This seriousness is also evident in the actions of the Project Management Support Offices (PMSOs) in developing and implementing pro- cesses and plans to support project management in their respective areas. Policies and Procedures DOE convened workshops in May 2001 and March 2002 and held other regional meetings at which it solicited input from personnel in the field and headquarters for refinement of DOE Order O 413.3, Program and Project Man- agement for the Acquisition of Capital Assets, and the draft Program and Project Management (PPM) manual (DOE, 2000, 2002~. The committee believes that the June 2002 draft of the PPM manual incorporates feedback received in the review process and was a significant improvement over previous versions. The requirement of the Energy System Acquisition Advisory Boards (ESAABs) at the highest levels within DOE for approval of projects and management efforts at critical decision points is consistent with the need to ensure that the right projects are being executed and that they are being planned and managed in an effective manner. An acquisition planning process required in O 413.3 has been formal-

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CORE COMPETENCIES 11 ized and is being improved through iterative reviews, and the use of innovative contracting methods appears to be increasing. Management Tools An initial version of the DOE Project Analysis and Reporting System (PARS) has been implemented and is being refined. PARS is incorporating earned value management system (EVMS) data, which are being required on all projects over $5 million. Some Web-based training courses on the application of EVMS have been developed for use while a more detailed training program is being created. Human Capital The draft Project Manager Career Development Plan (PMCDP) includes a comprehensive means for documenting and validating training requirements. Project management conferences were held by OECM to recognize project man- agement successes and make them more visible. Presentations on actions that contributed to the success of award-winning projects validate and reinforce the principles contained in O 413.3. AREAS OF CONCERN Consistency and Continuity The committee continues to have several areas of concern regarding DOE's ability to establish and maintain project management as a core competency. Although the committee is encouraged to observe many well-planned and man- aged projects that are viewed as successful, it is concerned about an apparent lack of consistency. The committee has observed recently initiated projects that are poorly planned and for which it is obvious that all of the requirements of O 413.3 have not been met. The committee has reviewed acquisition plans that are incomplete and others that have project scopes that differ from those approved at critical decision zero (approval of mission need, CD-0. Some projects have provided no project data to input into PARS, and they are not using EVMS properly or even at all. Changes in project scope have not been recognized quickly, and many projects are rebaselined, thus obscuring project management problems. These failings may be due to lack of experienced personnel, lack of training, disagreement with procedures, lack of management attention, or the inertia that works against cultural change in a large organization. The committee believes that the measures for process improvement, if applied consistently over time, will overcome these remaining problems. Project managers at all levels are likely to be cynical about the importance of project management policies and procedures if DOE is not doing the projects that

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2 PROGRESS IN IMPROVING PROJECT MANAGEMENT AT THE DOE have been selected to start or continue based on a rigorous, fair, and tough, but transparent, strategic planning process. Without a stronger ongoing strategic planning process, project managers will continue to have inconsistent responses to the department's need for high-quality project management procedures, and conformance to enhanced project management policies and procedures will prob- ably continue to be sporadic. The committee is also concerned about the long-term continuity of project management initiatives currently being undertaken within DOE. The political reality is that key DOE personnel change quite often. To inculcate these initia- tives into the organization over the long term, an understanding of and a commit- ment to the idea that project management is a core competency needs to be institutionalized at all levels of the organization. This should be emphasized for the federal workforce as well as for the contractors. There is evidence that project management excellence can be accomplished at DOE through the leader- ship of senior management, investment in human capital (e.g., effective training and career guidance), and accountability for project performance at all levels. For DOE to sustain project management as a core competency, its processes and culture need to embrace project management as a key to organizational success. The committee believes that the two most important things that DOE execu- tive management can do are the following: (1) institutionalize or embed project management principles and processes into the DOE way of doing business and (2) increase the cadre of project management professionals by recognizing and nurturing those employees who regard themselves as federal project managers2 and envision their career paths in project management. In these ways, current DOE leaders can leave a legacy of good project management that will last far beyond their terms of appointment. Risk Management The importance of properly considering risk was addressed in the com- mittee's 2001 report (NRC, 2001~. The committee has observed improved cogni- zance, approaches, and practices; however, inconsistency remains in application and commitment. Risk assessment and planning are evident to varying degrees, but a sound approach to evaluating, controlling, and mitigating risks is less evident. In other words, risk planning and implementation have not matured sufficiently to consistently provide a reliable and useful product. The committee reviewed several risk management plans and believes that the following subjects warrant further attention: 2The federal project manager is generally assigned the role of the owner's representative. Although this role involves overseeing project management activities undertaken by contractor's personnel, it nonetheless requires thorough understanding of project management practices and principles.

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CORE COMPETENCIES 13 Utilizing the Integrated Project Team (IPT) to develop risk management plans the IPT includes contractor personnel, but the government is responsible for making budgetary risk decisions (i.e., for approving risk-adjusted budgets or contingencies). . Failing to identify all of the important sources of uncertainty. Assuming all risk factors to be independent rather than combining risk factors that are interdependent. The likelihood that all risks are statistically independent is very small. . Providing general, rather than specific, strategies for mitigating risk. Excessive dependence on Monte Carlo simulations this can obscure the relative contribution of and the interdependency between various risk factors. The recent draft PPM provides a fairly extensive but general description of the factors to be considered in the risk assessment and management process and what is to be incorporated into the project plan. However, to achieve more consistency and produce a meaningful risk assessment and management process, it will be necessary to strengthen the guidance in the "Practice on Risk Manage- ment" that OECM plans to incorporate in the Project Management Practices (PMP). Prompt issuance of risk management practices is encouraged. Parallel with this, the committee continues to believe a cadre of experienced risk assess- ment personnel should be developed, as recommended in the 2001 assessment (NRC, 2001~. In summary, there is an urgent need to augment DOE's human capital and strengthen the instructions for implementing risk management. Contingency Contingency allowances should be directly related to the potential risks that may be encountered on a project. During the preconceptual and conceptual planning stages, there is a tendency to underestimate the potential risks and the contingency allowance, although the lesser degree of project definition inherent in these stages of the project should dictate the need for a larger contingency. Underestimating contingency in the early planning stages portends a continual problem of revising baselines, modifying plans, and going over budget. The NRC report Improving Project Management in the Department of Energy (NRC, 1999) stated that cost increases are often distorted by DOE's tendency to consider project scope as a contingency. This situation still prevails, particularly in the Office of Science (SC), which tends to use a design-to-budget approach. Such an approach compromises project control. The committee is generally opposed to the use of scope as a contingency. Contingency is not specifically addressed in O 413.3 or the PPM. The committee perceives a need for structured guidelines for the control, allocation, monitoring, reporting, and use of contingency.

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4 PROGRESS IN IMPROVING PROJECT MANAGEMENT AT THE DOE 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. 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. 2001. Progress in Improving Project Management at the Department of Energy, 2001 Assess- ment. Washington, D.C.: National Academy Press. NRC. 2002. Proceedings of the Government/Industry Forum: The Owner's Role in Project Manage- ment and Preproject Planning. Washington, D.C.: National Academy Press.