Overtarget Baselines and Schedules

At times, an organization may conclude that the remaining budget and schedule targets for completing a program are significantly insufficient and that the current baseline is no longer valid for realistic performance measurement. The purpose of an overtarget baseline or overtarget schedule is to restore management’s control of the remaining effort by providing a meaningful basis for performance management. Working to an unrealistic baseline could make an unfavorable cost or schedule condition worse. For example, if variances become too big, they may obscure management’s ability to discover newer problems that could still be mitigated. To quickly identify new variances, an overtarget baseline normally eliminates historical variances and adds budget for future work. The contractor then prepares and submits a request to implement a recovery plan—in the form of an overtarget baseline or overtarget schedule—that reflects the needed changes to the baseline.

The Rebaseline Rationale

The goals during a rebaseline are ensuring that the estimated cost of work to complete is valid, remaining risks are identified and tracked, management reserve is identified, and the new baseline is adequate and meaningful for future performance measurement.

An overtarget baseline is established by formally reprogramming the performance measurement baseline to include additional budget that is above and beyond the contract’s negotiated cost.61 This additional budget is believed necessary to finish work that is in process and remaining and becomes part of the recovery plan for setting new objectives that are achievable.

An overtarget baseline does not always affect all remaining work in the baseline; sometimes only a portion of the WBS needs more funding. Similarly, an overtarget baseline may or may not reset cost and schedule variances, although in most cases the variances are eliminated.

An overtarget baseline or overtarget schedule should rarely be necessary. Therefore, if a program is experiencing recurrent overtarget baselines, it may be that the scope is not well understood or simply that program management lacks effective EVM discipline and is unable to develop realistic estimates.

Moreover, a program that frequently changes its baseline can appear to be trying to “get well” by management’s hiding its real performance, leading to distorted EVM data reporting. When this happens, decision-makers tend to lose confidence in the program, as evidenced in case study 27.

Case Study 27: Maintaining Realistic Baselines, from Uncertainties Remain Concerning the Airborne Laser’s Cost and Military Utility, GAO-04-643R

From the contract’s award in 1996 through 2003, the cost of the Airborne Laser’s (ABL) primary research and development contract increased from about $1 billion to about $2 billion. In fiscal year 2003 alone, work the contractor completed cost about $242 million more than expected. Besides schedule delays, the contractor was unable to complete $28 million worth of work planned for the fiscal year. GAO estimated from the contractor’s 2003 cost and schedule performance that the prime contract would exceed the contractor’s July 2003 cost estimate of about $2.1 billion by $431 million to $943 million through the system’s first full demonstration.

The program had undergone several major restructurings and contract rebaselines from 1996 on, primarily because of unforeseen complexity in manufacturing and integrating critical technology. According to program officials, rapid prototyping resulted in limited subcomponent testing, causing rework and changing requirements. At the time of GAO’s review, the program faced massively increasing amounts of incomplete work from previous years, even though the prime contractor had increased the number of people devoted to the program and had added shifts to bring the work back on schedule. In addition, unanticipated difficulties in software coding and integration, as well as difficulty in manufacturing advanced optics and laser components, caused cost growth.

Good investment decisions depend on understanding the total funds needed to obtain an expected benefit, but the Missile Defense Agency (MDA) had been unable to assure decision-makers that its cost projections to complete technology development could be relied on. Decision-makers would have been able to make more informed decisions about further program investments if they had understood the likelihood and confidence associated with MDA’s cost projections. Therefore, GAO recommended that MDA complete an uncertainty analysis of the contractor’s new cost estimate that quantified the confidence to be placed in the estimate.

GAO, Uncertainties Remain Concerning the Airborne Laser’s Cost and Military Utility, GAO-04-643R (Washington, D.C.: May 17, 2004).

The end result of an overtarget baseline is that its final budget always exceeds the contract budget base. In EVM system terminology, the sum of all budgets (performance measurement baseline, undistributed budget, and management reserve) is known as total allocated budget, and the difference between the total allocated budget and the contract budget base is the overtarget baseline. Figure 36 illustrates the effect an overtarget baseline has on a contract.

Figure 36: The Effect on a Contract of Implementing an Overtarget Budget
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Like an overtarget budget, an overtarget schedule occurs when the schedule and its associated budgets are spread over time and work gets scheduled beyond the contract completion date. The new schedule becomes the basis for performance measurement. Typically, an overtarget schedule precipitates the need for an overtarget budget because most increases in schedule also require additional budget.

As mentioned above, the contractor submits an overtarget budget and overtarget schedule request to the government program office for evaluation. It should contain the following key elements:

  • an explanation of why the current plan is no longer feasible, identifying the problems that led to the need to make a new plan of the remaining work and discussing measures in place to prevent recurrence;
  • a bottom-up estimate of remaining costs and schedule that accounts for risk and includes management reserve;
  • a realistic schedule for the remaining work that has been validated according to the new plan;
  • a report on the overtarget budget in the CPR—the government program office and contractor need agreement on how it is to be reported in the CPR, how decisions are to be made on handling existing cost and schedule variances, and how perspectives on new budget allocations will be reported (whether variances are to be retained or eliminated or both);
  • the overtarget budget’s implementation schedule, to be accomplished as soon as possible once approved; usually, it is established in one to two full accounting periods, with reporting continuing against the existing baseline in the meantime.

In determining whether implementing an overtarget budget and overtarget schedule is appropriate, the program office should consider the program’s health and status, and should decide whether the benefits outweigh the costs. An overtarget budget should be planned with the same rigor as planning for the original program estimate and performance measurement baseline.

While overtarget budget and overtarget schedule can restore program confidence and control by establishing an achievable baseline with meaningful performance metrics, the time and expense required must be carefully considered. The program office and the contractor should also consider whether losing valuable historical performance variances and trends is worth the effort and time to reset the baseline. Table 27 identifies common problems and indicators that may be warning signs that a program may need an overtarget budget or schedule.

Table 27: Common Indicators of Poor Program Performance
Indicator Description
Cost
  • Significant difference between estimated cost to complete and budget for remaining work
  • Significant difference between cumulative Cost Performance Index and To Complete Performance Index
  • Early, significant, and frequent allocation of management reserve to the performance measurement baseline for newly identified in-scope effort
  • Insufficient management reserve for the remaining contract scope
  • Control account budgets for remaining work that do not represent a reasonable chance of success
  • Work packages with no remaining budget
  • Inability to explain the basis for achieving the Estimate at Complete (EAC)
  • EACs that are too optimistic and do not adequately account for risks
Schedule
  • High level of concurrent remaining activities
  • Negative float or significant slips in the critical path
  • Incomplete or inaccurate critical path
  • Unrealistic activity durations
  • Unrealistic logic relationships between activities
  • Significant number of activities with constrained start or finish dates
  • Insufficient schedule margin for the remaining contract scope
  • No horizontal or vertical integration in the schedule
  • Logic sequence and durations for forecasted work vary significantly from baseline plan
Data accuracy
  • EAC less than actual incurred costs for work breakdown structure elements
  • Evidence of a front-loaded performance management baseline
  • Lack of corrective action planning or lack of evidence of implementation
  • Unrealistic cost or schedule projections
  • Frequent or recurring data errors

Source: DOD. | GAO 20 195G

Contract type is also a key factor to consider when rebaselining a program, because each contract has its own funding implications when an overtarget budget is implemented. Table 28 describes two common types of contracts and considerations for overtarget budget implementation.

Table 28: Overtarget Budget Funding Implications by Contract Type
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Contract type Description Considerations
Fixed price incentive Negotiated target cost plus estimated cost of authorized unpriced work equals the cost of the contract budget base. Government program office liability is established up to a specified ceiling price.
  • Although additional performance budget is allocated to the performance measurement baseline, the overtarget budget does not change the customer’s funding liability or any contract terms. The contractor has liability for a portion of costs above target and all actual costs over the ceiling price, because the work’s scope has not changed and the contract has not been modified.
  • An overtarget budget is established on a fixed price incentive contract without regard to profit, cost sharing, or ceiling implications.
Cost reimbursement Provides for payment of allowable incurred costs to the contractor to the extent provided in the contract and, where included, for contractor’s fee or profit. The new contract budget base is based on the updated cost target.
  • The customer must be notified of the need for an overtarget budget, having agreed to pay for actual costs incurred to the extent provided in the contract. The customer may have to commit or seek additional funds to address the changing program condition and must therefore be aware of and involved in the overtarget budget implementation.

Source: GAO analysis of OSD’s Over Target Baseline and Over Target Schedule Guide ([Arlington, VA]: December 5, 2012.) | GAO-20-195G

Establishing a revised performance measurement baseline to incorporate significant variances conveys to program management that the amount of risk a program is undertaking has increased. Therefore, in conjunction with evaluating the indicators in table 27, program management should consider other aspects before deciding to implement an overtarget budget and schedule.

Work Completion Percentage

The contract should typically be 20 percent to 85 percent complete. A contract that is less than 20 percent complete may not be mature enough yet to benefit from the time and expense of implementing overtarget budget and schedule. A contract that is more than 85 percent complete gives management limited time to significantly change the program’s final cost.

Projected Growth

A projected growth of more than 15 percent may warrant an overtarget budget and schedule. The projection is made by comparing the estimated time of completion with the budget allocated for the remaining work. An overtarget budget’s most important criterion is whether its current performance measurement is still meaningful.

Remaining Schedule

If less than a year is required to complete the remaining work, the benefit of an overtarget budget and schedule will most likely be negligible because of the time it typically takes to implement the new baseline.

Benefit Analysis

A benefit analysis should determine whether the ultimate goal of implementing an overtarget budget and overtarget schedule gives management better control and information. With this analysis, the government program office and contractor ensure that the benefits will outweigh the cost of both time and resources. If better management information is expected and the program team is committed to managing within the new baseline, then they should be implemented.

Rebaselining History

Several overtarget budget requests suggest severe underlying management problems. These should be investigated before implementing a new budget.

  1. This action is not to be confused with reprogramming in agency appropriations. In that context, reprogramming is a shifting of funds within an appropriation or fund account to use them for purposes other than those contemplated at the time of the appropriation. (See GAO, A Glossary of Terms Used in the Federal Budget Process, GAO-05-734SP (Washington, D.C.: Sept. 1, 2005), 85.) The overtarget baseline action should also not be confused with replanning. Replanning of actions for remaining work scope is a normal program control process accomplished within the scope, schedule, and cost objectives of the program.↩︎