| May 31, 2002 | 03 00050 61 02053102 |
Mr. Garold L. Johnson
dynalt@dynalt.com
Dynamic Alternatives
..
| Subject: | Cost Saving Analysis Using Good Management at Boeing |
Dear Gary,
Following
your letter
on May 25, 2002 the
case study
on the ISS Software
project was reviewed with
Stuart Harrow
at DCMA for lessons learned to improve contract performance on saving time and
money by specifying
Communication Metrics
defined by the US Army Corps of
Engineers, as part of the the
Federal Acquisition Regulations (FAR),
based on evidence showing that communication is the weak link in management.
..
A core issue is calculating the price people pay for bad management when people
fail to pay the cost of good management, especially when mandated by
government regulations, e.g.,
FAR,
reviewed on May 4, 2002.
Jeremy Campbell
points out that people pay a price for
relying on personal memory and common sense that guide
spontaneous communication in meetings, calls and email, rather than rely on
organizational memory required by industry standards and government
regulations, e.g., see again
FAR,
reviewed on May 4, 2002.
POIMS explains
that
meaning drift
makes
communication the biggest risk in enterprise
because
these methods (meetings, calls and email) dominate the
practice of management, resulting in pervasive bumbling, cited by
Henry Kissinger, and so
cause extra cost and delay in daily management, and loss of life and property
in the case of national security. Your letter on March 15, 2002 noted
reliance on these methods
(
meetings, calls and email)
for managing the International Space Station Software project,
and you further noted this is typical for other organizations.
..
However, the price of bad management is necessarily deferred and
transferred to others because communication is a predicate to action days,
weeks, months even years in the future. This dynamic causes good
people to deny that good management saves time and
money because the amount is difficult to calculate at the time intelligence is
needed to analyse information, as reported in the case of
national security
on September 11, 2001. This has given rise to increased demand for analysis
support because most people don't like to do intelligence work.
..
For example,
Morris Jones
at Intel mentioned on May 25, 1999 that engineers
don't like good management because it requires analysis that is not fast and
easy. Engineers are in love with technology and so need help to avoid the
slippery slope of bad management noted in the
case study.
Stuart Harrow at DCMA made a
similar point
on June 19, 2001 about contract managers.
Andy Grove, also
at Intel, made a similar point on May 27, 1999. However, when we have lots of
money coming in
with sunshine profits that swell tax collections, we lose sight
of the high cost of bad management.
More recently Morris mentioned that failure to perform
good practice of preparing engineering specifications doubles the cost of
producing software. This aligns with a report on April 15, 2002 calculating
loses of about $40K/day
because communication is not aligned using methods and
tools engineers like, and that can be
saved using Com Metrics
supported by SDS.
..
Deferred and transferred costs and savings require risk management methods
using discounted cash flow to calculate return on investment (ROI) for using
good management enabled by SDS.
Recently
Mark Clare
with Kanisa used this method to demonstrate value at risk and
consequent savings from improving management of call centers. On April 8, 2002
Mark proposed discussions on applying the same methodology to
calculate savings
for the general case
of engineers, executives, commanders and managers at all
levels when communication does not align with objectives, requirements and
commitments. This effort requires a broad base of information to instill
credibility that overcomes ignorance, fear and denial.
..
On October 7, 1997 the
U.S. Army Corps of Engineers
published a calculation of cost savings using SDS for Com Metrics that adds
intelligence
to management, as the Corps earlier reported on March 7, 1997. The 1997
studies showed that SDS yields cost savings (also Return on Investment - ROI)
of 10:1.
..
As we discussed on April 15, 2002, the recent
calculation of value at risk (VAR) in
the range of $40K per day that can be recovered by SDS produces ROI of about
20:1 based on a cost of $2K per day, and so
supports the earlier study by USACE. It would therefore be helpful
to get more data along these lines based on the
case study
for the ISS Software project to help people overcome denial that fosters
attitudes which worried
Andy Grove
at Intel, who says that getting executives to use good
management is like walking through the valley of death because people are
ignorant that intelligence saves time and money, and we all like to get by
working on
familiar things in familiar ways. DCMA is aware of the problem. Stuart
reported yesterday that the people at DOD like using Microsoft
programs that don't support intelligence work. Secretary of Defense
Donald Rumsfeld
noted in remarks to the War College on January 31, 2002 that
overcoming entrenched
attitudes to get by using familiar methods that are no longer effective
requires persistence. This means helping
people grasp the difference between
traditional "documentation" enabled by Microsoft programs, and
intelligence
work enabled by SDS, as related in review of FAR on May 4.
Fortune magazine reported
similar findings in an article on overcoming entrenched attitudes that
cause CEOs to fail.
..
Since you made the same point about
attitudes
that hamper good management
in your letter on May 22, it would be helpful to assemble some
specific figures showing direct costs that can be
saved using SDS for good management as called out by
FAR,
along the lines previously shown by the Corps of Engineers and now by
CSG, as we discussed on April 15.
..
Understanding cost savings provides incentive for applying FAR requirements to
advise and assist contractors
on using good management under part
42.302(a)(33).
Please call if you need assistance on this.
..
Thanks.
..
Sincerely,
THE WELCH COMPANY
Rod Welch
rowelch@attglobal.net
..
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