Case Study #7: Enhanced Accuracy in Reporting Performance

Client: Top-10 Aerospace & Defense Company

Simulation Used: EAC-Lab™

Specific Business Need: The client's corporate performance is determined by the performance of thousands of individual programs. Routinely, each program needs to provide an estimate for what the ultimate program cost and profits will be, the Estimate at Complete (EAC). If programs report inaccurate estimates, management will also report inaccurate guidance to investors and shareholders, and ultimately the markets' faith in the client's guidance numbers will fall causing an adverse impact on share price. In addition, customers use the EAC numbers for budgeting and forecasting purposes. Inaccurate EAC numbers can also lead to lower customer satisfaction.

Solution: PriSim® designed and built a customized EAC business simulation that models the client's unique methodology for calculating EAC. This simulation is used in a hands-on class titled EAC-Lab™. The business simulation allows participants to practice developing EACs in a risk-free environment.

The EAC-Lab™ is a computerized aerospace and defense scenario-planning tool designed to help decision-makers and program managers better understand the impact of program-level cost, profit, risk, and opportunity assumptions on Estimate-At-Complete (EAC) forecasts. The EAC-Lab™ introduces participants to fundamental and advanced EAC concepts and allows them to experience firsthand the impacts of their assumptions on EAC. Teams of participants set, adjust, and monitor estimates of program-level costs, profits, and the impacts of risks and opportunities on both cost-plus and fixed-cost programs. In addition, they record and detail the logic of their risk and opportunity assumptions in Basis of Estimate (BOE) reports. Program-level performance metrics are tracked and adjusted including EAC Variance, Management Reserve, Cost Performance Index (CPI), Schedule Performance Index (SPI), and Total Cost Load (TCL).

This interactive scenario-planning approach is very constructive in bringing to light the key concepts of EAC. The complex, cascading impact of assumptions on both the programs' and the company's ultimate performance is emphasized in the EAC-Lab™. Deep insights are catalyzed because participants not only learn the theory behind EAC but also see that theory put into action.

The EAC-Lab™ is literally a business "laboratory" where the impact and accuracy of program estimates can be experimented with in a controlled environment and compared to actual results. Fundamental EAC concepts are taught and a competition is run between teams to produce the best program-level and company-level results. The interactive nature of the experience makes the learning real, and the key drivers of EAC come alive to participants.

Results:
Improved EAC estimates. Participants improve their ability to develop accurate, consistent EACs and have increased buy-in regarding the fact that EAC accuracy is important in driving shareholder value and customer satisfaction.