Value Engineering and Earned Value Management

The MH-60S presents a suitable program for the study of performance improvement. It was produced with a series of variants, generally expressed with many additions to the airframe since the first release. All of the variants that have been produced are being operated currently, so comparison of the variants can be made. The first question is: what should the framework for making comparisons look like? The second question is: what are the most important comparisons to be made? The answer to these questions, at least in terms of the MH-60S, lies in the principles of value engineering and gap analysis, and the work of Langford and Franck (2009).

In their discussion of Earned Value Management (EVM), Langford and Franck provide that the number one goal of EVM is to “suggest how management can obtain the best-value solution for the taxpayer’s money.” Furthermore, they define the application of gap analysis to EVM as such:

If managers perceive a deficiency or a desired goal that differs from that which the actual work auspicates, there could exist a basis for gap in intentions versus what has been achieved, and, therefore, a desire to close that gap. The goal of Gap Analysis with regard to EVM is to maximize the difference in achieving cost-effectiveness by employing one (or more) of possible management strategies versus others out of the set of alternatives. (Langford and Franck 2009, 4)

Since the goal of EVM is to determine the best value for the use of resources and gap analysis provides a way for managers to close the gap between desired and actual performance, Langford’s and Franck’s research speaks directly to the problem of how to measure performance improvement. Expanding upon this point, Langford and Franck explain that the difference between what a manager has in a project versus what a

manager wants in a project constitutes a “Value Gap” (Langford and Franck 2009). This value gap then is the difference between desired and actual performance in terms of what is important to the manager (Langford and Franck 2009).

According to the NAE, the factors that are important to a naval aviation manager are found in Table 3. The chief goal when combining the NAMP and Naval Aviation Vision 2020 is to improve performance constantly while simultaneously reducing the cost of doing business. This improvement means that a process change can only be deemed successful or useful if it provides more capability for less cost, which Langford and Franck define as management achieving “more for less” (Langford and Franck 2009). For this reason, the purpose of any change in process must be designed to deliver more capability for less cost, and all changes should be evaluated on this basis.

Although the evaluation of “more for less” seems like a simple proposition to apply, it is difficult to easily measure both the cost and capability provided by a change in process. This difficulty is due to the fact that many costs, such as labor, are not easily monetized in dollars used for a particular task. The Navy does not pay each of its workers on an hourly basis, so the cost of using labor is generally fixed for a given time period when the pool of workers is fixed. Therefore, the best measurement of cost is to calculate the amount of time that is used to perform certain tasks. If the amount of time, measured in labor hours, has an aggregate decrease as a result of a new process, then the process could be said to lower the cost of doing business. This assumption is also true of replacement parts usage, as any process that lowers the number of parts used can be considered less costly. In terms of capability, it is difficult to create metrics which can be estimated and compared to status quo processes. Therefore, capability can be measured in terms of both safety and aircraft availability, which can be reasonably measured using existing tools. In terms of the NAE’s vision, an increase in capability can be viewed as having more aircraft available for use at any given time while having fewer mechanical issues that compromise flight safety.

With all of these standards in place, the final step is to find a framework for evaluating process changes that provides managers with the ability to compare new process ideas to extant processes. Langford and Franck provide such a framework, and it

can be tailored to meet the needs of this analysis. In their work on Value Gap Analysis (VGA), Langford and Franck propose the following application of VGA to manager’s decisions:

By developing the theory of Value Gap Analysis into a form that can be applied in a clear and consistent manner for managers, (1) value metrics can be compared with Earned Value; (2) worth metrics can be applied to a critical examination of foundation data; (3) risk metrics can be used to interpret the relevancy of data; (4) an enterprise framework (which displays worth and risk metrics) can be used to illustrate context at a given time; and (5) assumptions can be scrutinized definitively. (Langford and Franck 2009, 11)

Langford and Franck provide a further explanation of the ways that VGA can be applied to work in the following passage:

We define Value Gaps in terms of the functional requirements, their performances, and their losses due to those performances. Further, all Value Gaps can be characterized in terms of capability of human capital. By reference, EVM was implemented to specifically address measuring gaps between planned and actual performance. But since not all performance gaps require a human capital solution set, VGA must be modified. Changes or enactments of policy, organization, training, materiel, leadership and education, and facilities are considered candidates to close Value Gaps. These factors are usually formally evaluated before recommending the start of a new development effort. The result is that the process of managing work tasks is functionally decomposed to allow the assessment and identification of Value Gaps. (Langford and Franck 2009, 13)

This excerpt in many ways provides the theoretical foundation for this study. Through a tailored process of Value Gap Engineering that focuses on changes to policy, any program can identify and close the gaps in attained value that exist. Langford and Franck focus mostly on the ways in which a project can implement these changes early in the development process to create value during acquisition, but the principles of their research apply equally well to a program such as the MH-60S that has been in service for several years. Langford and Franck provide a thorough discussion of value, worth, and risk and propose equations for both value and worth that can be applied to this analysis (Langford and Franck 2009). These equations, presented in Figures 2 and 3, provide the

basic relationships between the value, worth, and risk measures. Langford and Franck introduce the idea of quality affecting the value of a process

Figure 2. Value Equation (from Langford and Franck 2009, 16).

Figure 3. Worth Equation (from Langford and Franck 2009, 19).

The value (V) of any function (F(t)) can be measured by the sum of all performances (P(t)) divided by the investment (I(t)) made in the function over any given time period (t). The worth of a system, defined by Langford as the value to include any possible loss incurred as the result of a given performance, is measured in terms of the product of the value and the possible loss function denoted by quality (Q(t)) (Langford and Franck 2009). To apply these functions to the NAE example developed in this chapter, value is the ratio of labor performance to investment, and worth is the application of this interaction to include the quality either gained or lost in the process. These two equations provide the general framework for measuring outcomes in terms of altering processes with the NAE framework that was previously discussed. In Chapters IV and V, the application of these equations to the MH-60S maintenance program will be explored in more depth and definite metrics for value and worth will be proposed and discussed.