3.1 INTRODUCTION

3.1.1 The first sub­section of the Criteria, Organisation, is concerned principally with the definition of work required to be performed by the contractor and the assignment of tasks to organisations responsible for performing that work. It requires that all work to be performed under the contract (authorised work) be defined within the framework of a Contract Work Breakdown Structure (CWBS). USA DoD MIL­STD­881 (latest revision), Work Breakdown Structures for Defense Materiel Items, establishes guidelines governing the preparation and employment of the CWBS and should be used for guidance pending publication of the equivalent Australian document, DEF(AUST) 5664.

3.2 CONTRACT WORK BREAKDOWN STRUCTURES

3.2.1 Scope. The contractor's extension of the CWBS should reflect all of the work required under the contract and the way it is to be managed and performed. It must include the levels of the CWBS at which reports are required to be submitted to Defence, contract deliverables, major sub-contracted items, intermediate levels, and cost account levels. Lower level elements should be meaningful products of task-oriented sub-divisions of a higher level element.

3.2.2 Objective. A CWBS facilitates planning by providing a formal structure for identifying the work. It simplifies the problems of summarising contract or project-oriented data and it establishes the reporting structure for management information required by Defence. CWBS planning should take into consideration CSCS data elements, summation requirements, scheduling systems, technical performance parameters, deliverable items and actual cost history. Below the required reporting level, the CWBS should recognise and accommodate the differences in the way work is organised and performed in the development and production phases.

3.2.3 Flexibility. The contractor must be provided flexibility and must not be driven to sub-dividing work down to very low levels. Contractors may recommend, propose and negotiate alteration of the preliminary CWBS. The contractor should have complete flexibility in extending the negotiated CWBS to reflect the approach to be used in the work. It is not necessary to extend all elements of the CWBS to the same levels. A basic objective is to sub-divide the total contractual effort into manageable units of work. Large or complex tasks may require numerous sub-divisions. Other tasks of lesser complexity or size may require substantially fewer levels. There is no need to use "dummy" levels to force all segments of the CWBS to a common level. However, dummy levels are acceptable if this facilitates the use of a particular data accumulation coding system.

3.2.4 Effect of Phase. When establishing the lower levels of a CWBS, it is essential to recognise and accommodate the differences between the organisation, performance and management control of work in the development and production phases. System design and development normally are organised and performed along the lines of the major sub-systems of the overall system. The design normally is developed in progressively greater detail until it is established at the component level. In the production or manufacturing phase, components first are fabricated or purchased and then joined together in progressively larger sub-assemblies and assemblies until a complete system is produced. In addition, the production sequence normally follows a physical parts breakdown rather than the sub-system breakdown characteristic of design. It may be impractical therefore to use the same lower levels of the CWBS in the production phase as were used during the development phase. Extension of production CWBS requirements should be reviewed by the contractor to verify compatibility with the product manufacturing breakdown and should be limited to those levels absolutely essential.

3.2.5 Subcontract. The level of detail in a subcontractor's CWBS is independent of the level of detail of the prime contract CWBS and is also independent of the level of the prime contract CWBS element into which the subcontract feeds. This means that if subcontracted work is large enough in value or complex enough to warrant flow-down to the subcontractor of the requirements to comply with the Criteria, then these subcontract work tasks should be broken down to the same extent as if the tasks constituted a prime contract. Care should be taken by the prime contractor to ensure that the subcontractor has an appropriate CWBS as a subcontract requirement.

3.3 INTERRELATIONSHIP OF CWBS AND ORGANISATION

3.3.1 Work Assignment. The CWBS reflects the work to be performed. The contractor's organisational structure reflects the way the contractor has organised the people who will accomplish that work. To assign work responsibility to appropriate organisational elements, the CWBS and organisational structure must be interrelated, that is, organisational responsibility must be established for identified units of work. This interrelationship may occur at any level, but the Criteria require that the integration exists at least at the level where performance of work is managed. Other natural points of integration may occur as a result of the manner in which the contractor's work authorisation, budgeting and scheduling functions interface with each other and the CWBS.

3.3.2 CWBS-Product Orientation. CWBS hardware "legs" (eg., breakdowns of prime mission equipment, support equipment, spare and repair parts, etc.) should not contain functional organisation sub-divisions at any level between the cost account level and the total contract level. This product-oriented breakdown must enable information to be summarised and analysed by end-products regardless of the functional organisations working on the end products. However, as long as the contractor's CWBS meets these requirements for summary information and analysis, the contractor may include intermediate summaries (eg., by function, by geographical area, or for some other purpose) as long as the contractor can, and does, summarise and analyse data by CWBS hardware element.

3.3.3 If there are hardware "leg" functional organisation breakdowns within the way that the contractor is summarising or managing, they should be completely explainable and capable of being shown as being compliant with the Criteria.

3.3.4 Critical Subcontractors. Critical subcontractors as determined by the prime contractor and the Project Authority must also be separately identified and integrated into the CWBS.

3.4 COST ACCOUNTS

3.4.1 Cost Account Establishment. The assignment of lower level CWBS elements to responsible lower level organisational managers provides a key point for management control purposes and cost collection. The lowest level at which organisational responsibility for individual CWBS elements exists, actual costs are accumulated, and performance measurement occurs, is referred to as the cost account level.

3.4.2 Basis. The cost account is the main action point for planning and control of contractual effort, since virtually all aspects of the system come together at this point including budgets, schedules, work assignments, cost collection, progress assessment, problem identification and corrective actions. In addition, most management actions taken at higher levels occur on an exception basis as a result of significant problems identified at the cost account level. For these reasons the levels selected for establishment of cost accounts should be carefully considered at the outset of a new contract to ensure that the work will be properly defined into manageable units and that organisational responsibilities are clearly and reasonably established. The quality and extent of information available during performance of the contract will largely depend upon the level and make-up of the cost accounts.

3.4.3 Cost Account Level. The cost account levels should be primarily determined by the scope of the management tasks. The proper levels should not be arbitrarily predetermined or the result of allocating one "across-the-board" level. As an aid in determining a proper level, the size (dollar value, length, etc.) of the resulting cost accounts should be used to help indicate proper sub-division of work. While cost accounts are usually located immediately above the work package level, they may be located at higher levels where consistent with the contractor's method of management.

3.4.4 Data Collection. In addition to its function as a focal point for collecting costs, the cost account in a performance measurement system is also the lowest level in the structure at which comparisons of actual direct costs to budgeted costs are required. This should not be construed as implying that actual costs cannot be collected at a level below the cost account. Some contractors collect costs and make comparisons at a level below the cost account. The cost collection point must be at a level which will identify the cost elements and factors contributing to cost variances. Data elements Budgeted Cost for Work Scheduled (BCWS), Budgeted Cost for Work Performed (BCWP), Actual Cost of Work Performed (ACWP), and variances calculated at or below the cost account level should be summarised through both the CWBS and the organisational structure for reporting to higher levels of the contractor's management and, where required, to Defence.

3.4.5 Responsibility Assignment. Cost accounts are normally assigned to managers with direct line authority to the performing organisations. A cost account may, however, be assigned to a manager even without direct line authority to the performing organisation. In this case, the responsible manager must have clearly defined authority and direct managerial responsibility.

3.4.6 Responsibility Assignment Matrix. Integration of the CWBS and organisational structure at the cost account level may be visualised as a matrix with the responsible organisations listed on one axis and the applicable CWBS elements listed on the other axis. Each organisation is then clearly identified with the work for which it is responsible. FIGURE 3-1 illustrates integration of the CWBS and organisational structure for a development contract. Further sub-division of the effort into work packages may be accomplished by the appropriate organisation managers by assigning work to operating units.

3.4.7 Number, Size, and Length. No general rule may be stated concerning the number of cost accounts for a given contract value. Company size, company organisation and contract statement of work are but a few of the factors that should be considered. Attempts to standardise the number, value or length of cost accounts from contract to contract or contractor to contractor are not appropriate. Nor is it appropriate to insist on cost accounts which are unnecessarily small in dollar value. Some situations with unreasonably small cost accounts may be alleviated by allowing cost accounts which cross functional lines, Level Of Effort (LOE) and discrete effort to be intermingled (refer to paragraphs 3.5.1 and 3.7.4), or by raising the level of the CWBS or organisational element on which the cost account is based. The duration of a cost account should be considered in determining if a cost account is "small". The contractor should be permitted to consolidate work into cost accounts in a manner which reduces the paperwork for Cost Schedule control provided there is no substantial distortion in performance measurement or reduction in Cost Schedule visibility. On the other hand, the number of cost accounts should never be allowed to become so large that visibility into performance is lost or distorted.

3.4.8 Crossing Functional Lines. Problems may occur when an organisation is assigned a cost account budget that includes tasks to be performed with non-organisational resources. A cost account for which an organisation is responsible may contain non-organisation work, if this non-organisation work is minor and segregated. There should be procedures which provide for the responsible organisation to monitor, assess and report performance measurement (including ACWP) on non-organisational effort.

3.4.9 Indirect Cost Control. While all direct costs are accumulated in cost accounts, the Criteria do not require the recording of indirect costs (overhead) at this level. Contractors must, however, be able to identify the organisational managers responsible for controlling the indirect costs that are allocated to Defence contracts. Indirect budgets should be established and assigned to the organisational managers responsible for controlling such costs. Further, overhead pools and corresponding budgets must be designated and the methods used for budgeting, control and allocation clearly defined and documented.

3.5 TYPES OF EFFORT - DIFFERENTIATION

3.5.1 Classification of Effort. At the lower levels, all work should be categorised into one of three different types of effort:

a. discrete tasks which have a specific end product or end result,

b. support-type work which does not result in a final product (eg., sustaining engineering, liaison, administration, coordination, follow-up and other such activities), and

c. factored effort which can be directly related to other identified discrete tasks (eg., portions of quality control or inspection).

3.5.2 In the Criteria, discrete tasks are referred to as "work packages," support-type effort as "level-of-effort (LOE)", and factored effort as "apportioned effort". All work under the contract must eventually be planned as, and placed in, one of these categories during the performance of the contract. Treatment of LOE and factored effort as "work packages" is not strictly appropriate. But it may be convenient to handle them in this way provided that they are not confused with measured effort.

3.6 WORK PACKAGES

3.6.1 General. Work packages are natural sub-divisions of cost accounts and constitute the basic building blocks used by the contractor in planning, controlling and measuring contract performance. A work package is simply a low level task or job assignment. It describes the work to be accomplished by a specific performing organisation and serves as a vehicle for monitoring and reporting progress of work. Documents which authorise and assign work to a performing organisation are designated by various names throughout industry. "Work package" is the generic term used in the Criteria to identify discrete tasks which have definable end results.

3.6.3 Work Package Documents. Work package documentation need not contain complete, stand-alone descriptions. Supplemental documentation (such as the CWBS Dictionary, specifications, test plans, etc.) may augment the work package descriptions. However, the work package descriptions must permit cost account managers and work package supervisors to understand and clearly distinguish one work package effort from another. In the review of work package documentation it may be necessary to obtain explanations from personnel routinely involved in the work rather than requiring the work package descriptions to be completely self-explanatory. Work packages should have the characteristics identified in Section 4 of DEF(AUST) 5655.

3.6.4 Work Package Duration. A key feature from the standpoint of evaluating accomplishment is the desirability of having short-term work packages. This requirement is not intended to force contractors into making arbitrary cut-off points simply to have short-term work packages. Work packages should be natural sub-divisions of effort planned according to the way the work will be done. However, when work packages are relatively short, little or no assessment of work-in-progress is required and the evaluation of contract status is possible mainly on the basis of work package completions. The longer the work packages, the more difficult and subjective the work-in-progress assessment becomes unless they are sub-divided by objective indicators such as discrete milestones with pre-assigned budget values or completion percentages.

a. Work packages will vary significantly between functions. For example, manufacturing work packages tend to be quite short and discrete as natural products of the fabrication and assembly operations. Engineering work package planning may be somewhat more difficult since the work is more dynamic in nature throughout the development phase, making it more difficult to define in discrete terms. For these reasons, the Criteria do not attempt to impose specific limitations on work package duration. It should be recognised, however, that reports of contract status are normally provided to the Project Authority on a monthly basis.

b. Although reporting is normally done only for summary level items, work accomplishment should be based on completed work packages plus an assessment of the amount of work completed in open work packages. Work packages which extend over several reporting periods may require special consideration to ascertain the amount and value of accrued work-in-process work as of the reporting cut-off date. Care must be taken here to avoid an undesirable level of subjective judgment being required. In general, work packages which start during one reporting period and end during that period or the next, provide a more objective basis for determining status of contract work.

c. The above does not mean that the Criteria require work packages to be limited to two months duration, but it does mean that objective devices for evaluating completed work-in-process should exist for longer work packages. The use of objective indicators or milestones within such work packages is a desirable technique which should reduce subjective evaluation of work-in-process.

3.7 LEVEL OF EFFORT

3.7.1 LOE Measurement. LOE activity is treated differently from work-packaged effort. While work packages are discrete and accomplishment can be measured based on the completed pieces of work, LOE is "measured" through the passage of time. LOE activity must be separately identified from work-packaged effort to avoid distorting that which is measurable.

3.7.2 Proportion of LOE. The amount of LOE activity will vary among performing organisations, but within each should be held to the lowest practical minimum. The Criteria do not establish guidelines as to how much LOE is acceptable, but require that only work which cannot be work packaged or apportioned be designated LOE.

3.7.3 LOE Budgeting. As a minimum, LOE budgets must be separately substantiated and planned as direct labour, material/sub-contract, and other costs. LOE activity should be budgeted on a time-phased basis for control and reporting purposes.

3.7.4 Mixing LOE and Discrete Work. LOE and discrete work are normally segregated by cost account, but in some cases may be intermingled within the same cost account. This intermingling must be minimised to preclude distortion of performance measurement. When LOE and discrete work are mixed within the same cost account, it is preferable that ACWP be collected separately for the LOE and discrete portions and that the separate ACWP be used for performance analysis. When ACWP is available only at the cost account level (and not separately available within the cost account for LOE and discrete work), then the amount of LOE intermingled with discrete work must be small (strictly controlled). Intermingling of LOE and discrete work within the same cost account is not allowed when the cost account is large and the amount of both LOE and discrete work is substantial. Judgment must be used when addressing the intermingling of LOE and discrete work within small cost accounts. Small cost accounts should not normally be split into two very small cost accounts solely to facilitate the total segregation of discrete effort from LOE.

3.8 APPORTIONED EFFORT

3.8.1 Apportioned effort is dependent on, or related in direct proportion to, the performance of other effort. For example, quality assurance and other inspection functions are frequently treated as apportioned effort based on the amount of manufacturing effort. Apportioned effort may be included and budgeted as a part of the work package or cost account to which it relates or may be established as a separate work package with its own budget which is based on a percentage of the related work package or cost account budget. Factors established for the application of apportioned effort must be documented and applied in a formal, consistent manner. Apportioned effort should be limited to that which is genuinely related to discrete effort.

3.9 DETAILED PLANNING

3.9.1 General. While all contractual effort eventually is planned and controlled through work packages, LOE or apportioned effort, it may not be practicable or possible to do such detailed planning for an entire contract at the outset. Work is planned in finite increments at the outset of a contract. These planning increments (that is, cost accounts) form the basis for work authorisation, budgeting and master scheduling.

3.9.2 Rolling Wave Concept. As the contract work is defined, a "rolling wave" planning concept may be used. Tasks suitable for job assignment evolve naturally and at least the near-term work is segregated into work packages, with the remaining work residing in planning packages. Planning packages have characteristics similar to work packages but combine, under one estimated budget and schedule, tasks which will be converted into several work packages with precise budgets and exact schedules when detailed planning is possible. Thus, the contractual effort is progressively divided into smaller segments as work on the contract proceeds and as responsibility is assigned to successively lower levels of management. However, such work package definition must be accomplished in sufficient time for budgets to be developed and detailed plans for work accomplishment to be completed.

3.9.3 Extent of Detailed Planning. Each management system and contract application should be considered on its own merit. The extent of the detailed planning is determined by the nature of the work and should be planned as far in the future as practical. Production effort is normally planned considerably longer than six months in the future. However some development projects are less readily defined and consequently detailed planning may be less than six months in advance. Once work packages have been defined and budgeted, controls should be established to minimise further changes to budgets, schedule or scope of work, particularly in the near term (approximately 30 days).

3.10 CRITERIA

3.10.1 General. The remainder of this CHAPTER is devoted to discussion of the Organisation Criteria. The objective is to clarify the requirements of the Criteria as an aid to interpretation for both Review Teams and contractors. Criterion Organisation 4 deals with Indirect Costs and is discussed in CHAPTER 6. Further amplification is found in the Evaluation/Documentation Review Checklist in ANNEX D which contains check-list questions used by Review Teams to evaluate performance measurement systems.

DEFINE ALL THE AUTHORISED WORK AND RELATED RESOURCES TO MEET CONTRACT REQUIREMENTS USING THE FRAMEWORK OF THE CONTRACT WORK BREAKDOWN STRUCTURE (CWBS).

Of foremost importance in organising any "major" acquisition program is establishing all the work parameters that will be required to accomplish that program. As part of this effort it is also essential to define all the resources that will be required to accomplish that scope of work. The criterion requires that this be done and that a Contract Work Breakdown Structure (CWBS) be used as the vehicle for this work and resource definition. When completed, the CWBS will provide a framework for various and extensive management functions and control purposes. Hence the CWBS is, perhaps, the single most important document/exhibit prepared in support of the CSCSC. Any weakness in the CWBS can have far-reaching and debilitating effects upon performance measurement and contract accomplishment; management control is proportionately eroded.

IDENTIFY THE INTERNAL ORGANISATIONAL ELEMENTS AND THE MAJOR SUBCONTRACTORS RESPONSIBLE FOR ACCOMPLISHING THE AUTHORISED WORK.

Once the scope of work has been adequately defined via the CWBS, it is important to assign responsibility for getting the work accomplished as defined. This criterion serves to ensure that the contractor reviews his manpower availability and the availability of his managerial personnel to ascertain to what extent these personnel have the time and the capability to assume responsibility for additional contract work. The task of composing an organisational chart (or Organisation Breakdown Structure - OBS) to identify which managers in the corporate structure will have responsibility for work accomplishment will usually suffice as a review to ensure that full management and technical capability exists. Where management, manpower, or technical capacity is not sufficient, the contractor must choose between the options of subcontracting for this additional capability or trying to hire additional personnel as a means of increasing his own capacity. Identification of organisational responsibility is essential. If done improperly or insufficiently at the onset of a contract, the result is almost always a lack of management control, lack of scheduled accomplishment and cost overruns.

PROVIDE FOR THE INTEGRATION OF THE CONTRACTOR'S PLANNING, SCHEDULING, BUDGETING, WORK AUTHORISATION AND COST ACCUMULATION SYSTEMS WITH EACH OTHER, THE CWBS AND THE ORGANISATIONAL STRUCTURE.

A contractor must be able to provide a complete audit trail for any increment of work through the various management sub-systems. He must be able to trace from the work task to the CWBS where that work is formally identified and defined. He must be able to trace the work task manager to the Organisational Breakdown structure (OBS) where the chain of command is assigned. He must be able to trace the work task to the formal scheduling system so one can identify when, in time, this effort fits into the total contract plan. The contractor must be able to provide and explain the detailed plans for getting the work task accomplished, along with providing a definition of the type of effort required. He should be able to break the effort down by element of resource (labour, material, etc.) and substantiate that efforts' budget construction. He should be able to show how the work plan is translated into action in the work authorisation system and how actual accumulation of costs are tallied as that work is accomplished. By this system data is collected and flows through the various levels of the CWBS and the OBS to the point of summarisation and reporting. The existence of a faulty data collection system weakens not only management control of the contractual effort but also provides the opportunity for the management of sub systems to be less than fully integrated.

PROVIDE FOR INTEGRATION OF THE CWBS WITH THE CONTRACTOR'S FUNCTIONAL ORGANISATIONAL STRUCTURE IN A MANNER THAT PERMITS COST AND SCHEDULE PERFORMANCE MEASUREMENT FOR
CWBS AND ORGANISATIONAL ELEMENTS.

The first two Organisation criteria require the contractor to define/organise the contract scope of work and to identify/organise his managerial staff in a manner that can get contract work accomplished. This criterion requires their integration in a manner that enhances performance measurement. The cost account has been previously identified as the lowest-level focal point for management control of all contractual effort. It is the initiation point for performance management and measurement. Hence, this criterion requires that the CWBS should be integrated with the OBS at least to the extent that Cost Account Managers be assigned to their respective cost accounts for purposes of performance measurement.