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Raytheon Industry Briefing EPMC 2005-22B

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Raytheon Industry Briefing EPMC 2005-22B Powered By Docstoc
					    EPMC 2005-22B
    Industry Briefing


     Giorgio Accolti-Gil
  Ron Shields - Raytheon
Craig Thompson - Raytheon
                   TOPICS


• What Motivates Us
  – Company
  – Program
  – Personal

• How We Are Measured

• Barriers / Incentives
                        Raytheon Company
                                            Raytheon
                                         Chairman & CEO
                                          W.H. Swanson




Raytheon Aircraft        Missile             Space and            Corp BD &                 Information
                        Systems          Airborne Systems     International Ops             Technology

  J. Schuster        L. Francesconi          J. Kelble           T. Culligan                R. Rhoads


 RTN Company        Integrated Defense   Netwrk Centric Sys       Finance                   Contracts
Evaluation Team          Systems

  E. Franklin           D. Smith          C. Schottlaender        E. Pliner                 J.D. Harris


 Internal Audit        Intelligence       Raytheon Tech           Human                 Corp Affairs &
                     & Info Systems       Svcs Company           Resources             Communications

 L. Harrington        M. Keebaugh            B. Even             K. Peden                    P. Piano

                                                                   Legal               R6Sigma,CLO
                                                                                       & Supply Chain

                                                                J. Stephens                 D. Ronchi

                                                                            Engineering &
                                                                             Technology
                                                                                                        07/12/04
                                                                               G. Shelton
Northrop Grumman Integrated Systems

 Electronic            Information       Integrated             Newport                Ship                 Mission                Space
  Systems              Technology         Systems                News                 Systems               Systems              Technology
 Bob Iorizzo         Herb Anderson      Scott Seymour Tom Schievelbein                Phil Dur              Don Winter          Wesley Bush
    President               President      President             President               President            President              President




      Unmanned Systems                   Air Combat Systems                     AEW & EW Systems                          AGS & BM Systems
          Chris Hernandez                     Gary Ervin                                Phil Teel                            Alan Doshier
           Bob Mitchell                      Steve Briggs                                                                   Leroy Barnidge
              Deputy                            Deputy                                                                          Deputy

Global                Fire Scout
Hawk
                                               F/A-18            B-2
                                                                                                                   E-10A     E-8C JSTARS

Targets                                                                      E-2C RMP               EA-6B                    Aerial
                    WATCHKEEPER                                                                                             Common
                                                  F-35       MP-RTIP
                                                                                                                   NATO AGS Sensor

J-UCAS

                                          Space        FSS                     F-14                  C-2
                                                                                                                 ALMDS       COBRA       767 ISR


                    Premier Aerospace and Defense Systems
                             Integration Enterprise
        Values and Key Behaviors

• Quality        • Live the Company Values
• Leadership     • Focus on Operating
                  Excellence
• Integrity        “We must focus on
                    program performance to
• People            deliver on the full
                    operating and financial
• Suppliers         potential of our
                    company.”
• Customer
  Satisfaction   • Act With Speed
                 • Communicate Openly
• Productivity
                 • Collaborate Across the
• Growth          Company
    PM Performance Measurement
    • Yearly Performance Management Plan
    • Program Performance Goals
      – Product Quality
      – Customer Satisfaction
      – CPI/SPI/ Program Performance
      – People Development


     •Financial Goals – AOP
        –Acquisition
        –Sales
        –Margin
        –Cash
        –Working Capital
6
           Program Performance
• Why Important?
  – Resources – Capital, New Business
    Investment, Facilities, Special Requirements
  – Rewards
  – Retention


• Exec Monthly Reviews of Performance
  – Highlights & Issues
  – New Business Activities
  – Financial Summary
  – Watch Programs
December 2004 Highlights
JSOW Unitary
•   Received Milestone III Decision and FY05
    Contract Award of $103M in December

•   Held Well Attended and Successful JSOW
    1st Production Celebration in November.
    Keynote Speakers: RADM Charles “Bert”
    Johnson, CAPT David Dunaway, and Mr.
    Jon Jones
JSOW Block II
•   Successfully Completed Gate 7 and
    System Level PDR, with Actions
     –   Critical Actions Related To Completing GEU
         Documentation /Clarifying Schedule
         Uncertainties


                              RaPID                   JSOW Wings


                                   •   Proposal Submitted in December – Team Working
                RaPID                  Towards Contract Award in Late March
  Watch Programs
                Strategic/     Fixed Price     Customer     Complex                                    Unfavorable
               Investment    Development or    Funding or   Customer    Rebaselined   Degrading EVM     Customer
Contract         Program     1st Production   Rqmts Issue   Interface    Program      or Performance     Metrics


Contract A       Yes/No           Yes


Contract B      Yes/Yes                                                   Feb-04


Contract C       No/Yes           Yes


Contract D       Yes/No                                                   Jun-04


Contract E       No/No            Yes




  Business Area Name                                                                                   03.22.04      9
 EVMS History – Top Risk
 Programs
EVMS History Top Risk Programs
                  Add bold black line to                      Program A
                    mark 1.0 on plot                                            Add comments in a format
           1.80                                                                  similar to this to highlight
                                                                                   performance drivers.
           1.60
           1.40                                                                                                                     CPI Month
           1.20                                                                                                                     CPI I-T-D
 CPI/SPI




                                                                                                                                    SPI Month
           1.00
                                                                                                                                    SPI I-T-D
           0.80
           0.60
           0.40
           0.20
                    Jan      Feb      Mar   Apr   May   Jun         Jul   Aug   Sep           Oct           Nov           Dec




                                                              Program B

                                                                                              Add comments in a format
           1.80                                                                                similar to this to highlight
                                                                                                 performance drivers.
           1.60
                                                                                                                                    CPI Month
           1.40
                                                                                                                                    CPI I-T-D
           1.20                                                                                                                     SPI Month
 CPI/SPI




           1.00                                                                                                                     SPI I-T-D

           0.80
           0.60
           0.40
           0.20
                    Jan      Feb      Mar   Apr   May   Jun         Jul   Aug   Sep           Oct               Nov       Dec




Business Area Name                                                                                                              03.22.04        10
    Program Performance
                                                                                                  Notations required for all programs with
                                                                                                          CPI < 0.95 or SPI < 0.95
1 = AAAAAA
SPI=1.00 CPI=1.16
2 = BBBBBB
SPI = 1.21 CPI = 1.02
                                                                                         4         1                7            25                 12 24 40
                              1.14
3 = CCCCCCC
                                     8
SPI = 0.91 CPI = 1.00
4 = DDDDDDD                              Behind Schedule and                                                     Ahead of Schedule and
SPI = .98 CPI = 1.51          1.12       Underspent                                            36                Underspent
5 = EEEEEEEE                                                                                  27
SPI = 1.33 CPI = 1.03
6 = FFFFFFFF
                              1.10       Customer has requested a
                                         change to the existing             37
                                         contract; re-baseline
SPI = 1.25 CPI = 1.03
7 = GGGGGGGG                  1.08                                          11
                                                                                                            14
                                                                                                                                                    28
SPI = 1.04 CPI = 1.20                                                              13
                              1.06       Late Reqmts
                                         change
                                         approval
                                                                                             23
                              1.04       resulting in a
                                         two month slip
                                                              Customer
                                                              re-prioritization
                                                                                                  38                        10
                                                                                                                                                           6 5
                              1.02                                                       18 19 29                           32                             2
                                                    35 31
                        CPI




                              1.00                      3                     39
                                                                                   9 15
                                                                                       16 17 20 33 41
                                                             Brass board
                              0.98                           availability           21
                                                                                                                                                           22
                                                             impacted SW                          34
                                                             integration & Test
                              0.96
                              0.94                                                                     30          26

                              0.92                                                  Excess Matl driving                 PSP:Procurement
                                                                                    cost grow. To be                    Support 3 Heads over

                              0.90                                                  moved to upon receipt               Jan Plan
                                                                                    of future Contracts

                              0.88        Behind Schedule and                                                      Ahead of Schedule and
                                          Overspent                                                                Overspent
                              0.86
                                 0.86 0.88 0.90 0.92 0.94 0.96 0.98 1.00 1.02 1.04 1.06 1.08 1.10 1.12 1.14
                              Use “Unchanged” for CPI/SPISPI
                                variation less than 0.02                                                                                       Improved
                                                                                                                                               Unchanged
                                                                                                                                               Degraded
    Business Area Name                                                                                                                                           03.22.04   11
 Program Indicators
Program Name        2004                                                                                   Internal
                                                                                                                          Customer
Contract Type       Sales            Cost           Schedule               Technical     Quality          & External                       Staffing
                                                                                                                         Satisfaction
                    ($M)                                                                                  Suppliers

 Program X         $21           Y    Y     Y        G    Y     Y          Y   Y   Y     Y     Y    G     G     G   G    G    G     G     G    G   G
                                                   One month behind         Open CDR     Engr. Software
                                                                             Actions        release

Program Y          $56           Y    Y     Y        G    Y     Y          Y   Y   Y     Y    Y     G     G     G   G    G    G     G     G    G   G
                                                   Two months behind        Open TRR
                                                                             Actions




          Required for each program in Program Area (in particular, all programs
          in EVMS system); Make sure indicators match data in Watch Programs,
                        Top Risk Programs, and Top Programs list




                                                                                                              Contract                    Outlook (3mo)
Legend:   B Exceptional     P Very Good         G Satisfactory         Y    Marginal   R Unsatisfactory


                                                                                                                             Plan
 Business Area Name                                                                                                                     03.22.04   12
HVMS
Program “Health Visibility Management System”
                Compensation

•   Pay Structures / Grades   $25K - $250K
•   Annual Merit (0 – 10%)    Ind
•   Promotion (2 – 10%)       Ind
•   Results Sharing – 3%      Comp/Div
•   Bonus (Exec)              Comp/Div/Ind
•   Stock/Options             Ind
•   Education
•   Medical
                               Financial Planning

     Program
                                               Program
     Five Year                                                  Group and
                                                Annual
 Financial Plan                                                 Company
                                               Operating
  - locked mid                                                    AOP
                                                 Plan
       2004

Title        Quantity Sales Time      Probability Factored
                                                              Stock Valuation
USN               500 $100.0     2005          0.8 $80.0
                                                              - Earnings
USN               500 $100.0     2005          0.7 $70.0
                                                              - Earnings Growth
USAF              300 $60.0      2008          0.1     $6.0
                                                              - Overall Growth
Saudi Arabia      200 $40.0      2008          0.1     $4.0
                                                              - Stability
Chile                8     $1.6  2007          0.3     $0.5
     Disconnects Between Margin & Cash
                                  MYTH
       Operating margin for a given year equals the cash for that year.


     • Not All Sales and Expenses Recorded on the Income Statement
      for a Given Year Will Be Collected and Paid in That Year.
     • Write-Offs of Costs and Goodwill Associated With Un-
      Recoverable Investments
     • Depreciation Associated With the Capital Asset Base
     • Taxes Shown on the P&L Are Not a Cash Expense
     • Margin Doesn’t Reflect Changes in Working Capital


         Cash Received Is Not the Same As Margin
                        Recorded
16
     Performance Perspective of the Business
     Accounting Perspective               Shareholder Perspective

     Sales
     - Cost of Sales                     ASSETS           CASH
                                        EMPLOYED        GENERATED
     Operating Margin
                                    •   PP&E        • Current & Future
     +/- Other Income               •   Inventory     Cash Flows
     - Taxes                        •   Accnts Rec.
                     Earnings Per   •   Cap Exp.
     Net Margin
                         Share      •   Overhead
                                    •   Debt
                                    THE INVESTMENT IN   THE VALUE OF THE
                                      THE BUSINESS          BUSINESS


        Are These Perspectives Consistent ?
17
     Investors View Value Differently
     • Value
          – Focus On Valuation
          – Cash Flow, Return On Capital, Value Of Assets/Hidden
            Assets Important
     • GARP (Growth At A Reasonable Price)
       – Mixture Of Growth And Value
     • Growth
       – Focus On Growth Rates
       – Valuation Highly Dependent On Future Expectations
     • Momentum
       – Buy If Stock Is Rising, Sell If Declining
       – “The Market Knows” – Don’t Fight The Trend
     • Index
                Why Don’t All Investors Buy the Same Stock?
                Different Value Metrics, Risk Preferences and
                        Uncertainty About the Future
18
         Investors Look Forward
         • Investor interest driven by:
                  – Expectations of future growth

                  – Mergers and acquisition activity

                  – Health of the general economy / stock market (alternatives)

         • What Conditions Drive Investor’s Perception of Defense

                             Positive                                  Negative
                         Budget Increases                           Actual Conflict
                              Threats                            Large Budget Deficits
                        Technical Inventions                     Economic Downturn
                             Inflation


     Pierre A. Chao
19   Senior Fellow and Director Defense-Industrial Initiatives
      Perspectives of Growth
           Accounting Growth                       Value Growth
                                               þ   Obtain a Value Creating
                                                   Condition (Competitive
                                                   Advantage)

     Sales              Invest to Increase
     - Cost of Sales    Proportionally Incr.          ASSETS      CASH
                                                     EMPLOYED   GENERATED
                        to Sales
     Operating Margin   Margin Growth          þ   Invest In Additional
                                                   Assets (Left Side of the
                                                   Scale)



                                                      ASSETS      CASH
                                                     EMPLOYED   GENERATED



                                               þ   Growth in Value of
                                                   Business
20
     What Are the Program Management Implications?
      • Reduce the Time Between the Start of Investment & Receipt of
       Customer Payments (Cycle-time)
        – Increase Cash Flow Through the Organization
        – Plan Capacity & Minimize Capital Investments
        – Optimize the Cash Flow (Organization) Process Vs. Maximize
          an Element
      • Cash Discounting Analysis Methods Recognizes that the Future
       is Uncertain
        – Cash Flow in the Near Future is Worth More that the Same
          Cash Flow Later
      • A Good Analysis Includes Management Examination of Program
       Assumptions & Risk Management
          How the Program is Executed Over Time Affects
                          Economic Results…
      Strategy & Execution are Fundamental !!
21
           Barriers / Incentives

• CPARS
• Executive Communication – Good/Bad
• Flexibility – Relationships Vital
  – Technical Trades
  – Financial
  – Programmatics
• Profit – gives flexibility, can invest
• Overreact Factor – Enron/EACs, Test
  Failures, Druyan
• Cheerleading
     Customer Sat
     IPAR – 3Q04




     As of 11/22/04
                                                                                                           1




                      F/A-18 E/F DCMA-NGC Joint Metrics                                                                                             PMM Rating: Green
                                                                                                                                                    PMM Rating: Green


                      Weekly PST / NGC PMM Rating Summary



                                                   10/ 29/2004   11/ 05/ 2004   11/12/2004   11/19/ 2004   11/ 26/ 2004   12/03/2004   12/10/2004   01/14/2005



                       Program M anagement             G             G             G             G             G             G            G            G


                       1. Product Definition           G             G             G             G             G             G            G            G


                       2. Product Deliver y            G             G             G             G             G             G            G            G


                       3. Quality Sy stem              Y             Y              Y            Y             Y              Y            Y           G


                       4. Product Suppor t - ILS       G             G             G             G             G             B            B            G


                       5. Supplier M anagement         G             G             G             G             Y             G            G            R




23
          Barriers / Incentives (2)

•   Supplier Visits
•   Performance Based Payments / Cash
•   Performance Spec
•   Gov’t/Contractor Problem Individuals
•   Team Reinforcement – Good Times & Bad
•   Gov’t Individual/Team Awards
•   Multiyear
•   Remove PM
•   Incentivize Cost Reduction
             Barriers / Incentives (3)

•   Clear Gov’t/Contractor Hurdles
•   Patriotism
•   Good Press/Bad Press
•   Documentation of Decisions
•   GFP
•   Problems – Obsolescence, Failures
•   Award Fee – good and bad
•   International – help us, profit, stability

				
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