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Earned Value Overview for Contract, Supply Chain and Other Contracting Agents EVMS Workshop October

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Title: Earned Value Overview for Contract, Supply Chain and Other Contracting Agents EVMS Workshop October


1
Earned Value Overviewfor Contract, Supply Chain
and Other Contracting Agents EVMS
WorkshopOctober 17, 2007Raytheon Missile
SystemsLisa Mobley, Presenter
2
Earned Value Management Origins
  • Earned Value has been used since the 1960s by
    the Department of Defense (DoD) as a central part
    of the C/SCSC (Cost/Schedule Control Systems
    Criteria).
  • In the 1990s the DoD revised the previous 35
    criteria contained in the C/SCSC and produced the
    32 criteria for EVMS (Earned Value Management
    Systems).
  • These criteria have since been accepted by the
    American National Standards Institute/Electronic
    Industry Association as a new standard, called
    ANSI/EIA 748.
  • Currently, EVM is being used in a wider variety
    of government contracts, and is spreading through
    the private sector as a valuable tool for project
    managers.

3
Earned Value Management
  • Earned Value Management (EVM) is a set of
    business processes and systematic tools that
    allow trained analysts to manage project planning
    and control.

Each element should be functionally sound for EVM
to be implemented successfully.
4
Components of Earned Value
  • People
  • It is imperative that people supporting EV
    programs have the proper skill set background and
    expertise for compliant program success.
  • Process
  • EVM process implementation must be based on best
    practice procedures that are consistently
    followed with discipline.
  • Tools
  • Technical tools can make or break the EVM
    process. The right automated tools will improve
    reporting and allow for greater operational
    efficiencies.

5
Earned Value Utility
  • Multiple Federal Agencies are now following the
    lead of the Department of Defense (DoD), the
    National Aeronautics and Space Administration
    (NASA) and the Department of Energy (DoE) in
    requiring the use of Earned Value.
  • Any agency currently requesting funding from the
    government must use a validated Earned Value
    Measurement System (EVMS).

Federal mandate The Presidents Office of
Management and Budget (OMB) has directed that EVM
be incorporated on all applicable federal
contracts as indicated in the FAR and in
compliance with the industry accepted ANSI/EIA
748 standards.
6
Recent EVM Legislative Updates
  • The following recent legislative changes have
    increased industry application of EVM
  • (OMB) July 2003 Circular No. A-11 is released
    requiring compliance to ANSI Standard EIA-748 to
    obtain a portion of the congressional budget.
  • DoD March 7, 2005 EVM is required on contracts
    larger than 20 million any contract greater
    than 50 million must have a validated EVMS.
  • Sarbanes-Oxley Act (SOX) section 404 improve
    internal controls Establishing that Excel is
    not a valid project control system.
  • July 5, 2006 Federal Acquisitions Regulations
    (FAR) is updated for EVMS thresholds to be
    established and maintained at the agency level.
  • Spring 2007 - HUD's Office of the Chief
    Information Officer (OCIO) has begun the
    implementation of an EVMS for the Department's
    information technology (IT) investments.
  • See the following page for federal agencies
    affected by the July 5, 2006 FAR updates.

7
Agency Application of EVM
8
ANSI/EIA 748 Criteria
  • EVMS principles are governed by the American
    National Standards Institute (ANSI)/Electronic
    Industries Alliance (EIA) 748 Guidelines on
    Earned Value Management.
  • ANSI/EIA segregates their 32 guidelines into 5
    process areas that are logical sub-sets of the
    functional cycle
  • Organization
  • Planning and Budgeting
  • Accounting
  • Analysis
  • Revision Control

9
EVMIG Requirements
The latest Earned Value Implementation Guide
(EVMIG) released by the Department of Defense in
October 2006, has tightened earned value
application and requirements to more rigorous
levels. DCMA and other Federal Contract
Management Agencies are in an accelerated
learning curve to adequately provide EV oversight
and compliance support.
10
EVM Provides Project Application
  • As an industry standard, EVM can
  • Integrate scope, schedule and cost into a
    performance measurement baseline (PMB).
  • Measure a projects progress.
  • Forecast its completion date and final cost.
  • Provide cost and schedule variances at monthly
    intervals.
  • Project repeatable or avoidable risks through
    analysis of performance trends

11
Accounting Approach Analysis
  • Under the Classic accounting approach, physical
    progress is not taken into account when analyzing
    cost performance. Instead, a projects actual
    costs to date are simply compared to planned
    costs, often with misleading results.

The image to the right illustrates this example.
A task has a planned value (PV) of 1,000, and
actual costs (AC) of 1,000. As the cost of the
activity follows a predictable upward path, it
appears this task has perfect cost performance.
12
EVM Accounting Approach
  • However, when work progress is actually taken
    into account, the results typically differ.
  • In this illustration, the project has spent
    1,000 in actual costs, but is behind schedule
    and has only achieved 750 of Earned Value.
  • This difference is called a cost overrun, meaning
    that this project has a Cost Variance (CV) of
    -250 for work completed to date.

13
EVM Basic Elements
  • Budgeted Cost of Work Scheduled (BCWS)
  • Allocation of budget in monthly increments
    determined by baseline dates, task duration and
    Earned Value Technique (EVT) 0/100, etc.
  • Budgeted Cost of Work Performed (BCWP)
  • Earned value on work started, executed and/or
    completed, based on monthly status updates and
    EVT designation.
  • Actual Cost of Work Performed (ACWP)
  • Monthly incurred Actuals assigned to a control
    account or task based on material received,
    invoices paid, and labor hours charged.
  • Budget at Complete (BAC)
  • The sum total of the time-phased contractual
    budget for competing authorized work.
  • Estimate at Complete (EAC)
  • An approved estimate at the control account
    level that has been summarized at the contract
    level for completing authorized work.

14
EV Model of Accounting
  • In the EVM Approach, Planned work (BCWS), Work
    performed (BCWP) and Actual costs to perform the
    work (ACWP) are managed and reported,
    individually.
  • This approach provided for insight as to how all
    elements are performing in isolation and serves
    to validate
  • Is the plan still good?
  • What is delaying or accelerating the work
    performance?
  • Who is working the program and are their skills
    value-added?

15
EVM Principles
  • By aligning dollar value into a projects
    detailed plan of execution, earned value allows
    companies to measure project health throughout
    the life cycle of that project.
  • The essence of earned value management is that
    budget is established, tracked to completion, and
    analyzed at the work task level.
  • Budget is aligned to a task to represent the
    anticipated requirements of the effort required.
  • As work is completed, the value of that budget is
    earned as performance.
  • Actual cost for the work performed are compared
    to the task or in total.
  • A comparison of work cost to schedule
    requirements to actual cost is now available for
    analysis and future project application.

16
EV Variance Calculations
  • Schedule Variance (SV) Earned Value Planned
    Value. The difference between what was planned to
    be completed and what has actually completed.
  • Cost Variance (CV) Earned Value Actual Costs.
    The difference between the work that has been
    accomplished (in dollars) and how much was spent
    to accomplish it.

17
Successful EVM Implementation
  • According to the Department of Defenses October
    2006 Earned Value Management Implementation Guide
    (EVMIG), a functional EVMS provides contractor
    performance data that
  • Relates time-phased budgets to specific contract
    tasks and the statement of work.
  • Objectively measures work progress.
  • Properly relates cost, schedule and technical
    accomplishments.
  • Is valid, timely and able to be audited.
  • Allows die statistical estimations of future
    costs.
  • Allows for informed decision making and
    corrective action.
  • Supplies managers at all levels with status
    information at the appropriate level.
  • Is derived from the same EVMS used by the
    contractor to manage the contract.

18
Earned Value Program Benefits
  • EVMS provides a disciplined framework for program
    planning
  • Work is authorized and scheduled in accordance
    with contract requirements
  • Performance is objectively measured against a
    baseline plan
  • Significant cost or schedule variances are
    analyzed to gain insight and avoid repetition
  • Corrective actions are taken and monitored
  • Baseline revisions can be tracked and
    incorporated, as necessary

19
EV Contractual Requirements
  • Beginning in the Capture Phase through Contract
    Award
  • Develop an executable plan as the basis for the
    Bid
  • Do not accept any considerations or conditions
    outside of documented work scope in the Statement
    of Work/Statement of Objectives.
  • Capture applicable Contract Data Requirements
    List (CDRL), tailored specifically to your
    programs and customers needs.
  • Baseline Implementation (At Contract Award)
  • Authorize work scope, budget and control account
    responsibility
  • Prepare a Program Plan that is MIL-HDBK-881A
    Compliant
  • Define Work by WBS and OBS
  • Develop a plan with adequate resource allocations
    to meet all contractual requirements

20
Earned Value Flow Down to Subcontractors
  • The prime contractor is responsible for the
    flows-down of EVM requirements to subcontractors
    meeting the applicable thresholds and/or assigned
    critical tasks.
  • Performance information reported by the
    subcontractors is incorporated and integrated
    into the contractor's management system.
  • The Contractor is responsible for reviewing and
    assuring the validity of all subcontractors
    reporting through surveillance and other means.
  • Any subcontractor with a contractual flow down
    requirement for EVM should also be included in
    the IBR. Alternatively, the subcontractor may
    participate as part of the prime contract IBR.

21
EV Contractual Procurement
  • The responsibility for implementing EVM on a
    contract is assigned to the organization tasked
    with executing the procurement of the contract.
  • EVM Focal Points work in conjunction with Earned
    Value Measurement System Specialists to
  • Disseminate current policy and provide advise, as
    needed
  • Ensure effective EVM implementation on new
    contracts
  • Determine analysis levels and contractor reports
  • Identify critical major suppliers who will
    require EVM flow-down
  • Facilitate Integrated Baseline Reviews and risk
    assessment
  • Support surveillance activities and access EVMS
    management processes

22
EVM Proposal Incorporation
  • DFARS Clause 252.242-7001, Notice of Earned Value
    Management System, requires that the contractor
    be prepared to demonstrate that the contractor's
    EVMS meets the guidelines. The contractor should
    prepare a plan to achieve validation and submit
    the plan as part of the proposal, keeping in mind
    the following

23
Pre-Contract Guidance
  • The following four major areas of the
    solicitation package need to contain EVM
    requirements. Of these areas, determine the
    latest revision of the document to apply to the
    contract. Each is described in more detail in
    the following sections.
  • WBS Describes the underlying product-oriented
    framework for program planning and reporting
  • DFARS clauses Requires the contractor to use a
    compliant EVMS May require the contractor to
    certify the use of a validated EVMS.
  • Statement of Work Describes the work to be done
    by the contractor, including data items
  • Contract Data
  • Requirements List Describes the
    Governments tailored requirements for each
    data item

24
Contractual Considerations
  • While Federal Mandates require EVM application on
    various government projects, tailoring the
    details and expectations for program execution
    and reporting must be capture before contract
    award.
  • Consider the value of the contract
  • Consider the period of performance of the
    contract
  • Consider the programmatic risks of the contract
  • Consider subcontractor inclusion and EV flow-down
  • Consider the business resources proposed for
    implementing EVM
  • Know your Agencys/Companys EVM Process
    Description to understand how EVM is required to
    be implemented within your business.

Each EV Certified organization has a written
Process Description that is approved by its
Executive Agency to ensures proper implementation
and maintenance of an Earned Value Management
Systems according to (ANSI/EIA) 748 standards.
25
DID Tailoring Opportunities
  • Certain EVMS requirements are negotiable.
    Opportunities exist to better align EVMS
    requirements with program needs for potential
    cost savings.
  • The following examples provide cost saving
    opportunities that can be captured in program
    CDRLs.
  • All parts of DIDs can be tailored as necessary
    per the tailoring guidance contained in the
    organizations guide.
  • Typically there are prohibitions against adding
    requirements beyond what is called out the
    standard DID.
  • Tailoring is accomplished via the DD 1423-1, CDRL
    form. Any tailoring instructions, such as
    frequency, depth or formats required, are
    annotated on the CDRL forms.

26
DoD EVM Contract Requirements Checklist for
Proposal Consideration
  • BASIC REQUIREMENTS
  • Earned Value Management System (EVMS) in
    compliance with ANSI/EIA-748 is required on all
    cost or incentive contracts equal to or greater
    than 20M.
  • A formally validated and accepted EVMS is
    required for cost or incentive contracts equal to
    or greater than 50M.
  • EVM is discouraged for Firm-Fixed Price (FFP)
    contracts. Exception requires business case and
    Milestone Decision Authority waiver.
  • EVM may be imposed on contracts less than 20M as
    a risk-based decision of the program manager
    based on a cost/benefit analysis.
  • Is not recommended on Contracts less that 12
    months in duration.
  • DFARS CLAUSES (pending publication of revised
    clauses)
  • Notice of Earned Value Management System (MAR
    2005), DFARS 252.242-7001.
  • Earned Value Management System (MAR 2005), DFARS
    252.242-7002.

27
EVM Objectives
  • Adequate application of Earned Value Management
    can be a win-win opportunity for both the
    contractor and the contracting agency.
  • EMV
  • Measures work accomplished, NOT just resources
    spent
  • Signals reliable forecasts needed for management
    to take corrective action
  • Provides an accurate estimate at completion (EAC)
    forecast
  • Forecasts efficiency level required to meet EAC
    (To-go Cost Performance Index TCPI)
  • Is Required during all Contract phases

28
EV Contractual Requirements Summary
  • Every contract must be carefully examined to
    determine the proper application EVM for
    meaningful reporting. This presentation has shown
    just a sampling of ways in which various factors
    that should be evaluated in determining the
    appropriate level of reporting, flow-down and
    oversight.
  • Every contract is different, and contracting
    agents are encouraged to work with the Program
    Managers and earned value staff officers to
    determine the appropriate requirements to be
    captured at contract award.

Early and adequate implementation of EVMS is
critical to developing an ample and executable
plan
29
Government Resources
30
Government Resources, Continued
31
Questions??
  • Raytheon EVM questions and concerns can be
    addressed in this open forum.
  • For non-Raytheon EVM requirements and guidance,
    contact your Agencies EVM Specialists.
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