Title: Earned Value Overview for Contract, Supply Chain and Other Contracting Agents EVMS Workshop October
1Earned Value Overviewfor Contract, Supply Chain
and Other Contracting Agents EVMS
WorkshopOctober 17, 2007Raytheon Missile
SystemsLisa Mobley, Presenter
2Earned 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.
3Earned 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.
4Components 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.
5Earned 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.
6Recent 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.
7Agency Application of EVM
8ANSI/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
9EVMIG 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.
10EVM 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
11Accounting 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.
12EVM 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.
13EVM 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.
14EV 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?
15EVM 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.
16EV 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.
17Successful 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.
18Earned 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
19EV 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
20Earned 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.
21EV 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
22EVM 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
23Pre-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
24Contractual 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.
25DID 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.
26DoD 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.
27EVM 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
28EV 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
29Government Resources
30Government Resources, Continued
31Questions??
- Raytheon EVM questions and concerns can be
addressed in this open forum. - For non-Raytheon EVM requirements and guidance,
contact your Agencies EVM Specialists.