EVMS Fundamentals v.7.0. (Part 2 of 2) Slides and Notes

Transcription

1 EVMS Fundamentals v.7.0 (Part 2 of 2) Slides and Notes

2 Course Outline Incorporating Actual Costs 07A. Types of Actual Cost 07B. Direct and Indirect Costs 07C. Applying Indirect Costs Earned Value Basics 08A. Measuring with Earned Value 08B. Earned Value Methods 08C. Cost and Schedule Variances Estimates To Complete 09A. Developing an Estimate to Complete 09B. Validating ETC / EAC Data Variance Analysis 10A. Metrics and Variance Thresholds 10B. Variance Analysis Reports Compliance and EVMS Deliverables 11A. Overview of the EVMS Criteria 11B. EVMS Criteria - Organization 11C. Criteria Planning/Scheduling/Budgeting 11D. Criteria Accounting and Analysis 11E. Criteria Revisions and Reviews 11F. Criteria - Deliverables EVMS Fundamentals Summary 12A. Summary OBS, WBS, and Baseline 12B. Summary Schedules and Cost 12C. Summary Earned Value Basics

3 Incorporating Actual Costs Types of Actual Costs (7A) Types of Actual Costs There are three main types of costs: Booked Costs. Commitment. Float. Booked Costs (Actuals) Expenses include the actual costs on the accounting records. They are payments against current obligations. Copyright 2013 The CBT Workshop, All Rights Reserved 1

4 Commitments Commitments are all unpaid portions of purchase orders or contracts. They are unpaid obligations that commit the company. Purchase Orders (POs). Contracts. Inter-company work requests. Contract labor/consultants agreements. Labor worked but not expensed. In-house adjustments to expenses. Leases. Authorized expense reports. Float Float are items that have been ordered by the program but not yet fully documented. They are obligations that are floating through the system. Travel. Relocations. Material requisitions. Any items being competed. Verbal directions to purchase from appropriate management. Float is not tracked in most procurement systems and may require a system to track it. Material Cost Relationships Copyright 2013 The CBT Workshop, All Rights Reserved 2

5 Types of Actual Costs You have just completed the topic on Types of Actual Costs. Incorporating Actual Costs Direct and Indirect Costs (7B) Direct Costs Any cost that can be identified to a final cost objective. Program labor. Material and Subcontracts. Other Direct Costs (ODCs). Copyright 2013 The CBT Workshop, All Rights Reserved 3

6 Indirect Costs The cost of doing business. Labor overhead and fringe. Company overhead. General and Administrative (G&A). The sum of direct and indirect costs represents the total cost of a project. Labor Costs In-house labor is booked when paid. Lag of a few days to 1 Month from work to expense. Lag of 1 to 2 Months for inter-company work. In most cases is expensed uniquely because of burdens. Lag of 1 to 3 Months for labor agreements and consultants. In most cases is booked as ODC. Material Costs Tangible items delivered to the contract including hardware, parts or equipment. May include subcontracts. There may be a significant lag from the time material is ordered until payment is made. Final costs may not be paid in full until after the project is complete due to withholds. Copyright 2013 The CBT Workshop, All Rights Reserved 4

7 Other Direct Costs (ODC) Non deliverable items are made up of the following: Leases. Contract labor / consultants. Travel. Relocation. Services. Supplies. May receive different burdens than material or subcontracts. Direct and Indirect Costs You have just completed the topic on Direct and Indirect Costs. Incorporating Actual Costs Applying Indirect Costs (7C) Copyright 2013 The CBT Workshop, All Rights Reserved 5

8 Labor Overhead Is made up of those non-direct functions required to conduct business. Personnel / Human Relations labor. Finance and Accounting labor. Procurement and Contracts labor. Security and Facilities Labor and Non-Labor. Expressed as a percent of direct labor. Labor Fringe Comprised of the non-labor benefit costs that must be added to all labor (Both direct and indirect). Medical and Life insurance. Disability/workman compensation. Employer s portion of state and federal taxes. Retirement. Holidays. Vacation. Expressed as a percent of all labor and is sometimes included in labor overhead. Non labor Overhead Support costs associated with non-labor. Shipping and receiving. Incoming inspections. Storage. g Subcontract administration. Material procurement. Expressed as a percent of all Non-Labor costs (ODC s are excluded) in some cases subcontracts may have their own overhead. Copyright 2013 The CBT Workshop, All Rights Reserved 6

9 General and Administrative (G&A) The costs associated with running the company. Corporate Management. Corporate Headquarters. Expressed as a percent of all direct and indirect costs. Buildup of Costs Buildup of Costs Copyright 2013 The CBT Workshop, All Rights Reserved 7

10 Applying Indirect Costs You have just completed the topic on Applying Indirect Costs. Earned Value Basics Measuring with Earned Value (8A) Defining Earned Value Accounting for Earned Value allows a work in process assessment of cost and schedule variances. Earned Value represents the dollarized value of completed work with respect to the budget at completion. Earned Value Management Systems provide superior performance assessments over budget to actuals comparisons. Copyright 2013 The CBT Workshop, All Rights Reserved 8

11 Earned Value Usage Earned Value (BCWP) is measured against Actual Cost (ACWP) to determine Cost Variance (CV). BCWP ACWP = CV Earned Value (BCWP) is measured against Planned Budget (BCWS) to determine dollarized Schedule Variance (SV). BCWP BCWS = SV Budget and Actuals Comparisons Comparing budget to actual cost results in a spend variance not cost variance, and contains less useful information. In the example below, it is difficult to draw conclusions about schedule performance and potential variances at completion. EXAMPLE Jan Feb Mar Apr Total BCWS ACWP Measuring with Earned Value By knowing the value of completed work, more conclusions can be drawn with respect to schedule performance and projected variances at complete. While appearing to under run budget, we were actually completing less work than planned each month, creating a behind schedule condition. The BCWP metric provided this early warning. EXAMPLE Jan Feb Mar Apr May BCWS BCWP ACWP Copyright 2013 The CBT Workshop, All Rights Reserved 9

12 Measuring with Earned Value The EV method used depends on the type of effort and the schedule for the work package. Measuring with Earned Value Several methods exist for measuring earned value. Level of Effort. Fixed Formula (0/100, 25/75, 50/50). Percent Complete. Weighted Milestones. Earned Standards. Apportioned Relationships To Discrete Work. Selection of the proper (most applicable) earned value method will help to determine the accuracy of computed earned value. Measuring with Earned Value You have just completed the topic on Measuring with Earned Value. Copyright 2013 The CBT Workshop, All Rights Reserved 10

13 Earned Value Basics Earned Value Methods (8B) Level of Effort The Level of Effort earned value method is used on work packages that are more time based than completion oriented. Level of Effort work packages do not have measurable tasks or deliverables. An example of a Level of Effort work package might be program management or program support. LOE tasks tend to mask real schedule performance. Level of Effort The Level of Effort earned value method is used on work packages that are more time based than completion oriented. Level of Effort work packages do not have measurable tasks or deliverables. An example of a Level of Effort work package might be program management or program support. LOE tasks tend to mask real schedule performance. Limit to no more than 20% of the budget. Copyright 2013 The CBT Workshop, All Rights Reserved 11

14 Fixed Formula The Fixed Formula method is typically used on short duration work packages of one to two months. This method encompasses start and complete milestones. A fixed percentage of the total budget is earned in the month that the work commences, and a fixed percentage is earned in the month that the work is finished. Typical formulas are 0/100, 25/75, and 50/50. Percent Complete Percent Complete is the easiest to administer. It is expressed as cumulative values against 100 percent of the work package value. Estimates are made on a "subjective" basis against some specific work accomplishments. Examples are lines code released, drawings issued, materials ordered, parts received, etc. A 80 to 90 percent ceiling should be set until work is complete. Weighted Milestones Weighted milestones represent the completion of associated tasks. This method may be more difficult to plan and administer than other methods. It requires that all functional groups work to set completion milestones in place for a work package. At least one objective milestone should be established within each month of a work package. Each milestone is given a weighting which represents it s relative value with respect to the total work package budget. Copyright 2013 The CBT Workshop, All Rights Reserved 12

15 Weighted Milestones As tasks are completed, the associated milestone weights are earned. A variation of the Weighted Milestone method is Weighted Milestones with Percent Complete. This hybrid method may be appropriate where it is not possible to establish monthly milestones within the discrete work package. The control account manager subjectively determines a percent complete for all work package tasks which are partially complete. Earned Standards The Earned Standards method measures performance of repetitive or production type work. Historical cost data, time and motion studies, etc., are used for the setting of standards. Units Complete Physical units or products complete. Usually used for production or construction tasks. Requires knowledge of the cost per unit for budgeting purposes. Copyright 2013 The CBT Workshop, All Rights Reserved 13

16 Apportioned Relationships Parent/Child Tasks. Applied to tasks which have a direct performance relationship to some other discrete work such as inspection, test, quality control, etc. The parent can use any of discrete earned value methods described earlier. Apportioned Relationships The values and phasing used will reflect the same percentage earned value as its base and will reflect an identical schedule variance from that of its base work package. However the cost variance will be different because the actual costs are different. Earned Value Methods You have just completed the topic on Earned Value Methods. Copyright 2013 The CBT Workshop, All Rights Reserved 14

17 Earned Value Basics Cost and Schedule Variances (8C) Putting Everything Together A Earned Value Summary The control account manager assigns a unique earned value method to each work package. The scope of work and duration of the work package help to determine which earned value method is most appropriate. p The difference between earned value (BCWP) and actual cost (ACWP) is the cost variance. The difference between earned value (BCWP) and planned budget (BCWS) is the schedule variance. The difference between the budget at completion (BAC) and estimate at completion (EAC) is the variance at completion (VAC). Copyright 2013 The CBT Workshop, All Rights Reserved 15

18 Reviewing BCWS, BCWP, & ACWP You have just completed the topic on Cost and Schedule Variances. Estimates to Complete Developing an ETC (9A) Estimates To Complete An Estimate To Complete (ETC) is an approximation of the timephased hours and dollars required to complete the remaining work on a program. The Estimate At Complete (EAC) is the sum of the actual cost on the books, plus the ETC. Copyright 2013 The CBT Workshop, All Rights Reserved 16

19 Types of Estimates To Complete There are two general types of Estimates To Complete. Bottoms-Up Derivation Top-Down Derivation Bottoms-Up ETC Most Estimates To Complete are Bottoms-Up or grassroots ETCs. Depending on the size and duration of the program, each control account manager will re-estimate the remaining work monthly, or quarterly. In rare cases, this re-estimation will occur on a semi-annual basis. Updates to the ETC will determine the estimate at complete data as reported to internal management and the government customer. Bottoms-Up ETC Particular attention must be given to high value committed costs (e.g. Material & Subcontracts) which may not be reflected in actual (booked) costs. Time Now Budget Actual Cost Committed Cost (P.O.) $20K $35K Estimate To Complete $50K $30K The ETC must include that portion of committed costs which are not yet on the books of record. Copyright 2013 The CBT Workshop, All Rights Reserved 17

20 Top-Down ETC Top-Down ETCs are mainly derived from statistical formulas. These formulas forecast future cost efficiencies by using past cost performance and/or schedule performance as a basis. Top-Down ETC Cost Performance Index (CPI) measures cost performance efficiency. CPI = BCWP / ACWP Example: BCWP = 1000 ACWP = 1250 CPI = 0.80 (Unfavorable) Top-Down ETC Schedule Performance Index (SPI) measures schedule performance efficiency. SPI = BCWP / BCWS Example: BCWP = 1000 BCWS = 900 SPI = 1.11 (Favorable) Copyright 2013 The CBT Workshop, All Rights Reserved 18

21 Top-Down ETC An efficiency factor (1 / CPI) may be applied to work yet to be completed (BAC - cum BCWP) to derive a Top-Down ETC based on historical cost performance. Statistical ETC = (BAC - cum BCWP) x (1 / CPI) Example: BAC = 100,000 cum BCWP = 40,000 Work Remaining = 60,000 CPI = 0.8 Eff. Factor = (1 / 0.8) = 1.25 Statistical ETC = (60,000 x 1.25) = 75,000 Top-Down ETC By incorporating actual costs (ACWP), the statistical estimate at complete (EAC) based on CPI is as follows: Statistical EAC = ACWP + (BAC -cum BCWP) x (1/CPI) $40,000/.8 = $50,000 $50,000 + $75,000 = $125,000 Statistical EAC based on CPI is often considered the minimum realistic EAC value. Top-Down ETC Statistical (CPI based) EAC incorporates actual costs to date plus historical cost performance. Copyright 2013 The CBT Workshop, All Rights Reserved 19

22 Top-Down ETC An efficiency factor based on cost and schedule history [1 / (CPI x SPI)] is applied to work yet to be completed (BAC - cum BCWP) to derive a Top-Down ETC based on cost and schedule history. Statistical ETC = (BAC - cum BCWP) x [1 /(CPI x SPI)] Example:BAC = 100,000 cum BCWP = 40,000 Work Remaining = 60,000 CPI = 0.8 SPI = 0.9 Eff. Factor = [1 /( 0.8 x 0.9)] = Statistical ETC = (60,000 x 1.389) = 83,333 Top-Down ETC By incorporating actual costs (ACWP), the statistical estimate at complete (EAC) based on CPI and SPI is as follows: Statistical EAC = ACWP + (BAC -cum BCWP) x [1/(CPI x SPI)] $40,000/.8 = $50,000 $50,000 + $83,333=$133,333 $133,333 Statistical EAC based on CPI and SPI is often considered the most realistic EAC value. Developing an ETC You have just completed the topic on Developing an ETC. Copyright 2013 The CBT Workshop, All Rights Reserved 20

23 Estimates to Complete Validating ETC / EAC Data (9B) Validating ETC / EAC Data Bottoms-Up ETC data may be validated by comparison to statistical ETC and EAC formulas once the program is at least 15% complete. The To-Complete Performance Index (TCPI) is a CPI like factor for the ETC data. The remaining work (BAC - cum BCWP) is compared to the bottoms-up ETC data (EAC - ACWP) to determine the TCPI factor. TCPI = (BAC - cum BCWP) / ETC Validating ETC / EAC Data After the bottoms-up ETC is complete, validate the ETC by comparison with the TCPI. Example 1 Cum CPI = 0.85 TCPI = 1.05 (ETC is unrealistic) Example 2 Cum CPI = 0.85 TCPI = 0.87 (ETC is realistic) A further validation by WBS and by Function provides an additional benefit. Copyright 2013 The CBT Workshop, All Rights Reserved 21

24 Estimating the Completion Date Estimating a good revised project completion date helps to determine a more accurate ETC. Regardless of the planned complete date, Level of Effort costs will definitely continue until the final completion date. Have these costs been estimated for the proper duration? Estimating the Completion Date Project completion is primarily dependent on two variables. The project s critical path. The project s earned value. Assuming a project schedule incorporating critical path is used, resources can be reallocated to affect the completion date of the project. Earned Value can be used as an independent verification of the project s revised completion date. Estimating the Completion Date Drop a line vertically until it intersects with the time axis. The project is 1 month behind schedule. Copyright 2013 The CBT Workshop, All Rights Reserved 22

25 Estimating the Completion Date The completion date projection may be extrapolated from the cumulative earned value data. Compare the extrapolated completion date to the project schedule s completion date, as a point of reference. Summary The ETC is an approximation of the time-phased hours and dollars required to complete the remaining work on a program. The two basic types of ETCs are: Bottoms-Up Derivation Top-Down Derivation ETC and EAC cost data may be verified by using the To-Complete Performance Index (TCPI). The estimated project completion date should be determined to account for continuing level of effort costs in the ETC derivation process. Validating ETC / EAC Data You have just completed the topic on validating ETC / EAC Data. Copyright 2013 The CBT Workshop, All Rights Reserved 23

26 Variance Analysis Metrics and Variance Thresholds (10A) Why Variance Analysis? The benefit of an Earned Value Management System is to provide an early warning system for problems or issues which might adversely impact program schedule or cost. Variance Analysis provides for this early warning system. A formal variance analysis procedure should be established to allow the program office to review, and respond to cost and schedule problems and issues. Why Variance Analysis? Most aerospace and defense programs are large, complex procurements, which involve hundreds or thousands of control accounts. Variance Analysis incorporates a management by exception philosophy, which allows management to focus on significant (out of tolerance) cost or schedule problems. Copyright 2013 The CBT Workshop, All Rights Reserved 24

27 Metrics for Variance Analysis Six metrics are used to determine the magnitude of cost and schedule problems. Cost Variance (CV) CV = BCWP - ACWP Schedule Variance (SV) SV = BCWP - BCWS Variance At Complete (VAC) VAC = BAC - EAC Cost Variance Percent Schedule Variance Percent Variance At Complete Percent CV% = CV / BCWP SV% = SV / BCWS VAC% = VAC / BAC Variance Thresholds With hundreds of control accounts, variance thresholds allow the program office to focus on the subset that is out of tolerance with respect to cost and/or schedule variances. Variance Thresholds On large, complex programs variance thresholds may be determined by the customer. Internal (contractor) thresholds should be established whether or not the customer has a threshold requirement. Thresholds should be set to a level that will not overwhelm the control account managers. Copyright 2013 The CBT Workshop, All Rights Reserved 25

28 Variance Thresholds Thresholds should be set with respect to the following. Cost Variance Dollars and/or Cost Variance Percent. Schedule Variance Dollars and Schedule Variance Percent. Timeframe: Current Month Inception to Date At Completion Favorable and Unfavorable Variances. Variance Thresholds Several software applications offer the opportunity to set default thresholds at the appropriate level for each project. * Used with permission from Calypso Software Systems Metrics & Variance Thresholds You have just completed the topic on Metrics and Variance Thresholds. Copyright 2013 The CBT Workshop, All Rights Reserved 26

29 Variance Analysis Variance Analysis Reports (10B) Variance Analysis Reports Each month the contractor s earned value management system software should filter all variance data through the thresholds and generate a list of accounts which are out of tolerance. Variance Analysis Reports The control account managers will review the out of tolerance cost and schedule variances and determine: The nature of the problem. Clearly state the problem or what happened. Clearly state the root causes of the problem or the why. Copyright 2013 The CBT Workshop, All Rights Reserved 27

30 Variance Analysis Reports The control account managers will review the out of tolerance cost and schedule variances and determine: The impact to the program. How does problem impact cost or schedule of control account or program? How will problem impact the EAC? What is at risk? Is impact recoverable? Variance Analysis Reports The control account managers will review the out of tolerance cost and schedule variances and determine: The corrective action plan. What corrective actions have been attempted, and their success? Do we have a reasonable plan going forward to address issues? Do you have management support and necessary resources? If cost and/or schedule is unrecoverable, are there new forecast dates and a new ETC/EAC? Variance Analysis Reports The manager s variance analysis is communicated to the program office in a Variance Analysis Report. The information on these reports preclude the need for long and frequent meetings on program status. Variance Analysis Report Manager: Smith Nov-14 WBS: $ Period BCWS BCWP ACWP SV$ CV$ Month 7,325 10,562 23,953 3,236-13,390 Cum. 41,760 47, ,451-14,300 BAC 137,667 EAC 158,921 VAC -21,254 Problem Analysis Our cost variances are mainly due to using more expensive temporary personnel to perform configuration management tasks. Company employees were used to review CM plans. As a result of the reviews, significant rework was required. Program Impact We cannot recover cost variances due to labor and travel expenses. There is no budget for travel on this task. However, the CM reviews will require total travel of approx. $18K. We need to re-forecast our material ETC. Corrective Action Plan By next month, we should have all key personnel in place. Thus, fewer CM reviews will be required. At that time, our travel requirements will be reduced. All P.Os for long lead material should be placed within two weeks. Preparer: Date: Copyright 2013 The CBT Workshop, All Rights Reserved 28

31 Variance Analysis Reports Low level variance analysis may be used to explain summary level variances in subsequent reports to the government customer. Management must be willing to: Accept bad news. Respond in a proactive manner. That s just not acceptable. Summary Variance Analysis provides for an early warning system within your earned value management system. Variance Analysis incorporates a management by exception philosophy. p Internal (contractor) thresholds should be established whether or not the customer has a threshold requirement. The Variance Analysis Report is an effective means for communicating explanations of cost and schedule variances to the program office. Variance Analysis Reports You have just completed the topic on Variance Analysis Reports. Copyright 2013 The CBT Workshop, All Rights Reserved 29

32 Compliance and EVMS Deliverables Overview of the EVMS Guidelines (11A) Introduction This topic is meant to provide basic information on the nature and purpose of deliverables associated with an Earned Value Management System (EVMS). Purpose of EVMS Guidelines Standardize project performance reporting to the DoD and other agencies. Ensure that contractor s management systems are robust enough to manage complex government contracts, while providing timely and auditable project status reports. Copyright 2013 The CBT Workshop, All Rights Reserved 30

33 Purpose of EVMS Guidelines Who reviews the deliverables that are submitted to the government? Contract Managers (eg. Defense Contract Management Agency) Program Managers (eg. Navy Program Office) Agency Management (eg. Under-Secretary for Acquisition, Technology and Logistics in the Pentagon) Treasury (eg. DoD Comptroller) Auditors (eg. Office of Management & Budgeting) Congress (eg. Large Projects) Evolution of EV Requirements Developed and applied by the DoD beginning in 1967 Converted to an industry standard in 1997: ANSI 748 Required to be applied by DoD 5000 Requirement expanded to other US Government agencies by the Office of Management and Budget in 2002 OMB Circular A-11 Section 300 Issued by the Office of Management & Budget in June 2002 Establishes policy for planning, budgeting, acquisition and management of Federal capital assets,.. And reporting requirements for major acquisitions and major IT systems or projects Copyright 2013 The CBT Workshop, All Rights Reserved 31

34 OMB Circular A-11 Requires use of EVMS for Capital asset management Agencies must use a performance-based acquisition management system, based on the ANSI Standard 748 Applies to all agencies of the Executive Branch of the government that are subject to Executive Branch review Annual formal OMB Assessments are made using Program Assessment Rating Tool (PART) Program Assessment Rating Tool Objective: Allow budget decisions to be based on the performance of each program A PART assessment collects answers to 25 questions in 4 sections: Program purpose and design (20%) Strategic planning (10%) Program management (20%) Program results (50%) EVMS Required by... Department of Defense (DoD) Department of Transportation (DoT) Federal Aviation Agency (FAA) Department of Energy (DoE) National Aeronautics and Space Agency (NASA) Department of Homeland Security (HS) Department of Health and Human Services (DHHS) Center for Medicare & Medicaid Department of Agriculture Department of Commerce Department of Education Department of Housing and Urban Development (HUD) Department of Interior Department of Justice Department of Labor Department of State Department of Treasury Department of Veterans Affairs (VA) Copyright 2013 The CBT Workshop, All Rights Reserved 32

35 Application Thresholds Thresholds determined by each agency Typical thresholds (DoD for example): $20 50 Million EVMS required >$50 Million EVMS implementation & process must be validated Not all agencies have published thresholds at this time Why Do I Care? EVM has become the standard: Of industry. Of the US government. Your EVM knowledge applies to all types of government acquisition contracting. Your organization s approach should satisfy all government agencies. Purpose and Guidelines You have just completed the topic on Overview of the EVMS Guidelines. Copyright 2013 The CBT Workshop, All Rights Reserved 33

36 Compliance and EVMS Deliverables EVMS Guidelines Organization (11B) Guidelines - Organization Use a WBS. Identify responsible Departments and Subcontractors. Integrate the scope, schedule, budget, actual costs and organizational structure. Identify the department responsible for overhead costs. Make sure each WBS element (scope, schedule and budget) is assigned to a Department and a responsible manager (CAM). Guidelines - Organization You have just completed the topic on EVMS Guidelines Organization. Copyright 2013 The CBT Workshop, All Rights Reserved 34

37 Compliance and EVMS Deliverables Guidelines - Planning/Scheduling/Budgeting (11C) Planning, Scheduling, and Budgeting Create a properly linked schedule. Identify products and milestones. Create a Performance Measurement Baseline (PMB) that rolls up from the Control Account level. Establish control account budgets that separate types of costs (labor, material, etc.) Create work packages and planning packages. Planning, Scheduling, and Budgeting Ensure that work packages and planning packages sum to the total Control Account Budget. Identify and limit the Level of Effort (LOE) work packages. Set budgets for overhead expenses. Set budgets for overhead expenses. Identify management reserve and undistributed budget. Ensure that the internal budgets and management reserve sum up to the total project cost. Copyright 2013 The CBT Workshop, All Rights Reserved 35

38 Planning, Scheduling, and Budgeting You have just completed the topic on EVMS Guidelines Planning, Scheduling, & Budgeting. Compliance and EVMS Deliverables EVMS Guidelines - Accounting and Analysis (11D) Guidelines - Accounting Use a proper accounting system that shows budgets and actual costs (use data direct from the company accounting system, not spreadsheets that don t reconcile to the accounting system). Show the direct costs (budget & actual) by WBS element. ( g ) y Also show the direct costs by Department. Copyright 2013 The CBT Workshop, All Rights Reserved 36

39 Guidelines - Accounting Show all the overhead costs on the contract separately. Show the unit or job costs as appropriate (eg. cost per tank or hull). Trace material from the receiving dock to the finished product (to ensure that material is not charged to the wrong contract). Guidelines - Analysis Identify cost and schedule variance at the CA level on a monthly basis. Report on cost and schedule variances that fall outside of the agreed thresholds. Identify variations in overhead levels. Report cost and schedule variance by WBS and Department at the agreed CWBS level on a monthly basis. Make project changes based on EV information. Revise EACs on a regular basis. Guidelines - Accounting and Analysis You have just completed the topic on EVMS Guidelines - Accounting and Analysis. Copyright 2013 The CBT Workshop, All Rights Reserved 37

40 Compliance and EVMS Deliverables EVMS Guidelines - Revisions and Reviews (11E) Revisions and Data Maintenance Incorporate the contract changes quickly. Ensure that the changes to the PMB reconcile to internal planning documents and contract changes. Prohibit retroactive changes to the PMB and actual costs except for correcting accounting errors. Prevent changes to the CBB except for contract changes. Keep a baseline change log. Reviews / Validation Implementation Review. Integrated Baseline Review (IBR). Copyright 2013 The CBT Workshop, All Rights Reserved 38

41 Subcontractor Reviews On EV contracts, the Government customer requires that the Prime Contractor flow down EVMS requirements to Subcontractors. If the Subcontractor does not have a validated EVMS System in place, the Prime Contractor must demonstrate to the Government that they have a plan in place to manage the Subcontractors work using EVMS. Guidelines - Revisions and Reviews You have just completed the topic on EVMS Guidelines - Revisions and Reviews. Compliance and EVMS Deliverables EVMS Guidelines - Deliverables (11F) Copyright 2013 The CBT Workshop, All Rights Reserved 39

42 EVMS Guidelines - Deliverables The required deliverables on DoD contracts vary according to contract type and size. Contract Funds Status Report (CFSR). Cost/Schedule Status Report (C/SSR) no longer implemented on new programs poga saso of March ac Integrated Program Management Report Formats 1 7: IPMR Format 1 - defines cost and schedule performance data by WBS. IPMR Format 2 defines cost and schedule performance data by OBS. IPMR Format 3 defines changes to the PMB. IPMR Format 4 defines staffing forecasts. IPMR Format 5 narrative report of required analysis of data in Formats 1-4 and 6. IPMR Format 6 defines and contains contractor s IMS. IPMR Format 7 defines the time phased historical & forecast cost submission. Contract Cost Data Report (CCDR). EVMS Guidelines - Summary Prime objectives of EVMS deliverables: Ensure that contractor s management systems are robust enough to manage complex government contracts, while providing timely and auditable project status reports. EV Systems must meet the 32 Guidelines in ANSI 748. New systems require review and validation. Deliverables include the CFSR, CSSR (canceled as of March 2005), IPMR and CCDR. EVMS Guidelines - Summary You have just completed the topic on EVMS Guidelines - Deliverables. Copyright 2013 The CBT Workshop, All Rights Reserved 40

43 EVMS Fundamentals Summary Summary OBS, WBS, and Baseline (12A) Summary - Organizations Program organizations are established based on the nature of work conducted by the company or division. Types of Organizations: Functional Organizations. Project Oriented Organizations. Matrix Organizations. WBS and Control Accounts The use of a Work Breakdown Structure (WBS) allows government contractors to break down work scope into manageable levels. Depending on the nature and complexity of a program, several levels of detail within the WBS may be required. Copyright 2013 The CBT Workshop, All Rights Reserved 41

44 WBS and Control Accounts The Control Account level within the WBS is where work scope is planned, monitored, and controlled. Work Packages and Planning Packages are subordinate to Control Accounts within the WBS. Baseline Development The process of baseline development provides a yardstick from which performance against plan may be measured. Control Accounts must contain a discrete statement of work, a schedule, and an authorized budget. Rolling Wave planning facilitates baseline development. Changes to the Contract Budget Base (CBB) must be documented in a program log. WBS and Baseline Development You have just completed the Summary topic on OBS, WBS and Baseline Development. Copyright 2013 The CBT Workshop, All Rights Reserved 42

45 EVMS Fundamentals Summary Summary - Schedules and Cost (12B) Project Schedules Project schedules should be integrated with work breakdown structures. Key benefits of project schedules: Identification of critical path. Precedence based depiction of tasks. Resource leveling capability. Revised completion date estimates based on status. Project scheduling requirements are imposed within earned value management systems. Cost and Schedule Integration The EVMS guidelines require the integration of the WBS, and accounting, scheduling, budgeting, and procurement systems. Allows for the full capabilities of EVMS. A very painful validation is a possible consequence for the lack of cost and schedule integration. Challenges are the lack of a single off-the-shelf tool and the integration of data from multiple tools. Copyright 2013 The CBT Workshop, All Rights Reserved 43

46 Incorporating Actual Costs Actual costs are the sum of booked costs, commitments, and float. Booked costs include the actual costs on the accounting records. Commitments are all unpaid portions of purchase orders or contracts. Float are items that have been ordered by the program but not yet fully documented. The total of these represent the portion of the program cost that have been spent to date. Summary - Schedules and Cost You have just completed the Summary topic on Schedules and Cost. EVMS Fundamentals Summary Summary - Earned Value Basics (12C) Copyright 2013 The CBT Workshop, All Rights Reserved 44

47 Earned Value Basics Accounting for Earned Value allows a work in process assessment of cost and schedule variances. Earned Value represents the dollarized value of completed work with respect to the budget at completion. Earned Value Management Systems provide superior performance assessments over budget to actuals comparisons. Estimates To Complete An Estimate To Complete (ETC) is an approximation of the hours and dollars required to complete the remaining work on a program. The Estimate At Complete (EAC) is the sum of the actual cost on the books, plus the ETC. Most Estimates To Complete are Bottoms-Up or grassroots ETCs. Tops-Down ETCs are mainly derived from statistical formulas that forecast future cost efficiencies by using past cost performance and/or schedule performance as basis. Variance Analysis The benefit of an Earned Value Management System is to provide an early warning system for problems or issues which might adversely impact program schedule or cost. A formal variance analysis procedure should be established to allow the program office to review, and respond to cost and schedule problems and issues. Copyright 2013 The CBT Workshop, All Rights Reserved 45

48 Variance Analysis Variance Analysis incorporates a management by exception philosophy, which allows management to focus on significant (out of tolerance) cost or schedule problems. The EVMS Guidelines In 1997, the Department of Defense (DOD) revised the 35 EVMS Guidelines to 32. Each of the Guidelines must be met before a contractor s program management environment is validated for EVMS. The EVMS Guidelines Deliverables are comprised of: Contract Funds Status Report (CFSR). Cost / Schedule Status Report (C/SSR) no longer implemented on new programs as of March Integrated Program Management Report (IPMR) Formats 1-7. Contractor Cost Data Report (CCDR). Copyright 2013 The CBT Workshop, All Rights Reserved 46

49 EVMS Fundamentals Completion You have just completed the Summary topic Earned Value Basics. You have also completed the EVMS Fundamentals course. Copyright 2013 The CBT Workshop, All Rights Reserved 47