Transcript Using Earned Value Management in Government Contracting
USING EARNED VALUE MANAGEMENT IN GOVERNMENT CONTRACTING
6000 5000 4000 3000 2000 1000 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Presented by Stephen J. Yuter, CPCM, CFCM, PMP
Overview
Definition & Principles of EVM EVM Process & Key Questions Traditional Management Systems vs. EVM Performance Measurements FAR & Agency EVM Requirements Contractor’s Requirements for EVM Contracting Officer’s Responsibilities for EVM
Why Is There a Need for EVM?
Need for accurate and consistent status information Numerous complex (and interrelated) projects 70% of projects are over budget and behind schedule 52% of all projects finish at 189% of their initial budget
What is EVM?
Earned value is the value of the work that has been completed – it represents the amount of the overall project budget that has been “earned” based on the percentage of the work that has been accomplished EVM enables both the government and the contractor to have clear visibility into technical, cost and schedule planning, performance, and progress on their contracts EVM… requires that each element of work be budgeted as each element is completed with clearly defined deliverables, its budgeted costs are earned by placing a cost value on status, a project's performance can be evaluated and communicated
What is EVM? (cont’d.)
Proper use of EVM can provide early warning (forecasting) of impending problems, leaving ample time for corrective action EVM DOES NOT determine a course of action; instead, it simply isolates the cause of project problems or confirms that tasks are progressing as planned
EVM is normally not appropriate for contracts that are not performance-based (e.g. FFP or T&M) or where the nature of the work is not measurable (e.g. level of effort, and/or in steady state operations and support); optimal for services contracts providing development & integration
Applying EVM principles properly can provide for better control of program/project performance, along with greater accountability and a reduction in risk
Basic Principles of EVM
Break down the work scope into discrete, measurable elements and assign responsibility Plan and integrate the scope, schedule, and cost into a time-phased plan and control changes to the plan Objectively assess progress and accomplishments Use actual costs Analyze variances from the plan Use the information to manage
Key Attributes of EVM
The Earned Value Process
Define the Work Plan the Work Work the Plan Collect Results Measure Performance Change Control Analyze Deviations External Changes Take Corrective Action
Why Use Earned Value Management?
Ensures a clear definition of work prior to beginning that work Presents a logical plan for accomplishing the work Provides an objective measure of accomplishments Early and accurate identification of trends and problems Accurate picture of contract status cost, schedule, and technical Basis for course correction Supports mutual goals of contractor and customer bring project in on schedule and cost
EVM Measures Progress
Progress = movement towards a goal
to measure progress, there must be a standard against which the movement may be compared EVM establishes that standard as the Performance Measurement Baseline and measures progress against that baseline
What Do We Measure Progress Against?
Performance measurement baseline: integrates three key measurements budget is spread over . . .
time , to accomplish the scope of work against which progress can be measured compares the PLANNED amount of work with what has actually been COMPLETED , to determine if COST,
SCHEDULE , and WORK ACCOMPLISHED
are progressing as planned work is “earned” or credited as it is completed (expressed in dollar or hours); the value earned is the WBS budgeted cost of the activity completed to date
Key Questions EVM Answers
We analyze past performance………to help us control the future PAST PRESENT FUTURE
Are we on schedule?
Are we on cost?
What are the significant variances? Why do we have variances?
Who is responsible?
What is the trend to date?
When will we finish?
What will it cost at the end?
How can we control the trend?
The Two Key Questions 1. Did we get what we wanted for what we spent?
2. At the end of the project, is it likely that the cost will be less than or equal to the original estimate?
Ways of Earning Value
Should be quantitative and discrete whenever possible Discrete = tangible end product e.g. delivery of a specification, vendor parts contract awarded, foundation completed Should be integrated with success criteria or technical measures e.g., successful completion of clean-up, a specific test, reliability growth curve
Traditional Management Systems
In these systems, you budget work and then record actual expenditures.
Example: I budget 5 widgets at 100 hrs per widget.
At the end of the month 400 hrs had been expended.
GREAT! I'm 100hrs under budget
Budget 500 vs.
Actual 400 = Variance 100
But what does this mean? Is this really the true status of work?
What did I accomplish?
Management Systems Measurement of Expenditures
Well, I’ve spent 400 hrs, does that mean I’ve accomplished 400 hrs of work?
Actual Cost is not an indication of work progress, only an indication of hours/money spent.
Management Using Earned Value
Earned Value is an objective measure of how much work has been accomplished Example: I plan to build 5 widgets this month Each widget should take 100hrs I will measure Earned Value based on # widgets completed
At Month End...
Budget Plan 500
3 2 1
Earned Value 300 (3 Widgets * 100 hrs) Actual 400
Earned Value Adds a New Dimension to Traditional Tracking Systems
Budget Plan 500hrs Schedule Variance (200) Earned Value 300hrs Cost Variance (100) Actual 400hrs
I better figure out what is going on. I’ve got 200 hours worth of work to catch up on, and I’ve already overspent by 100 hours.
Using Performance Data for Decision-Making
Behind Schedule How critical is schedule?
Can I afford to work overtime to recover?
Can I do tasks concurrently?
Are there technical innovations which could speed up the process?
Am I “gold plating” instead of just meeting requirements?
Should I do a schedule risk assessment to project impact to program?
Over Cost Can I reschedule tasks? (time phasing) Is there a less costly facility I can use?
Are there tasks which can be deleted?
Should the element be added to my risk management profile?
Five Basic Performance Questions & Answers in EVM
Question Answer
How much work did we plan to do?
How much work got done?
Budgeted Cost for Work Scheduled Budgeted Cost for Work Performed Actual Cost of Work Performed How much did the completed work cost?
What was the total job supposed to cost?
Budget at Completion What do we now expect the total job to cost?
Estimate At Completion
Acronym
BCWS = PV BCWP = EV ACWP = AC BAC EAC
Variance Calculations in EVM
Schedule Variance (SV) = EV – PV
the difference between Earned Value (EV) and Planned Value (PV)
Schedule Performance Index (SPI) = EV/PV
SPI<1 means project is behind schedule
Cost Variance (CV) = EV - AC
the difference between EV and Actual Cost (AC)
Cost Performance Index (CPI) = EV/AC
CPI<1 means project is over budget
Making Projections with EVM
Cost Schedule Index (CSI) = CPI x SPI
the further CSI is from 1.0, the less likely project recovery becomes Once a project is 10% complete, the overrun at completion will not be less than the current overrun Once a project is 20% complete, the CPI does not vary from its current value by more than 10% The CPI and SPI are statistically accurate indicators of final cost results
Using Performance Data To Validate Estimates
New EACs take on more meaning when you employ performance information the EAC can be “predicted” by the performance index Why do we need accurate EACs?
Variance at Completion vs. Contractor Loss Positive VAC: EAC < BAC underrun Negative VAC: EAC > BAC share area EAC > ceiling overrun contractor gain contractor partial loss contractor loss Government develops top-level EAC for comparison: Government should limit progress payments if EAC is greater than contract ceiling Government needs accurate forecast of fund requirements
Earned Value Problem Indicators
GOAL: to verify that effective variance analysis processes are applied to identify, correct, and report problems
Potential Problem Indicators: Zero variances Monthly trends turning negative or downward Schedule variances generally indicate cost will follow Actuals > Latest Revised Estimates (LRE) BCWP increases with no increase in ACWP Negative data elements
Statutes Related to EVM
The requirement for EVM as it is practiced today can be traced to three public laws: Government Performance and Results Act of 1993 (GPRA) Establish performance standards for Federal budget Federal Acquisition Streamlining Act, Title V of 1994 (FASA V) Report cost, schedule, and performance goals and evaluate progress Information Technology Management Reform Act of 1996/ Clinger-Cohen Act (ITMRA/Clinger-Cohen) Report performance information systems acquisition
EVM Requirements
OMB Circular A-11, Part 7 requires the use of EVM in the performance management of major investments and major systems in development, modernization, or enhancement (DME) or in mixed life-cycle
"Agencies must use a performance-based acquisition management system to measure the achievement of cost, schedule, and performance goals, and achieve (on average), 90% of those goals”
Contractors’ Earned Value Management System (EVMS) must comply with the guidelines set forth in the American National Standards Institute (ANSI)/Electronic Industries Alliance (EIA)-748 Standard FAR 52.234-2 (Pre-IRB), 52.234-3 (Post-IRB), and 52.234-4 (EVMS) Federal agencies requires its use on major programs (i.e. IT and non-IT investments $100M or greater) and on their associated contracts with a contract price of $20M or greater; continued surveillance to ensure compliance
EVM Requirements (cont’d.)
Contract Total Value
$50M and greater $20M and greater but less than $50M
EVM Compliance
Required Required
CWBS & IMS
Required Required
CPR (monthly)
Required
CFSR (quarterly)
Required Required Required Less than $20M Optional (at discretion of PM) Required if PM requires EVM Required if PM requires EVM Required
Integrated Baseline Review (IBR)
Determines that the Performance Measurement Baseline is responsive to the scope of work required Joint assessment of Coverage of SOW Scheduling of work Resource allocation Earned Value methodologies Technical content of PMB Realism and Risks Should be conducted pre-award but no later than 180 days post-award
The Contractor’s EVMS
Describes system in sufficient detail to determine compliance Includes prior Certification/Acceptance If no EVMS is in place, Contractor must submit a comprehensive plan for compliance System description Necessary modifications Compliance map Process descriptions Recent evaluation or self-assessment results Identify major subcontracts for application of criteria Verify baseline integrity is maintained Contains plan and procedures for surveillance and self assessment
The Contractor’s EVMS (cont’d.)
Surveillance Plan Methods and techniques Inclusion of new scope Customer coordination Schedule Analysis Ensure that reliable and timely cost, schedule, and technical performance information is generated Baseline Budget Control Accounts Baseline Schedule Work Measurement by Control Account Work-hours, dollars, units, etc.
EVMS Is Important to Effective Contract Administration
EVMS gives early warning of potential problems As a Contract Specialist or Contracting Officer, you are a member of the Integrated Project Team (IPT) It is your job as the CS/CO to protect the Government’s rights if performance does not show satisfactory progress!
You must work with the other IPT members and the Contractor to avoid or mitigate performance problems
What Are the CO’s Responsibilities Regarding EVMS?
Contracting Officer’s Pre-Award Responsibilities as a Member of the IPT: Identify application of the Earned Value Management System in acquisition plans, solicitations and contracts Define reporting and electronic submission requirements Define evaluation criteria for source selections Factor EVMS into contract management planning
What Are the CO’s Responsibilities Regarding EVMS? (cont’d.)
Contracting Officer’s Post-Award Responsibilities as a Member of the IPT: Integrate performance monitoring with EVMS into Award/Incentive plans Monitor performance with IPT using the EVMS Act when performance is at risk (communication with contractor, show cause and cure notices, etc.) Evaluate the Contractor’s EVMS implementation plan Evaluate the Contractor’s EVM systems for compliance with the standard Conduct Integrated Baseline Reviews to ensure all the work scope is included in the baseline
EVM Impact on Mission
By utilizing EVM properly, an agency can… improve its ability to track and report on investment cost, schedule, and performance variances (agency projects must stay within a 10% variance) allow PMs and project team members to optimize resources and deliver capital investment projects on-time, on-budget, and within scope operate by tracking its programs’ health beyond pure financials ensure its customers’ requirements are satisfied
Summary
EVM helps reduce the guesswork in: measuring performance forecasting Aids in getting beyond misleading measures of progress - provides a common denominator for work scope, schedule, and resources Reasons to use EVM: Good project management practices OMB/FAR requirement Should be incorporated into contracts for major acquisitions (cost-reimbursement)