Aligning BCWP with ACWP for Proper EVM | Earned Value Management

by Humphreys & Associates | May 1, 2013 11:07 pm

ACWP and BCWP by DAUWhat is estimated Actual Cost of Work Performed (ACWP)?  Estimated ACWP is an adjustment to the Actual Cost of Work Performed (ACWP) in the earned value “engine” to align ACWP with Budgeted Cost for Work Performed (BCWP).  Estimated ACWP is synonymous with “estimated actuals.”

Why is Estimated ACWP necessary? Without Estimated ACWP, timing mismatches between ACWP and Budgeted Cost for Work Performed (BCWP) cause cost variances to appear in the Integrated Program Management Report (IPMR – formerly the Contract Performance Report).  Typically these variances are favorable and can mask other unfavorable variances.  Additionally, if these variances exceed reporting thresholds, the explanations clutter Format 5 of the IPMR with explanations that discuss timing problems of the accounting system rather than actual performance issues.

To what types of cost do Estimated ACWP apply?  Estimated ACWP is most typically required for material costs.  When BCWP is claimed upon receipt of the material, the actual cost accrual often occurs in the month following material receipt which creates the timing mismatch between BCWP and ACWP.  Other cost element types that require Estimated ACWP include subcontracts and Other Direct Costs (ODC).  Examples of ODCs that may require Estimated ACWP include consultants, purchased labor and travel.

How does Estimated ACWP function?

  1. First, a determination must be made whether Estimated ACWP is necessary.  When a material item is received, the BCWP is claimed.  If ACWP does not appear in the period that the BCWP was claimed, Estimated ACWP is necessary.
  2. Second, the Estimated ACWP adjustment is entered into the Earned Value engine (e.g. Deltek Cobra) as a current period transaction.  The amount of the Estimated ACWP is based on the best information available for the material item using the invoice, purchase order, or receiving report.
  3.  Third, the Estimated ACWP adjustment transaction is reversed in the EV engine prior to the next month’s update.  If the transaction were not reversed, the ACWP will be double-counted when the actual data from the accounting system is transferred to the EV engine.
  4. Finally, remember that if the actual data does not occur as expected in the month following material receipt, the Estimated ACWP entry and reversal process must continue until the accounting system contains the cost of the material item.  Also, Estimated ACWP transactions should be recorded in a log to maintain traceability.

Do you need to implement an Estimated ACWP process in your Earned Value Management System?  Humphreys & Associates has the earned value management experts to assess your material management processes and implement the appropriate procedures. Contact us today.

Source URL: https://blog.humphreys-assoc.com/aligning-bcwp-acwp-for-evm/