by Humphreys & Associates | May 1, 2013 11:07 pm
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.”
Without Estimated ACWP, timing mismatches between ACWP and Budgeted Cost for Work Performed (BCWP) cause false cost variances to appear in the Integrated Program Management Data Analysis Report (IPMDAR) information reported to the customer. 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 IPMDAR with variance explanations that discuss timing problems of the accounting system rather than actual performance issues.
Estimated ACWP is most typically required for material costs. When BCWP is claimed upon receipt of the material, the actual cost accrual typically occurs one or more months following material receipt, which creates the timing mismatch between BCWP and ACWP. Other cost element types that may require Estimated ACWP include subcontracts and Other Direct Costs (ODC). Examples of ODCs that may require Estimated ACWP include consultants, purchased labor, and travel.
The transactions described above were for material categories for which Earned Value is claimed at receipt of the material item. For production type materials, or materials that are common to many control accounts or even contracts, that go into inventory, Earned Value is claimed upon issuance from inventory, sometimes several months after receipt of the material and after the incurrence of actual costs in the accounting system. In this case, the opposite condition would exist. The accounting actuals occur before earned value is claimed for material, but EVM rules in Guideline 21 (and common sense) state that ACWP is not to occur until BCWP takes place. Therefore, the accounting actual costs have to be “suppressed” from entering the EVM engine until material Earned Value occurs. Since some companies say they cannot suppress actual costs, they let the actual costs enter the system, but make an off-setting “Negative Estimated ACWP” entry in the EVM system until the material is issued and BCWP can be claimed for the material.
Do you need to implement an Estimated ACWP process in your Earned Value Management System? Humphreys & Associates has the earned value training 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/
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