Accounting

Summary Level Planning Packages (SLPPs) Misnomer and Alias

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Summary Level Planning Packages (SLPPs) Misnomer and Alias

Origins

One of the confusing terms in the world of Earned Value terminology is “Summary Level Planning Packages” or SLPPs. The term first appeared in Section 1 of the Earned Value Management Implementation Guide (EVMIG), published in 1996 which read:

Summary Level Planning Packages (SLPP) – “When it is clearly impractical to plan authorized work in control accounts, budget and work should be identified to higher WBS or organizational levels for subdivision into CAs at the earliest opportunity.” At this time, EIA-748 was still in draft form.

When 748-1998  was released, the SLPP reference was included with a slight modification to its use being limited to; “work scope for business reasons, is not yet allocated to responsible control accounts”.

With that being said, the term was never specifically included in the EVMS Guidelines (neither the original 35 criteria nor the initial 32 EIA Standard Guidelines)!  The concept itself was again put forth in 748-B where the title changed to “Higher Level Account”, but the SLPP was still not referenced.  With 748-C, the same phrasing is found.  Throughout this time, Guideline 8 has not changed, where it continues to say (underlines added):

“Budget for far-term efforts may be held in higher-level accounts until an appropriate time for allocation at the Control Account level.”

Higher Level Accounts

The term was “Higher Level Accounts” (HLA if you prefer an acronym), and that is the only mention in any of the Guidelines themselves.  In their 25 June 2015 Cross Reference Checklist, however, the DCMA felt the need to clarify the term in several spots:

8.a.(2) Higher level WBS element budgets (where budgets are not yet broken down into control account budgets) also known as a Summary Level Planning Package?

  1. b. Does the Contractor’s system description or procedures require that the sum of control accounts, Summary Level Planning Package (SLPP) budgets, Undistributed Budget(UB), and Management Reserve(MR) reconcile and trace to the CBB or Negotiated Contract Cost (NCC) plus the estimated cost of AUW) for any recognized OTB?
  2. b. Are ETCs developed at the work package, planning package, and Summary Level Planning Package (SLPP) levels, or where resources are identified if lower than the work package level?
  3. j. Are VACs calculated and analyzed with corrective actions at the control account (at a minimum) and Summary Level Planning Package (SLPP) levels?

Created to Help

The term “Higher Level Accounts (HLA)” was created to help contractors comply with the government requirement to distribute budgets from Undistributed Budget (UB) within two full accounting periods after definitization of the contract value.  Many contractors on large, long term contracts were struggling with distributing work and budget for far-term effort about which they were not yet sure where or by whom the work would be performed.

The government allowance to create Higher Level Accounts enabled the contractors to “distribute” the scope and budget to an account – as though it were a Control Account – where someone would “tend it” until the contractor could better define where and by whom the work would be performed.  While in the HLA status, the assigned higher-level manager (the PM or a functional manager designee) would be responsible to ensure the time phasing of the high-level budget was current and that the EAC for the work in the HLA was up to date (rates and time phasing ).  Once the contractor determined the appropriate Control Account Manager responsible for getting the work performed, the scope, schedule, and budget in the HLA would be transferred (distributed) from the Higher Level Account to the Control Account.

Misnomer

As stated earlier, the origin of the term “Summary Level Planning Package – SLPP” is not really known, and it is really a misnomer:

  1. It is not a Summary Level (i.e., other Control Accounts do not summarize into it).
  2. It is really not a Planning Package (the responsible Higher Level Manager does not perform any planning for the work in the HLA – it is just a holding point until it can be distributed to, and planned by, the ultimate CAM).

This last point is where some people become confused.  Being called a “Planning Package,” some people think the SLPP is part of a Control Account that is at a higher level within the Control Account than a Planning Package.   That is another distinction between an SLPP (HLA) and a Planning Package – an SLPP can NEVER be directly detail planned into Work Packages.  The budget in an SLPP must be transferred to a Control Account for that CAM to detail plan the work as necessary over the period of performance of the Control Account.

To be fair to the CAM receiving the HLA/ SLPP scope, schedule, and budget, the project should also have a “Rolling Wave Planning” approach for the HLA/SLPP, one that is at least 30 days in advance of the normal CAM Rolling Wave Planning process.  This would give the CAM time to incorporate the work and budget time phasing into the Control Account (generally in one or more Planning Packages within the Control Account) in order to then be prepared for any necessary detail planning into Work Packages as part of the normal Rolling Wave Planning process.

Final Thought

Some people do not even consider Higher Level Account to be an appropriate description since the HLA/ SLPP is essentially at the same level as the Control Account.  The “Higher Level” aspect means it is assigned to a higher level manager than a Control Account Manager (CAM) for that manager to “tend to” the scope, schedule, and budget until it is distributed to a CAM.

So even though HLA is what it is, SLPP is what it has become.

Higher Level Accounts or Summary Level Planning Packages can be confusing and often an area where projects need some help.   A Humphreys & Associates EVM Consultant can provide the guidance you need for your unique production or development project.  Please contact us for more information.

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Aligning ACWP with BCWP for Proper EVM | Earned Value Management

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ACWP and BCWP by DAU

What 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 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.

To what types of cost does 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 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.

How does Estimated ACWP function?

Receipt-type material:

  1. First, a determination must be made whether Estimated ACWP is necessary.  For some categories of material, when a material item is received, the BCWP is claimed.  If actual costs for the materials do not enter the accounting system in the same period that the BCWP was claimed, Estimated ACWP is necessary to ensure ACWP occurs when BCWP occurs.
  2. Second, the Estimated ACWP adjustment is entered into the Earned Value engine 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 actual costs were to come in that month and the transactions were not reversed, the ACWP would be double-counted when the actual cost data from the accounting system gets 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 is re-entered and the reversal process must continue every month until the accounting system receives the cost of the material item.  Also, Estimated ACWP transactions should be recorded in a log to maintain traceability.

Production-type (inventory) material:

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.

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EVMS – Using Estimated Actual Cost of Work Performed (ACWP)

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Using Estimated Actual Cost of Work Performed (ACWP)

Estimated Actual Cost of Work Performed

The use of estimated actual cost of work performed (ACWP) for material and subcontractors is something the Defense Contract Management Agency (DCMA) review teams expect to see in Earned Value Management Systems (EVMS).

The review teams know:

  • Many contractors earn value for a large amount of material at receipt
  • Suppliers or subcontractors do not always invoice at the same time
  • Contractors do not pay at the same time

VAR Narratives

DCMA increasingly sees variance analysis report (VAR) narratives for material with such statements as “My $1 million cost variance is caused by late receipt of the invoice from the vendor” or “is caused by the company not paying their invoice this month.”

These are misleading and needless variances because these drastic, temporary variances go away, or are minimized, once the invoice is paid and the actual costs in the accounting system catch up with the budgeted cost for work performed (BCWP) claimed. The intent for using estimated ACWP is to ensure that the ACWP recorded closely follows when the BCWP is claimed in the EVMS.

Real Cost Problem

When the estimated ACWP is “reversed” at the end of a month and replaced with the true actual costs, there should not be a significant cost variance, unless there is a real cost problem in which case more information is required to describe the situation. Replacing the estimated ACWP with the true actual costs is considered a routine accounting adjustment.

Note that the term “estimated ACWP” and not “estimated actual costs” is being used. The intent is to align when ACWP and BCWP are claimed in the EVMS to prevent unnecessary variances. The estimated ACWP is not the actual cost recorded in the accounting system.

Examples

That said the estimated ACWP must be based on documented, verifiable information. What are some examples of sources for the estimated ACWP?

Materials

  • For large, discretely tracked items, use the purchase order (PO) value for the parts earned
  • For small value items that may not be discretely tracked, one could use:
    1. PO value (may be cumbersome)
    2. Priced bill of material (BOM) for items received in the month (sorted by receipt dates). This can be actual prices or average prices for similar parts groupings (best estimate, without going to an excruciatingly painful amount of work to get it)
    3. Homogeneous groupings of material based on units of measure (pounds, reels, feet, tons, gallons, etc.) times the average price for that grouping (e.g., various sized washers: “received 3,000 pounds of various washers at approximately $4.00 per pound” instead of trying to track each washer at $0.000023 per washer)

Subcontractors

The estimated ACWP can vary depending on type of subcontracts involved. It could reflect:

  • The CPR/IPMR/IMPDAR value for ACWP (yes, this is an estimated ACWP until the invoice is paid)
  • Other cost report values for ACWP or subcontractor actual costs
  • Earned value claimed by the subcontractor (what it was supposed to cost). If history shows poor or good performance, the control account manager (CAM) can modify the estimate for ACWP accordingly
  • Work performed reported by the subcontractor. The CAM should have a “valuation” of all the deliverables or anticipated receipts based on the subcontractor’s billing plan or delivery schedule

Labor Subcontractors

Usually, these staff augmentation subcontractors are working with the contractor’s employees. The estimated ACWP could reflect:

  • Hours performed, priced out at the contract rate (this does not account for overtime, premiums, etc.)
  • Months or weeks of support priced out labor at the planned rate, contract rate, or known actual rates

Clearly Identified Invoices

For all of the above cases, the supplier or subcontractor invoice should clearly identify:

  • What was sent or what services were provided
  • The actual costs for each of those items (subject to contract terms)

Disciplined Direction

Using estimated ACWP does require direction on how to implement it in a disciplined manner. It is important to identify who is responsible for entering the estimated ACWP in the EVMS and the process used to replace the estimated ACWP with the recorded actual costs from the accounting system.

The CAMs may need assistance from their financial/materials/accounting departments to ensure they have the right information needed for the estimated ACWP and that the true actual costs are captured in the EVMS as soon as the data are available.

Have questions about using estimated ACWP in your EVMS? Humphreys & Associates is available for consulting on this topic and all stages of your EVMS implementation or ongoing projects. Feel free to contact H&A.

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