Earned Value Management (EVM)

Earned Value Management (EVM): How Much is Enough?

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I took the scenic route to selecting the theme of this blog. First, it was suggested that I write a blog on the benefits and costs of the earned value process as it applies to program management. Next it was suggested that I describe the harm of not using any of the elements of the earned value process.

This blog summarizes my observations of how companies have chosen “how much EVM is enough” for them and share my observations of the results of these decisions. Each company has selected an EVM implementation strategy and each company’s strategy falls along a bounded continuum.

Two Goal Posts and a Cross Bar

There are as many strategies for implementing earned value management as there are companies using EVM to manage their programs and projects.

I will describe this continuum of company EVM strategies as a left goal post and a right goal post with the space between as a cross bar. The “left goal post” represents companies that elect to be very poor at EVM or to not use EVM at all. The “right goal post” represents companies that have committed to being “best-in-class” practitioners of the EVM process and are the polar opposite of the companies at the left goal post. There are few companies at either the left or right goal posts. The “cross bar” represents the vast majority of companies that have selected an EVM strategy somewhere between the left and right goal posts.

Left Goal Post: The Unwilling

I have firsthand experience with a company that at the time I initially joined them, had decided to ignore earned value management even though it was a requirement in several of its contracts. After many painful years of attempting to maintain this EVM resistant strategy, this company decided that a better strategy would be to become an “efficiently expert” at EVM.

Cross Bar: Merely Compliant at EVM

It has been my experience that most companies desire to become “EVM compliant,” which generally means being compliant with the EIA-748 Standard for EVMS 32 guidelines and to avoid failing to comply with those guidelines that could result in losing their approved or certified EVMS status. This is the vast middle ground between the two goal posts. I have five observations regarding companies in the “cross bar” majority.

Observation #1: Compliance as a Goal

Compliance should be a given or a pre-condition, not a goal. Remaining merely compliant implies a status quo or static posture.

I will use the game of golf as an analogy. Golf is a game of honor and compliance to well established rules. All PGA professional tour golfers “comply” with the rules that govern golf. Although all PGA tour pro golfers comply with these rules, their performance on tour differs dramatically.

Ninety percent of all PGA golf pros, past and present, have no tour wins. That means only 10% of all PGA tour golf pros have won at least a single PGA tour. There are seven players in the history of the PGA that have fifty or more tour wins. If the bar is lowered to forty or more wins, only three players are added to the list. If the bar is lowered yet again to thirty or more tour wins, only eight more players are added to the list. Only 18 golfers have won 30 or more PGA tournaments.

Professional golfers do not confuse compliance with performance, nor do these professionals assume that “being compliant” will improve their performance.

Observation #2: The Tyranny of the Status Quo

With apologies to Milton Friedman and his book of the same name, companies that attempt to maintain mere guideline compliance will do no better than the status quo, and often regress toward non-compliance. Maintaining status quo is a myth – you either improve or regress.

All professionals, companies included, must compete in their markets and selected fields. To succeed in this competition requires constant improvement in areas critical to success. A company, organization, or individual without the means or the desire to improve will eventually fail and perhaps perish.

Observation #3: Blaming the Scoreboard

As a program manager, I considered EVM as my scoreboard. I reacted to the EVM data – the scoreboard – and made decisions based on that data (Guideline 26: Implement managerial actions taken as the result of earned value information).

I recall the 2024 Super Bowl’s final score: Chiefs 25, 49ers 22. Did the scoreboard cause the 49ers to lose the game or did a poor decision by their coach cause the loss?  Imagine a coach that cannot see the scoreboard. That coach does not know the score or how much time remains. That coach cannot react to the realities of the game.

Observation #4: EVM Causes Poor Program Performance

I have witnessed several company leaders assert that the use of EVM on a poorly performing program is the cause of that program’s poor cost and schedule performance. A correlation between two variables, or a sequence of two variables (use of EVM and poor performance), does not imply that one caused the other. This is the logical fallacy known as “X happened, then Y happened, therefore X caused Y.”  Night follows day, but day does not cause night. Use of EVM does not cause poor program performance. Not reacting to EVM data and promptly taking corrective action with your program’s cost and schedule performance often leads to poor outcomes.

Observation #5: It Takes More Energy to be Poor at EVM than to be an Expert

Returning to the earlier golf analogy, professional golfers make very difficult shots appear easy. I played in a pro/am tournament years ago. The pro I was teamed with took me to the range hours before our tee time. He asked me how many balls I hit before each round. I told him sometimes none and sometimes 50. He hit 1,000 balls before our round. When we finished our round, he was ready for another 18 holes. I was not. Both of us “complied” with the rules of golf. His score was significantly lower than mine. His game was effortless and produced a below par score. My game was labored and produced a poor result.

It is the same with EVM or any other process. The better you are at a skill, the easier it becomes. Experts consume far fewer calories at their craft than ambivalent amateurs.

Right Goal Post: Efficiently Expert at EVM

The polar opposite of a resistant EVM strategy is a strategy to become “efficiently expert.”  As I mentioned earlier, I joined a company that attempted to sustain an EVM resistant strategy. Their EVM strategy led to de-certification, large dollar withholdings, and significant damage to their corporate reputation.

After the most ardent EVM opponents in this company sought employment elsewhere, a new strategy was adopted. This company embraced a strategy to become “best-in-class” as expert practitioners of EVM. This company’s goal was EVM perfection. EVM perfection is an impossible ambition, but wiser than “mere compliance.”  And as with the PGA tour golf pro, EVM became nearly effortless.

Which EVM strategy will your company choose?

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Mr. Kenney is a senior business executive with over 35 years of experience in the aerospace industry as well as over 10 years as a consultant to industry. He is an experienced practitioner of program management best practices as an Executive Vice President of Government Programs, Vice President of Naval Programs, and Program Manager at various aerospace and defense contractors. He is also a retired U.S. Marine Corps Colonel with 27 years of active and reserve duty.

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Improving Integrated Master Schedule (IMS) Task Duration Estimates

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Improving Integrated Master Schedule (IMS) Task Duration Estimates

One of the top reasons projects fail is because of poor task duration estimating for an integrated master schedule (IMS). Without accurate and consistent estimates, project outcomes can become unpredictable, leading to missed deadlines, budget overruns, and overall project failure. A realistic schedule is required to place the necessary resources in the correct timeframe to adequately budget the work as well as to produce credible estimates to complete and to forecast completion dates. While missed deadlines and budget overruns are detrimental for any project, there can be additional business ramifications when producing schedules in an Earned Value Management System (EVMS) contractual environment.

While there are effective methods available to improve task duration estimates, they are often underutilized. A common reason for this oversight is the lack of time allocated to developing the project schedule and determining task durations.

During the proposal phase, initial durations are typically estimated at a more summary level than the detailed execution phase. The proposed work is often defined at a level one to two steps higher than where the actual tasks will be performed. After project initiation, the team’s initial effort is to break the work down into more manageable tasks. This decomposition is crucial for achieving more accurate estimates. It’s no surprise, then, that the initial breakdown efforts often result in duration estimates that don’t align with the proposed durations.

Parkinson’s Law tells us that work expands to fill the time available. If task durations are excessively long, costs will inevitably rise. To counter this, it’s important to require estimators to provide both the estimated effort and the duration needed to accomplish the task. This approach helps to gain a better understanding of the scope of the task and to avoid unrealistic estimates. If you see a task that requires 10,000 hours with a duration of 2 weeks, then you immediately would suspect something is wrong with the estimates.

Techniques for Developing More Accurate Task Duration Estimates

What are your options? H&A earned value consultants and senior master schedulers often employ the following techniques to help a client produce a more realistic IMS.

  1. Establish a Probability Goal. It is essential to set clear expectations for the estimating team. Without guidance, teams may default to estimates with a 50/50 probability of success, which is a recipe for failure. Instead, directing the team to aim for estimates within a 75% to 80% probability range can lead to better outcomes.
  2. Break Down Tasks. Decompose tasks into smaller, more manageable components. The further out the task’s horizon, the greater the variability in estimates. For example, asking someone to estimate the drive time from Washington, DC, to Boston without specifying the vehicle, route, limitations, or conditions introduces unnecessary uncertainty.
  3. Use Professional Judgment. Engage someone with experience in the specific type of work required for the task. A seasoned expert will provide more accurate duration estimates based on their knowledge and experience. Often, we ask the potential task manager to do the estimate, but that person may not be the one with the most related experience or knowledge about the work.
  4. Leverage Historical Data. If the task or a similar one has been done before, use that historical data to inform the estimate. This approach provides a realistic benchmark for future estimates.
  5. Use generative AI. If you have access to an AI capability along with access to historical data, that could be an option to leverage the source data using specific prompts to glean relevant information. As with all AI tools, always verify the generated results to ensure it is a useful basis to substantiate the estimate.
  6. Apply Parametric Estimating. When possible, use parametric analysis to estimate the durations. For example, if it took a specific number of days to clean up a certain amount of toxic waste under similar conditions, this data can be used to estimate the duration of a new but comparable task.
  7. Engage Multiple Estimators. Gathering estimates from more than one person helps to reduce individual biases and provides a more rounded estimate.
  8. Apply the Delphi Method. This technique involves three knowledgeable individuals providing estimates or three-point estimates. The initial estimates are analyzed, and the results are shared with the estimators without attributing specific values to any individual. After discussing the findings, the estimators revise their estimates based on the collective insights, leading to a more refined and accurate duration estimate.
  9. Use Three-Point Estimates. Ask estimators to provide best-case (BC), most likely (ML), and worst-case (WC) durations, along with their reasoning. Applying a formula like the Program Evaluation and Review Technique (PERT) duration formula (1BC+4ML+1WC)/6 can yield an adjusted and realistic estimate. You can vary the best and worst case estimate for risk if you have information on that.

    To see how this simple approach can work, walk through this exercise. Ask yourself how long it takes you to drive to work most of the time. Let’s say the answer is 45 minutes. Then ask yourself how long it would take on a Sunday morning in the summer when the roads were dry (the best case). Let’s say your answer is 25 minutes. Then ask yourself how long it would take on a Monday morning in the winter during a moderate snow event (the worst case). You tell yourself 90 minutes. Now you have enough information to calculate the PERT duration.

    Best Case = 25 minutes
    Most likely = 45 minutes
    Worst Case = 90 minutes
    PERT Duration = (25 + 180 + 90)/6 = 49 minutes

    Finally, let’s say you ask yourself how likely it is that you end up on the high side instead of the low side. If your answer is it is much more likely to encounter conditions that slow you down, you would modify the formula to use one and a half times the worst case (25 + 180 + 135)/6 = 57 minutes. That longer duration shows the impact of your impromptu risk analysis and provides a duration that has a much higher probability of being achievable.

    Now think about the same scenario but conducted by you interviewing three people who drive the same route to work. That would approximate the Delphi method.
  1. All or something less. It may not be necessary to analyze every task to the degree suggested. Even if you could do the analysis along the top several critical paths that would be an improvement. If you were to apply numerical factors to the tasks in related portions of the project that would be impactful. For example, all mechanical design tasks or all software development tasks.

What is the best approach?

You will need to analyze your project and determine which approach or approaches would yield useful information at a reasonable cost. If you apply your own thinking on how to improve your duration estimates, you will undoubtedly find a method most suitable for your situation. Depending on a project’s complexity and risk factors, you may also find it useful to take a more formal approach. Conducting a schedule risk assessment (SRA), a probabilistic assessment of a project’s outcome, can help you gain a better understanding of where the duration risk exists in the schedule.

H&A earned value consultants and scheduling subject matter experts often assist clients to establish basic guidance to help scheduling personnel to get into the habit of adequately defining tasks and using techniques to improve duration estimates. This is critical to be able to produce well-constructed and executable schedules to improve the likelihood of achieving project technical, schedule, and cost objectives.

H&A offers a range of project scheduling training workshops that can help schedulers to implement industry best practices. These workshops also cover how to take the next step to implement advanced scheduling techniques such as schedule risk assessments to ensure the schedule is realistic and achievable. H&A earned value consultants and master schedulers often provide one-on-one mentoring using the scheduling tool of choice to help scheduling personnel work through the learning curve of using advanced network scheduling techniques to produce executable schedules.  

Call us today at (714) 685-1730 to get started.

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Merging Earned Value Management System Descriptions

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Are there best practices that apply when a company with an approved/certified Earned Value Management System (EVMS) acquires another company that also has an approved/certified EVMS in place? What happens with the EVM System Descriptions as well as related processes and procedures? What about the various project control tools being used? How do you level set the project control proficiency levels of personnel using the EVMS? Schedule and cost level of detail and data architecture also come into play. For example, project performance data is often used at the corporate level for financial analysis, portfolio analysis, and external reporting and may require data to be organized in a specific manner. Is the EVMS providing reliable status, forecast completion date (FCD), and estimate at completion (EAC) information to management? 

What are your options?

H&A earned value consultants have observed different approaches and often assist companies with determining their strategy. Assuming you are the acquiring company, you could:

  1. Require the acquired company to use your EVMS. 
  2. Let them continue using their EVMS for an agreed upon timeframe or indefinitely.
  3. Take the best of both and establish a new and improved EVMS.  

Each option has its pros and cons. There are also other implications for at least the acquired company. DCMA will need to conduct an Integrated Baseline Review (IBR) and/or a compliance review if the acquired company’s EVMS assessment is no longer applicable. If you make significant modifications to your EVM System Description, DCMA will need to review the revised System Description to determine whether it still complies with the EIA-748 Standard for EVMS guideline requirements.

Things to Consider

  • What do you want to achieve?

    If the goal is to establish a common EVM System Description across the corporation, the strategy will need to reflect that. Define the business objectives that clearly articulate the benefits of using a standardized approach that can help to create and implement the plan to achieve your goal. In this example, that could narrow your path forward to either option 1 or 3 depending on the state of your EVMS.

  • What is the state of your current EVM design and System Description?

    Do you already have a best in class corporate level system in place? If yes, option 1 is a good fit. The strategy would be to create a plan to transition the acquired company to your EVMS. A single EVMS is easier to maintain and to train people on how to use it effectively. Commonality makes it easier to move personnel between projects.

    Perhaps your company is fine with different EVM Systems at a business unit level. For example, perhaps the business units have a different customer base (DoD versus DOE), and the requirements are different. In this case, it may make sense to go with option 2. We recommend being prepared to do an in-depth assessment of the acquired company’s EVMS to become familiar with it, gain an understanding of how project personnel use it, and evaluate the quality of the schedule and cost data. It is imperative that you have a good understanding of the strengths and weaknesses of the acquired company’s EVMS. You may find best in class practices that you could incorporate into your EVMS. On the other hand, you may discover issues you need to address with a corrective action plan. Some of them may be as simple as providing desktop instructions for the schedulers or control account managers (CAMs). The more difficult are actions taken to change the culture such as resistance to providing visibility into the data.

    Option 3 may be good path in situations where you know there are components in your EVMS that need to be streamlined or enhanced. It provides an opportunity to fix known issues with your EVM design or System Description. It could also be an opportunity to replace a mix of software tools or home-grown tools with a standard set of commercial off the shelf (COTS) schedule, cost, and analysis as well as risk tools. Integration with a standard Agile tool may also come into play. In this case, your strategy may be to create a working group from both companies to create a best in class corporate EVMS. 

  • Structure of the EVM System Description.

    There may be “layers” to it that makes it easier to accommodate unique business unit environments. For example, perhaps you have established a corporate level System Description that states what the company does to comply with the EIA-748 guidelines when an EVMS is contractually required or what is required to satisfy internal management needs for project/portfolio analysis (no external customer management system or reporting requirements). The corporate level system should define specific rules all business units are expected to follow. The business units define how they comply with the corporate requirements (their specific process). A good approach is to also allow project managers to define project directives to specify project unique requirements as long as they comply with the corporate and business unit requirements.

    In this example, option 1 is a good fit. The strategy would be to help the acquired company to establish revised EVM processes that align with the corporate requirements similar to other business units in the corporation.

Other Considerations

Your strategy and tactical plan must address identified risks and opportunities. A common challenge is resistance to change. A potential risk mitigation approach could be to bring in the acquired company’s personnel as part of a joint corporate management team with the goal to create a single best in class EVMS. It is essential to establish ownership in the new or revised process. An example from one H&A client illustrates the importance of taking ownership in the EVMS as part of a successful transition.

“We didn’t force what we had on them, nor did we give in. We have a corporate EVM System Description. When we acquired the company, we brought them in to do a revision of the System Description, as the decision was made that we will operate as one company. They are now using that System Description and are using the same EVM cost tool. We are working other initiatives to harmonize other systems. It was surprisingly not contentious. We incorporated their leads into the organization with minimal disruption. We also have corporate training, which they supported and some of their legacy folks are leading that. The company as a whole changed, rather than forcing our way on them. Not many major differences between us, but inclusion of the folks from the acquired company as well as business groups was key. Frankly, one of our legacy divisions was harder to work with than anyone from the company we acquired.” – EVMS Director, A&D Contractor

While this is an example of where things went well, your risk mitigation approach should be prepared for situations where the teams do not agree upon the documented process, tools, or training that could result in an impasse. Knowledge of the current internal environment and personnel mix can help to determine the best mitigation strategy. A strong leadership team must be in place to ensure teams are working to achieve common objectives and to amicably resolve differences with a target completion date.

The tactical plan must also include a robust training plan that covers the revised EVMS process, procedures, and any new tools. This is critical to ensure project personnel gain a good understanding of what changed, who is responsible for what, workflow, requirements such as data coding or level of data detail, and how to use the tools effectively. Role based training is often useful to ensure project control personnel, schedulers, CAMs, and others are following the documented procedures specific to their day-to-day tasks. Desktop instructions are also useful to ensure project personnel are using the software tools effectively in alignment with the documented process and procedures.

What to do if you find yourself in this situation?

It often helps to start with a gap analysis of your or the acquired company’s EVM design and System Description as well as assess how project personnel implement the system and the quality of the data. H&A earned value consultants often conduct an EVMS gap analysis to provide a fact-based and independent analysis of the EVMS, project personnel proficiency levels, and quality of the schedule and cost data. Once you are able to identify and quantify the strengths and weaknesses of the system, you are in a better position to determine your best strategy that aligns with your corporate business objectives and goals.

Over the years, H&A earned value consultants have observed first-hand what strategies and tactics for designing and implementing a best in class EVMS ensures success in a variety of business environments. We can also help you avoid common pitfalls that can derail the best laid plans – it is often the case a client didn’t realize there were hidden risks, or they had made incorrect assumptions.

We can help you determine the right strategy for your situation. Call us today at (714) 685-1730 to get started.

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Introduction to the Cost and Software Data Reporting (CSDR) Reporting Requirements

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A common client request is to assist them with sorting through the various DoD contractual reporting requirements and contract value reporting thresholds that apply. We frequently run into situations where a contractor needs clarification on why they have a Cost and Software Data Reporting (CSDR) requirement and whether they should seek to waive the requirement. Subcontractors to a prime often question the requirement to provide actual cost data directly to the DoD, especially for Firm Fixed Price (FFP) contracts.

Background

CSDRs are the primary means the DoD uses to collect data on the development, production, and sustainment costs incurred by contractors performing DoD acquisition contracts. It is a DoD system for collecting actual costs, software data, and related business data. The resulting data repository serves as the primary source for contract cost and software data for most DoD resource analysis efforts including cost database development, applied cost estimating, cost research, program reviews, analysis of alternatives (AoAs), and life cycle cost estimates.

CSDR reporting requirements are determined by the contract value regardless of the acquisition phase and contract type. In general, CSDR reporting is required for Acquisition Category I-II programs and Information System (IS) programs valued at more than $50M. They can also be required for Middle Tier Acquisition programs (greater than $20M) and other programs (greater than $100M). Risk can also be a determining factor regardless of the contract value.

DoD Instruction (DoDI) 5000.73, Cost Analysis Guidance and Procedures (March 2020), provides additional details about the cost data reporting. Table 1 in the 5000.73 lists the cost reporting requirements contract value thresholds. The DoD Manual 5000.04 Cost and Software Data Reporting (May 2021) is the primary requirements document for the development, implementation, and operation of the DoD CSDR system to ensure data reported is accurate and consistent.

About CADE

The Office of the Secretary of Defense Cost Assessment and Program Evaluation (OSD CAPE) established the Cost Assessment Data Enterprise (CADE), a secure web-based information system that hosts the controlled unclassified CSDR repository, the Defense Acquisition Cost Information Management System, and the forward pricing rate library. CADE also contains a selected acquisition report database, a contracts database, data analytics capabilities, and a library containing cost estimating content such as cost analysis requirement descriptions and cost estimates. CADE is access-controlled, and available through the public-facing CADE Portal website.

Similar to the cost estimating and proposal pricing functions within contractor’s organizations that rely on historical actual costs to assess the validity of a proposed cost estimate, independent and sound cost estimates are vital for effective DoD acquisition decision making and oversight. CADE plays a critical role in capturing the expenditure, technical, and programmatic data after contract execution in a consistent manner to enable independent cost estimating and analysis. This cost estimate data is essential to support efficient and effective resource allocation decisions throughout the planning, programming, budgeting, and execution process for the DoD.

CSDR Reporting Requirements

There are a series of Data Item Descriptions (DIDs) for this reporting requirement.  Some forms are submitted electronically using DoD defined XML schemas, Excel, or JSON encoded data in accordance with a File Format Specification (FFS) and Data Exchange Instruction (DEI). The list of DIDs are as follows. These DIDs can be downloaded from the CADE website.

  • Contract Work Breakdown Structure, DI-MGMT-81334D (May 2011).
  • Cost Data Summary Report, DI-FNCL-81565C (May 2011), DD Form 1921, XML Schema.
  • Functional Cost-Hour Report, DI-FNCL-81566C (September 2015), DD Form 1921-1, XML Schema.
  • Progress Curve Report, DI-FNCL-81567C (May 2011), DD Form 1921-2, XML Schema. 
  • Sustainment Functional Cost-Hour Report, DI-FNCL-81992 (May 2011), DD Form 1921-5, XML Schema.
  • Contractor Business Data Report, DI-FNCL-81765C (March 2021), DD Form 1921-3, Excel. 
  • Software Development Report, DI–MGMT-82035A (October 2022), DD Form 3026-1, XML Schema. 
  • Software Maintenance Report, DI–MGMT-82035A (October 2022), DD Form 3026-2, XML Schema.
  • Enterprise Resource Planning (ERP) Software Development Report, DI-MGMT-82035A (October 2022), DD Form 3026-3, XML Schema.
  • Cost and Hour Report (FlexFile), DI-FNCL-82162 (November 2017), JSON encoded data file following FFS and DEI.
  • Quantity Data Report, DI-MGMT-82164 (November 2017), JSON encoded data file following FFS and DEI.
  • Maintenance and Repair Parts Data Report, DI-MGMT-82163 (November 2017), Excel.
  • Technical Data Report, DI-MGMT-82165 (November 2017), Excel.

The Cost and Hour Report (FlexFile) and Quantity Data Report play a critical role in collecting cost data from contractors for the DoD data repository because they use JSON data encoding to organize the content. They are intended to replace the legacy 1921 series of paper-based formats including the DD 1921, 1921-1, 1921-2, and 1921-5. It also requires contractors to provide significantly more historical cost data than the 1921 formats. As a result, the DoD cost estimating community has additional insight into historical costs. The goal is to establish a common framework and standard nomenclature to collect data from different contractors, all of them with unique cost accounting structures, that are mapped to the DID, FFS, and DEI requirements for use in the data repository.

Establishing a Consistent, Repeatable Process to Produce the CSDR Data Deliverables

For contractors new to the CSDR reporting requirements and in particular, the FlexFile JSON data encoding, can appear to be daunting. That’s where software tools such as those from Midnite Dynamics can help. Midnite Dynamics specializes in assisting contractors with producing the CSDR data deliverables. 

Their software tool, C*CERT+, streamlines, automates, validates, and produces the legacy 1921 family of Excel and XML reports as well as the FlexFile and Quantity Data Report JSON submittals. C*CERT+ eliminates what otherwise is a manually intensive, resource draining, tedious and costly effort subject to recurring rejections. It is one thing to create the required legacy reports or FlexFile JSON files for submittal, it is another to pass the submittal validation process. C*CERT+ provides numerous data validations and analysis reports to ensure the data is 100% compliant before it is submitted. For example, the software includes over 90 FlexFile validations to ensure data compliance as illustrated in Figure 1.

Figure 1: Example of FlexFile data validation results.
Figure 1: Example of FlexFile data validation results.

The software includes a Validation and Remarks utility to analyze the source data details that could result in a Validation Trip. Remarks can be entered directly into the validation module for anything that requires an explanation. This is illustrated in Figure 2. This narrative is included with the data submittal.

Figure 2: Example of providing remarks about the FlexFile data content.

C*CERT+ also interfaces with existing EVM cost tools and accounting systems to produce the existing legacy 1921 reports, the FlexFile, and other data submittals as well as to consolidate separate projects/CLINs/task orders into a single contract report.

Once the C*CERT+ Standard Category Mapping Rules are set up, they can be shared throughout the corporation or business unit to establish a standard and repeatable process for producing the data deliverables. This mapping process translates the contractor’s source data into an output that matches the CSDR data submittal format rules. This saves a tremendous amount of time and makes it much easier to consistently produce the CSDR data deliverables. An example of the Mapping Rules is illustrated in Figure 3.

Figure 3: Mapping Rules translate contractor unique cost data into a format that matches the CSDR data submittal requirements.

Do your process and procedures or training materials need an update to include specific guidance for project control teams to produce required DoD contractual reports or data submittals using your tool sets of choice? Give us a call today at (714) 685-1730 to get started. 

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Handling Authorized Unpriced Work (AUW) and Fee in Performance Reporting

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Handling Authorized Unpriced Work (AUW) and Fee in Performance Reporting

A recent topic for the NDIA Integrated Program Management Division (IPMD) Clearinghouse was how to handle reporting fee for undefinitized work effort in the Integrated Program Management Report (IPMR) or Integrated Program Management Data and Analysis Report (IPMDAR). Undefinitized work is formally referred to as Authorized Unpriced Work (AUW) or Undefinitized Contract Actions (UCAs).

As a reminder, AUW/UCA is a contract scope change the customer’s contracting officer has directed to be performed. However, the scope, schedule and budget have yet to be fully defined and negotiated. A contractor typically creates a rough order of magnitude schedule and cost estimate which is their basis to develop a schedule and budget for the AUW/UCA scope of work.

As a reminder, the Contract Budget Base (CBB) is equal to the Negotiated Contract Cost (NCC) for definitized work plus an estimated cost for all AUW or UCAs. When all AUW/UCA work has been negotiated, the CBB equals the NCC. The CBB and PMB exclude any fee or profit.

DoD Policy and Reporting References for Guidance

For this discussion, the following DoD EVMS or Data Item Description (DID) references provide general guidance on how to report AUW/UCA, Target Profit/Fee, Target Price, and Estimated Price values for performance reporting. These references do not use the term “undefinitized contract actions.” They do use terms such as “undefinitized work” or “undefinitized change orders (known as AUW).”

  1. DoD Earned Value Management System Interpretation Guide (EVMSIG) (March 2019) includes this definition for Authorized Unpriced Work (AUW), emphasis added.

“A contract scope change which has been directed by the Government contracting officer but has not yet been fully negotiated/definitized. It includes a value, excluding fee or profit, typically associated with the authorized, unpriced change order.”

  1. IPMR DID DI-MGMT-81861A (September 2015). See Section 3.0. IPMR Format Content Requirements, 3.2.1. Contract Data, emphasis added.

“3.2.1.3. Estimated Cost of Authorized, Unpriced Work (AUW). Authorized, Unpriced Work is approved work scope that has not been definitized. The total dollar value (excluding fee or profit) of AUW shall be entered in Block 5.c.

3.2.1.3.1. The value of AUW is the value of the scope that was coordinated between the contractor and the Program Office, and authorized by the Procuring Contracting Officer (PCO).”

“3.2.1.4. Target Profit/Fee. Enter in Block 5.d the applicable fee that applies to the negotiated cost of the contract.

3.2.1.5. Target Price. Enter in Block 5.e the target price (negotiated contract cost plus profit/fee) applicable to the definitized contract effort.

3.2.1.6. Estimated Price. Based on the contractor’s most likely estimate of cost at completion for all authorized work, including the appropriate profit/fee, incentive, and cost sharing provisions, enter in Block 5.f the estimated final contract price (total estimated cost to the Government). This number shall be based on the contractor’s most likely management EAC in Block 6.c.1 and normally will change when the EAC is updated and/or when the contract is revised.”

  1. IPMDAR DID DI-MGMT-81861C (August 2021) has similar language. See Section 2. Document Requirements. 2.3 Contract Performance Dataset (CPD). 2.3.1 Heading Information, emphasis added.

“2.3.1.2 Estimated Cost of AUW. Provide the total dollar value (excluding fee or profit) of the approved work scope associated with AUW. AUW is a contract scope change that is directed by the Government contracting officer, but has not yet been fully negotiated/definitized.

2.3.1.3 Target Fee. Provide the applicable fee that applies to the NCC.

2.3.1.4 Target Price. Provide the target price (NCC plus target fee) applicable to the definitized contract effort.

2.3.1.5 Estimated Price. Provide the estimated final contract price. The estimated price shall be based on the contractor’s Most Likely Estimate at Completion (EAC) for all authorized work, including: the appropriate fee, incentive, and cost sharing provisions.”

What is the issue?

This came up as a Clearinghouse topic because contractors wanted to make sure they are accurately interpreting their government customer’s guidance and they are consistent with industry best practices. The EVMSIG, IPMR DID, and IPMDAR DID all state that AUW “excludes fee or profit.”

There are also implications for reporting the Best Case, Worst Case, and Most Likely Management EAC in the IPMR or IPMDAR. You may have noticed in the DID text above that the Estimated Price is based on the contractor’s Most Likely EAC for all authorized work plus the appropriate fee. While the DID says “all authorized work,” because the final cost has yet to be negotiated for the AUW/UCA, this creates questions. What value should be entered for the Estimated Price? Should it include fee or not for AUW/UCA?

H&A earned value consultants have seen contractors take two different approaches. To simplify and illustrate the two approaches, the following discussion uses the IPMR Format 1. The IPMDAR has similar heading information. The following examples assume a cost plus fixed fee (CPFF) contract.

Option One

The most typical approach for projects is to enter the AUW/UCA amount in the IPMR Format 1 Block 5.c (Est. Cost of Auth. Unpriced Work) and include the same AUW/UCA amount in the Block 5.f (Estimated Price). The assumption is that when the AUW/UCA work effort is definitized, the contractor will negotiate the applicable fee with the customer during this process. A contractor should clearly state they intend to negotiate a fee for their AUW/UCA in their IPMR Format 5 or the IPMDAR Performance Narrative Report as well as in the transmittal letter accompanying the AUW/UCA estimate.

To illustrate how the heading data is entered in the IPMR Format 1 (Block 5.c and 5.f are equal), see Figure 1 below. This example assumes the entire contract is AUW/UCA to clearly illustrate the proper approach. Negotiated Cost (Block 5.b) is zero because the entire scope of work has not been negotiated. Target Profit/Fee (Block 5.d) is zero because AUW does not have profit/fee. Target Price (Block 5.e) is zero because the Negotiated Cost and Target Profit/Fee are zero. The Estimated Price, Most Likely Estimated Cost at Completion (Block 6.c (1)), and Contract Budget Base (Block 6.c (2)) are equal. 

Figure 1: Example IPMR Format 1 where the AUW (5.c.) and Estimated Price (5.f.) are equal.
Figure 1: Example IPMR Format 1 where the AUW (5.c.) and Estimated Price (5.f.) are equal.

Example of a Format 5 narrative for this approach follows.

Funding Status: Undefinitized Contract Action (UCA) contract value: $30,563,565. Current funding: $9,647,000.

Significant Events:
  1. UCA contract award: September 2022.
    1. In the IPMR Format 1 Block 5.c the estimated cost of Authorized Unpriced Work (AUW) and Block 5.f Estimated Price, the amount of $30,563,565 reflects the proposed cost. The Most Likely Estimated Cost at Completion and Contract Budget Base (Block 6.c.(1) and (2)) reflect the same amount.
    2. Note: Once the work scope is definitized, the fee amount for the scope of work will be determined and displayed in the appropriate Blocks (5.d, 5.e, and 5.f). The proposed fixed fee amount for the UCA was documented in our proposal.
  2. Expected award date of the definitized contract has changed to December 2023.
  3. We performed a comprehensive EAC (CEAC) in June 2023.

Option Two

Another approach is to include the fee for the AUW/UCA value based on a long standing relationship with the customer. An example is a four year CPFF contract where a contractor can expect the same calculated fee when they negotiate the AUW/UCA. For a contractor with a proven history with the customer, they could reference a known historical fee percentage for similar work effort to document the assumed fee percentage in their transmittal letter with the accompanying the AUW/UCA estimate.

See Figure 2 as an example of including fee. The AUW/UCA amount would be included in the IPMR Format 1 Block 5.c. However, the Estimated Price in Block 5.f would include the profit/fee amount for the AUW/UCA. Also, the Most Likely Estimated Cost at Completion (Block 6.c (1)), and Contract Budget Base (Block 6.c (2)) are equal to the Block 5.c since they do not include fee.

Figure 2: Example IPMR Format 1 where the AUW (5.c.) excludes fee and the Estimated Price (5.f) includes fee.

Note: including the profit/fee amount in the Estimated Price is clearly in violation of the EVMSIG and IPMR/IPMDAR DIDs. Why this approach was taken must be addressed with the customer prior to report submittals. This action of including the fee in Block 5.f must be fully disclosed in the IPMR Format 5 or the IPMDAR Performance Narrative Report. This is required to reconcile the heading numbers. Example of a Format 5 narrative for this option two approach follows.

Funding Status: Undefinitized Contract Action (UCA) contract value: $32,609,629. Current funding: $9,647,000.

Significant Events:
  1. UCA contract award: September 2022.
    1. In the IPMR Format 1 Block 5.c the estimated cost of Authorized Unpriced Work (AUW) in the amount of $30,563,565 reflects our proposed cost of $32,609,629 less our anticipated fee of $2,046,064 as documented in our proposal. Per the DID, Block 5.c. does not include fee or profit. The Most Likely Estimated Cost at Completion and Contract Budget Base (Block 6.c.(1) and (2)) is equal to Block 5.c. (AUW).
    2. In the IPMR Format 1 Block 5.f, the Estimated Price includes an anticipated fee amount documented in our proposal which is consistent with our long term relationship. It is equal to our proposed cost ($30,563,565) plus fee ($2,046,064) for a total of $32,609,629.
  2. Expected award date of the definitized contract has changed to December 2023.
  3. We performed a comprehensive EAC (CEAC) in June 2023.

Best Practice Tips

You are likely to encounter a more complex situation than the one illustrated in Figures 1 and 2 where some work scope has been defined and fully negotiated and other work scope is AUW/UCAs. Regardless of which option was used to report AUW/UCA and fee amounts, clearly explain the basis for the numbers in the heading information to ensure the customer is able to reconcile the numbers (Block 5 heading values highlighted in the red boxes in Figures 1 and 2).

Based on our decades of experience with all types of contractors and a variety of government agencies, here are few recommendations for you.

  • Be sure your EVM System Description or related procedures explain how to handle AUW/UCA including how to report contract total values in the IPMR or IPMDAR for specific contract types.
  • Verify your EVM training courses include a section on handling AUW/UCA and the rules that apply. It often helps to remind project personnel of the basic budget flowdown reconciliation math and which budget components include or exclude fee.
  • Document how you intend to handle fee for the AUW/UCA in your proposal to ensure your customer clearly understands your intentions. Using the example of the option one approach discussed above, be sure to state your intentions to determine a fee amount once the work has been fully definitized and negotiated so the customer knows what to expect. Using the example of the option two approach above, reporting a fee for AUW/UCA amount before the work is fully negotiated is in violation of the EVMSIG and DIDs. Verify this approach is acceptable with your customer before you submit your reporting deliverables. 

H&A earned value consultants often assist clients with EVMS and contracting situations where the government customer’s policy or other guidance can be subject to interpretation. Call us today at (714) 685-1730 if you need help determining the best course of action for your situation. 

Handling Authorized Unpriced Work (AUW) and Fee in Performance Reporting Read Post »

Formal Reprogramming: OTB or OTS Best Practice Tips

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Formal Reprogramming: OTB or OTS Best Practice Tips

As a result of an Earned Value Management System (EVMS) compliance or surveillance review, the Defense Contract Management Agency (DCMA) or DOE Office of Project Management (PM-30) may issue a corrective action request (CAR) to a contractor. H&A earned value consultants frequently assist clients with developing and implementing corrective action plans (CAPs) to quickly resolve EVMS issues with a government customer.

A recent trend our earned value management consultants have observed is an uptick in the number of CARs being issued related to over target baselines (OTB) and/or over target schedules (OTS). On further analysis, a common root cause for the CAR was the contractors lacked approval from the contracting officer to implement the OTB and/or OTS even though they had approval from the government program manager (PM).

So why was a CAR issued?  It boils down to knowing the government agency’s contractual requirements and EVMS compliance requirements.

What is an OTB/OTS and when it is used?

During the life of a contract, significant performance or technical problems may develop that impact schedule and cost performance. The schedule to complete the remaining work may become unachievable. The available budget for the remaining work may become decidedly inadequate for effective control and insufficient to ensure valid performance measurement. When performance measurement against the baseline schedule and/or budgets becomes unrealistic, reprogramming for effective control may require a planned completion date beyond the contract completion date, an OTS condition, and/or a performance measurement baseline (PMB) that exceeds the recognized contract budget base (CBB), an OTB condition.

An OTB or OTS is a formal reprogramming process that requires customer notification and approval. The primary purpose of formal reprogramming is to establish an executable schedule and budget plan for the remaining work. It is limited to situations where it is needed to improve the quality of future schedule and cost performance measurement. Formal reprogramming may be isolated to a small set of WBS elements, or it may be required for a broad scope of work that impacts the majority of WBS elements.

Formal reprogramming should be a rare occurrence on a project and should be the last recourse – all other management corrective actions have already been taken. Typically, an OTB/OTS is only considered when:

  • The contract is at least 35% complete with percent complete defined as the budgeted cost for work performed (BCWP) divided by the budget at completion (BAC);
  • Has more than six months of substantial work to go;
  • Is less than 85 percent complete; and
  • The remaining management reserve (MR) is near or equal to zero.

A significant determining factor before considering to proceed with a formal reprogramming process is the result from conducting a comprehensive estimate at completion (CEAC) where there is an anticipated overrun of at least 15 percent for the remaining work.

When an OTB is approved, the total allocated budget (TAB) exceeds the CBB, this value referred to as the over target budget. Figure 1 illustrates this.

Before Over Target Baseline
Figure 1 – Over Target Baseline Illustration

When an OTS is approved, the same rationale and requirements for an OTB apply. The planned completion date for all remaining contract work is a date beyond the contract completion date. The purpose of the OTS is to continue to measure the schedule and cost performance against a realistic baseline. The process must include a PMB associated with the revised baseline schedule. Once implemented, the OTS facilitates continued performance measurement against a realistic timeline.

Contractual Obligations

An OTB does not change any contractual parameters or supersede contract values and schedules. An OTS does not relieve either party of any contractual obligations concerning schedule deliveries and attendant incentive loss or penalties. An OTB and/or OTS are implemented solely for planning, controlling, and measuring performance on already authorized work.

Should you encounter a situation where it appears your best option is to request an OTB and/or OTS, the DoD and DOE EVMS policy and compliance documents provide the necessary guidance for contractors. It is imperative that you follow agency specific guidance to prevent being issued a CAR or your OTB/OTS request being rejected.

DoD and DOE both clearly state prior customer notification and contracting officer approval is required to implement an OTB and/or OTS. These requirements are summarized the following table.

ReferenceDoD/DCMA1DOE
RegulatoryDFARS 252.234-7002 Earned Value Management System
“(h) When indicated by contract performance, the Contractor shall submit a request for approval to initiate an over-target baseline or over-target schedule to the Contracting Officer.”
Guide 413.3-10B Integrated Project Management Using the EV Management System
6.1.2 Contractual Requirements.
“…if the contractor concludes the PB TPC and CD-4 date no longer represents a realistic plan, and an over-target baseline (OTB) and/or over-target schedule (OTS) action is necessary. Contracting officer approval is required before implementing such restructuring actions…”
Attachment 1, Contractor Requirements Document
“Submit a request for an Over-Target Baseline (OTB) or Over-Target Schedule (OTS) to the Contracting Officer, when indicated by performance.”
EVMS Compliance2Earned Value Management System Interpretation Guide (EVMSIG)3
Guideline 31, Prevent Unauthorized Revisions, Intent of Guideline
“A thorough analysis of program status is necessary before the consideration of the implementation of an OTB or OTS. Requests for establishing an OTB or an OTS must be initiated by the contractor and approved by the customer contracting authority.		EVMS Compliance Review Standard Operating Procedure (ECRSOP), Appendix A, Compliance Assessment Governance (CAG)
Subprocess G. Change Control
G.6 Over Target Baseline/Over Target Schedule Authorization
“An OTB/OTS is performed with prior customer notification and approval.”
See Section G.6 for a complete discussion on the process.
Contractor EVM SD4DCMA Business Process 2  Attachment, EVMS Cross Reference Checklist (CRC), Guideline 31.
“b. Are procedures established for authorization of budget in excess of the Contract Budget Base (CBB) controlled with requests for establishing an OTB or an OTS initiated by the contractor, and approved by the customer contracting authority?”		DOE ESCRSOP Compliance Review Crosswalk (CRC), Subprocess Area and Attribute G.6
“Requests for establishing an OTB or an OTS are initiated by the contractor and approved by the customer contracting authority.”

Notes:

  1. When DoD is the Cognizant Federal Agency (CFA), DCMA is responsible for determining EVMS compliance and performing surveillance. DCMA also performs this function when requested for NASA.
  2. Along with the related Cross Reference Checklist or Compliance Review Crosswalk, these are the governing documents the government agency will use to conduct compliance and surveillance reviews.
  3. For additional guidance, also see the DoD EVM Implementation Guide (EVMIG) , Section 2.5 Other Post-Award Activities, 2.5.2.4 Over Target Baseline (OTB) and Over Target Schedule (OTS). The EVMIG provides more discussion on the process followed including the contractor, government PM, and the contracting authority responsibilities.
  4. Your EVM System Description (SD) should include a discussion on the process used to request an OTB/OTS. The EVM SD content should be mapped to the detailed DCMA EVMS guideline checklist or the DOE Compliance Review Crosswalk (subprocess areas and attributes) line items.

Best Practice Tips

The best way to avoid getting a CAR from a government agency related to any OTB or OTS action is to ensure you have done your homework.

  • Verify your EVM SD, related procedures, and training clearly defines how to handle this situation. These artifacts should align with your government customer’s EVMS policy and regulations as well as compliance review guides, procedures, and checklists. Be sure your EVM SD or procedures include the requirement to notify and gain approval from the government PM and contracting officer, as well as what to do when the customer does not approve the OTB or OTS. Also discuss how to handle approving and managing subcontractor OTB/OTS situations; the prime contractor is responsible for these actions. Your EVMS training should also cover how to handle OTB/OTS situations. Project personnel should be aware of contractual requirements as well as your EVMS requirements and be able to demonstrate they are following them.
  • Maintain open communication with the customer. This includes the government PM as well as the contracting officer and any other parties involved such as subcontractors. Requesting an OTB or OTS should not be a surprise to them. Verify a common agreement has been reached with the government PM and contracting officer that implementing an OTB or OTS is the best option to provide visibility and control for the remaining work effort.
  • Verify you have written authorization from the government PM and the contracting officer before you proceed with implementing an OTB or OTS. You will need this documentation for any government customer EVMS compliance or surveillance review. Your baseline change requests (BCRs) and work authorization documents should provide full traceability for all schedule and budget changes required for the formal reprogramming action.

Does your EVM SD or training materials need a refresh to include sufficient direction for project personnel to determine whether requesting an OTB or OTS makes sense or how to handle OTB/OTS situations? H&A earned value consultants frequently help clients with EVM SD content enhancements as well as creating specific procedures or work instructions to handle unique EVMS situations. We also offer a workshop on how to implement an OTB or OTS .  Call us today at (714) 685-1730 to get started.

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