Earned Value Management (EVM)

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. 

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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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Using Earned Value Management (EVM) Performance Metrics for Evaluating EACs

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A previous blog, Maintaining a Credible Estimate at Completion (EAC), discussed why producing a realistic EAC is essential to managing the remaining work on a contract. Internal management and the customer need visibility into the most likely total cost for the contract at completion to ensure it is within the negotiated contract cost and funding limits.

As noted in the earlier blog, one common technique to test the realism of the EAC is to compare the cumulative to date Cost Performance Index (CPI) to the To Complete Performance Index (TCPI).

Example of Using the Metrics for Evaluating Data

One example of documented guidance to industry for evaluating the realism of the EAC is the DOE Office of Project Management (PM) Compliance Assessment Governance (CAG) 2.0, and the related DOE EVMS Metric Specifications they use to assess the quality of schedule and cost data. This blog highlights the use of this guidance and how any contractor can incorporate similar best practices to verify EACs at a given WBS element, control account, or project level are realistic.

To refresh, the CPI is the efficiency at which work has been performed so far for a WBS element, control account, or at the total project level. The formula for the cumulative to date CPI is as follows.

Best practice tip: To ensure a valid CPI calculation, verify the BCWP and ACWP are recorded in the same month for the same work performed.

The TCPI provides the same information, however, it is forward looking. While the CPI is the work efficiency so far, the TCPI is the efficiency required to complete the remaining work to achieve the EAC. The formula for the TCPI is as follows.

TCPI Formula

Best practice tip: To ensure a valid TCPI, verify the BCWP and ACWP are recorded in the same month for the same work performed, and the BAC and EAC are for the same work scope. In other words, the scope of work assumptions are the same for the budget and remaining cost. This is why anticipated changes should not be included in the EAC.

The DOE uses the CPI in two of their assessment metrics and the TCPI in one, however, these are critical metrics partly because they are the only ones used to assess two different data evaluations: 1) commingling level of effort (LOE) and discrete work, and 2) EAC realism.

Commingling LOE and Discrete Work

The first use of CPI (no TCPI in this metric) falls under the Budgeting and Work Authorization subprocess. The primary purpose is to evaluate the effect of commingling LOE and discrete work scope has on control account metrics. The basic premise for this metric is that if the CPI for the LOE scope is significantly different than that for the discrete, the mixture of LOE in that control account is likely skewing overall performance reporting.

Here is the formulation DOE uses.

C.09.01:  Control Account CPI delta between Discrete and LOE >= ±0.1

X = Number of incomplete control accounts (WBS elements) in the EVMS cost tool, where

  1. The LOE portion of the budget is between 15% and 80% of the total budget, and
  2. The difference between the CPI for the discrete work and the LOE work is >= ±0.1.
Y = Number of incomplete control accounts (WBS elements) in the EVMS cost tool.
Threshold = 0%

Best practice tip: Run this metric quarterly on your control accounts that commingle LOE and discrete work packages. When there is a significant discrepancy between the performance of the LOE versus discrete work effort, consider isolating the LOE effort from the discrete effort at the earliest opportunity. An example could be the next rolling wave planning window or as part of an internal replanning action. Alternatively, it may be necessary to perform the calculations at the work package level to assess the performance of just the discrete effort when it is impractical to isolate by other means.

Process and procedure tip: Ensure the LOE work packages within a control account are kept to minimum (typically less than 15%), during the baseline development phase. This helps to prevent discrete work effort performance measurement distortion during the execution phase. A useful best practice H&A earned value consultants have helped contractors to implement during the budget baseline development process is to perform an analysis of the earned value methods used within a control account and the associated work package budgets. This helps to verify any LOE work packages are less than the 15% threshold for the control account. In some instances, it may be logical to segregate the LOE work effort into a separate control account. The objective is to identify and resolve the issue before the performance measurement baseline (PMB) is set.

EAC Realism

One DOE metric uses the TCPI and this involves a comparison to the CPI. This falls in the Analysis and Management Reporting subprocess. This DOE EVMS Metric Specification states: “This metric confirms that estimates of costs at completion are accurate and detailed.” As noted above, the metric compares the cost performance efficiency so far to the cost efficiency needed to achieve the EAC and is specific to the EAC a control account manager (CAM) would review for their scope of work. Depending on the level actual costs are collected, this analysis may need to be performed at the work package level instead of the control account level.  

Here is the formulation DOE uses assuming actual costs are collected at the work package level.

F.05.06:  Work Package CPI – EAC TCPI > ±0.1
X = Number of incomplete (>10% complete) work packages where CPI –TCPI > ±0.1.
Y = Number of incomplete (>10% complete) work packages in the EVMS cost tool.
Threshold = 5%

There is no requirement that the forecast of future costs has a linear relationship with past performance. While there may be legitimate reasons why future cost performance will fluctuate from the past, outside reviewers who receive EVM data will look for a trend or preponderance of data that would indicate the EACs are not realistic. When a significant number of active work packages are outside the ±0.1 CPI-TCPI threshold, it is an indication that the EACs are not being maintained or are driven by factors other than project performance.

Best practice tip: Run this metric every month for each active work package prior to month-end close. For those work packages outside the ±0.1 threshold, review the EAC to ensure it is an intentional forecast of costs given the current conditions.

Process and procedure tip: One of the training courses H&A earned value consultants often conduct is a Variance Analysis Reporting (VAR) workshop. This workshop is designed to help CAMs become more proficient with using the EVM metrics to assess the performance to date for their work effort, identify the root cause of significant variances, and document their findings as well as recommended corrective actions. This analysis includes verifying their estimate to complete (ETC) is a reasonable assessment of what is required to complete the remaining authorized work and their EACs are credible.

 

Additional References

Further discussion on using the CPI and TCPI to assess the EAC realism at the project level can be found in the DOE CAG, Analysis and Management reporting subprocess, Estimates at Completion. This section provides a good overview of comparing the cumulative to date CPI to the TCPI as well as comparing an EAC to calculated independent EACs (IEACs) for further analysis to assess the EAC credibility. 

Interested in learning more about using EVM metrics as a means to verify EACs at the detail or project level are realistic? H&A earned value consultants can help you incorporate best practices into your processes and procedures as well as conduct targeted training to improve your ETC and EAC process. Call us today at (714) 685-1730.

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Introduction to Earned Value Management Systems (EVMS)

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We are starting a new series that will share some of the adapted video content from our EVMS Workshops. This first video is a brief overview of Earned Value Management, what it is, where it came from, and why it was developed.

More EVMS Training

If you liked this video you can purchase the entire course below. This video is an excerpt from the Department of Defense (DOD) version of this eLearning module. We also offer the same course customized for the Department of Energy’s (DOE) specific Earned Value Management (EVM) implementation/requirements, as well as a version of the course customized for NASA’s EVM implementation/requirements.  

— Purchase This Course —
EVMS DOD Virtual Learning Lab

— Purchase the DOE Version of this Course —
EVMS DOE Virtual Learning Lab

— Purchase the NASA Version —
EVMS NASA Virtual Learning Lab

EVMS Document Matrix

Not sure what the different requirements are between the DOE and NASA? Can’t remember if Cost and Software Data Reporting (CSDR) is required for an NSA contract? Check out our easy to read Earned Value Management Systems Document Matrix

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All Online Courses Available from Humphreys & Associates

Other Posts in this Series

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Earned Value Management and Agile Integration – Work Scope as the Foundation

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A previous H&A blog, “EVM (Earned Value Management) vs. Agile Project Management,” provided an introduction to the differences between an Earned Value Management System (EVMS) and Agile development methodologies.

At first glance, it may seem that EVM and Agile development methodologies are incompatible. Agile is all about rapid incremental product deliveries and responding quickly to an evolving understanding of the desired deliverable or outcome. Depending on how an EVMS is implemented, the EVMS can often seem rigid in comparison.

Can the two methodologies coexist and complement each other to create an effective integrated project management system? The answer is yes, provided you have thought through how you intend to use the two systems together and map how and where they integrate. The goal is to leverage the benefits of each system and without forcing either system to do something it wasn’t meant to do.

There is a natural top down and bottom-up process integration when defining the scope of work and acceptance criteria. This process integration continues for planning and scheduling the feature estimates of effort, establishing the budget baseline, and ultimately maintaining the estimate to complete (ETC) in the EVMS. It also supports an integrated process for measuring completed work. The Agile daily standup meetings provide current information about accomplishments and impediments at the lowest level of the project. The Agile system provides the quantifiable backup data for claiming earned value in the EVMS for performance reporting.

The following image illustrates the relationship between the two systems.

The source for this image is the NDIA IPMD Industry Practice Guide for Agile on EVM Programs, Revision May 2019, Figure 2-4.

The Foundation for Integrating EVM and Agile: Defining the Scope of Work

A work breakdown structure (WBS) is commonly used to organize and decompose a project’s scope of work into manageable, product-oriented elements. It is an essential communication tool for the customer and contractor so they have a common frame of reference to capture and manage requirements as well as expected deliverables or outcomes. It establishes a common basis for measuring progress and defining accomplishment criteria. It is the framework for developing a project’s schedule (timing of tasks), identifying resources to accomplish the scheduled tasks, creating cost estimates as well as the budget baseline, and identifying risks. In an EVMS, the WBS is often decomposed to the control account level which is further decomposed into work packages or planning packages. Once extended to the lower level, it provides a framework for tracking technical accomplishments, measuring completed work, and identifying variances from the original plan to complete the work.

There is a similar planning hierarchy to Agile projects – the Product Backlog is the foundation for defining the scope of work. The Product Backlog starts at the Epic or Capability level and is further defined through product planning. The process includes prioritizing the capabilities and defining the sequence of deliverables to create the Product Roadmap (timing). The capabilities are decomposed into features along with an estimate of the effort to deliver the feature. Features should include exit criteria (definition of done) and have minimal dependencies. At the lowest level, features are decomposed into Sprint Stories and related tasks forming the basis for the schedule and measuring completed work in the EVMS. As illustrated in the image above, in the Product Backlog hierarchy, an Epic/Capability relates to the control account level in the EVMS. Features relate to the work packages in the EVMS.

In an integrated environment, there can be a natural mapping between the WBS and the Product Backlog regardless of the starting point. When starting from the Agile system, the Product Backlog could be used to create the project’s WBS. The customer may also pre-define the top level WBS elements that could form the backlog structure. The DoD uses MIL-STD-881, Work Breakdown Structures for Defense Materiel Items, for this purpose so they have a set of common templates they can use across programs to capture historical actual cost data for cost estimating and should cost analysis. Even though the top level WBS elements may be pre-defined, the lower-level content can reflect an outcome based Agile structure that focuses on customer driven deliverables.
An example is illustrated here.

Possible Agile software development MIL-STD-881 WBS breakout. The source for this image is the DoD ADA Agile and Earned Value Management: A Program Manager’s Desk Guide, Revision November 2020, Figure 2.

What’s common between the two systems?  You have:

  • Decomposed a common understanding of the scope of work into manageable, product or outcome-oriented elements of work.
  • Defined the agreed upon accomplishment criteria or definition of done for a given deliverable or outcome.
  • Built a framework to determine the timing of tasks, identifying the resource requirements, creating a cost estimate to do the work, and means to objectively measure completed work.  Ideally, you have also identified the risks or uncertainties so you know where potential issues may surface.

Best Practices for Integrating the WBS and Product Backlog

Keeping in mind you have a similar decomposition of work between the two systems, you can set up the WBS and Product Backlog to align with each other.  The goal is to ensure traceability so you can easily support the EVMS requirements. 

Here are a few best practices for integrating the WBS and Product Backlog.

  1. Verify the WBS aligns with the prioritized Product Backlog to at least the Epic/Capability level (control account level in the WBS).  Determine how you intend to maintain traceability between the WBS elements and the work items in the Product Backlog so it doesn’t matter which system you use to review or confirm the agreed upon scope of work.  Identify and document how you intend to map the WBS elements to a work item in the Product Backlog so you always have the necessary cross references identified.  Keep it simple.  Where possible, minimize the need to enter something more than once. 
  2. Use the Product Backlog to tailor the WBS.  This is particularly true for projects where Agile development is central to the final deliverable.  Consider your two end objectives: you need to provide project performance reporting via the EVMS and organize the items in the Product Backlog so you can decompose them from the Epic/Capability level to the Feature level and then to the Sprint Story and task level.
  3. Watch the level of detail in the WBS.  Avoid driving the WBS to too low a level of detail.  Depending on the project, it may be appropriate to go no lower than the Epic/Capability level (control account level).  The reasoning: in the Agile system, the lower-level Stories and tasks are flexible and subject to change.  You are focused on completing current near-term work effort within a Sprint.  Better to let the Agile system manage and track what is happening at the rapidly changing detail level – it is designed to do that.  For EVMS purposes, project monitoring and control should be at a higher level where scope can be consistently defined, aligned to the schedule and budget, and claimed as done (technical accomplishment).  The WBS should reflect the level of detail that is aligned to the permissible variation in requirements or configuration.  Otherwise, you create too much change “noise” in the EVMS.
  4. Confirm the WBS and Product Backlog contains 100% of the contract scope of work.  Verify the statement of work has been mapped to the WBS elements or work items in the Product Backlog.  Why is this important?  You need to demonstrate you have captured the entire technical scope of work to at least the Epic/Capability level.  You need this for internal planning purposes so your development teams have an understanding of the technical requirements and expected outcomes as well as managing changes.  Your customer also needs confidence that you have an understanding of the entire scope of work and have planned accordingly for the duration of the project. 
  5. Verify you have defined the Feature accomplishment criteria or definition of done so it is easy to measure completed work.  This could be in the WBS dictionary or documented in the Agile system Product Backlog.  Determine where that information can be found and document the process to maintain it.  Ideally it is in one place so you only have to maintain it in one system and everyone on the project knows they are referencing current information.  Clearly defined accomplishment criteria mean you can objectively measure accomplishments – in both systems.  Enable that capability right from the start when you set up a new project in the two systems.

Are your EVM and Agile systems are sharing useful information?  Perhaps you have learned the hard way the WBS and Product Backlog aren’t sufficiently mapped for you to maintain traceability between the two systems.  We can help.  Call us today at (714) 685-1730

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Earned Value Training Help is Available

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Earned Value Training Help is Available

Do any (or many) of these situations apply to you?

  • The Project has to comply with the EIA-748 EVMS Standard! What is that? How do we do that?
  • You have a new contract of over $20 Million, and you need to get yourself, your staff, and all the Project personnel up to speed on your new contractual Earned Value requirement.
  • The RFP says the company must have an Earned Value Management (EVM) certification. How can we respond to the RFP?
  • Your contract is over $100 Million and now you must have and demonstrate a Certified Earned Value Management System (EVMS).  How do you do that?
  • How do you get a compliant EVMS Description in the first place?
  • You have an Integrated Baseline Review (IBR) coming up and don’t have a clue about what that entails. 
  • You reviewed company training materials and everything dealing with Earned Value is out of date; and it is going to cost thousands to update the materials and keep them up to date! 
  • What are Control Account Managers (CAMs)? Must we have CAMs to do Earned Value? How do I get CAMs/Train them?
  • I used to have great CAMs, but none of my new CAMs can spell EV.  How do I train them? 

You Are Not Alone

If you answered “yes” to any of these, don’t feel like the Lone Ranger.  Even though the Earned Value concept has been around for over 50 years, the requirement can still be new to your company, new to your contract, and new to your employees.  Most will not have learned EVM in college.  Even companies that have been using EVM for years face a recurring need for training.  We’re pretty consistently seeing a turnover of 20-40% of our experienced CAMs each year across the industry. 

If you answered “yes” to several, I’m sure you’re a bit overwhelmed and asking yourself, how can we possibly meet all these requirements?

Over 40 Years of Experience

Well, don’t despair.  Humphreys & Associates, Inc. (H&A) has just what you need to get you through all those situations, and more.  For over 42 years, H&A has been the leader in providing EVM proposal support, EVMS Requirements/Gap Analysis support, EVMS Design, Implementation support, IBR Preparation, and EVMS Review/certification preparation, staff augmentation, and of course, EVMS and Project Management Training. 

H&A has trained over 950,000 people around the world in all aspects of the Earned Value requirements and has built the largest, most comprehensive library of training materials in the Earned Value Management consulting industry.  We have tailored training materials and have trained and supported contractors whose customers have been from DOD, DOE, NASA, FAA, HHS, as well as international customers such as the Australian DOD, the Canadian DND, Sweden Defense, and the UK.

EVMS Training Library

Our actively maintained library includes:

  • Basic and Advanced Courses in Earned Value Management and
  • Control Account Manager/Project Controls Staff Training and Certification;
  • EVMS Review training to prepare upper management and project teams for:
    • Earned Value Management System Review,
    • Integrated Baseline Review (IBR), and
    • Internal/Joint/External Surveillance;
  • Specialized training in:
    • Developing a WBS,
    • Planning Techniques,
    • Project Scheduling,
    • Baseline Establishment,
    • Materials Management,
    • Subcontract Management,
    • Basic and Advance Variance Analysis,
    • Estimating,
    • Change Management,
    • Government Reporting requirements,
    • OTB/ OTS incorporation, and
    • Agile Software Development

Real-World Application

Our curriculum makes extensive use of real-world examples and case studies to extend the process of learning into application.  We offer these hands-on courses in a variety of settings and formats to meet your needs. 

Public offerings are open to the industry at large and are particularly useful when you have a limited number of individuals needing the training or those individuals who are widely geographically separated. 

In-house offerings at your facilities allows us to meet the training need at one location or for one specific team and can include specifics of your system description.  

Earned Value Webinars

Webinar offerings of the two courses above and our Virtual Learning Lab (VLL) format are available, especially in these times of limited travel.  Webinars of the public and in-house training courses rely on the same content as the in-person courses with the addition of virtual interaction opportunities to increase student involvement and enhance learning.  Our Virtual Learning Lab (VLL) format provides an opportunity for busy individuals to learn at their own pace and time of their choice – even if they are working from home.  The VLL makes extensive use of video presentations and application case studies to enhance the learning environment and ensure the students continue to apply the knowledge they have gained. 

Training Materials

If you have an existing training staff, H&A can even be your source for training materials.  Most of our courses are available for purchase/licensing and our staff of EVMS experts can tailor them to any company environment.  The big benefit here is you leveraging H&A active involvement with EVM requirement changes to keep the material up to date and your training staff don’t have to do it.  In the end you get an up-to-date course without out committing the staff and costs to do the work.  This approach also aligns your material across all our offerings to provide you delivery flexibility with a consistent core content.       

In addition to providing course materials, H&A also can provide Train-The-Trainer sessions in those courses, so your company’s training department can understand and become comfortable with the training materials and updates.

EVMS Certification Programs

Our Certification programs go beyond the public or in-house training courses to create the Qualified CAMs and Project Controls (PC) personnel that are integral parts of a successful EVMS implementation.  These roles are where “the rubber meets the road” for EVMS.  CAMs and PCs will be expected to demonstrate how the company’s EVM System is actually operating on a day-to-day basis.  H&A offers comprehensive and rigorous Certification Courses for both of these important functions so you can be assured that your people not only understand Earned Value concepts but have demonstrated the ability to address the requirements or even problems that can arise on a Project. 

Mock Reviews

To enhance the review training listed above (EVMS, IBR, and Surveillance) and best prepare your organization for these events, H&A also provides teams of our consultants who can conduct Mock Reviews for all three of these events.  These mock reviews simulate each type of government review, including the conduct of CAM and other manager interviews, the running of metrics testing, and the preparation of in-briefs and exit briefs all of which are integral parts of a government EVMS Review.  These Mock reviews can also be used as on-the-job training for company personnel who may be required to conduct IBRs or Surveillance at a subcontractor’s facility. H&A can also augment your company teams in conducting these subcontractor reviews to extend the training while helping your team complete required tasks. 

Agile

H&A has a team of experienced Agile Coaches who are also experts in integrating Agile and Earned Value Management methodologies. H&A also has a vast library of Agile and EVM training materials that can be tailored to meet specific client needs.

Specialized and Experienced Training

Our specialized training courses have been developed over time to address the specific training needs of past clients and provide in-depth, focused training in a variety of topics to enhance your application EVM to effectively manage your projects.  These courses build on the general knowledge provided by the basic courses to make your team more effective and efficient in each topic area.  In cases where your team needs specific, focused training and you don’t find it listed here, we would be happy to discuss the situation and provide a recommended approach to make you successful.      

Each H&A Senior Team Lead typically has over 30 years of experience in Industry, in Government, and/or in consulting – so there is virtually no situation or problem that they have not encountered before. So, although your company may be overwhelmed by the EVMS requirements and the expectations of your customer, you can rely on our H&A team of experts to get you through it all successfully. 

So please, take a look at the H&A website and all that we have to offer, and then give us a call at (714) 685-1730, or email us so we can get you started on the road to EVMS success. We look forward to helping you be successful!

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