Earning Value for Material – The Correct Approach – Part 1

By Humphreys & Associates / October 1, 2012 / Material

Earning Value for Material

A common question that H&A Consultants are asked is “What is the most common point to claim earned value (the budgeted cost for work performed or BCWP) for material?”

The answer? There is not one point for earning value for material in all categories.

Guideline 21 in the EIA-748 Standard for Earned Value Management Systems (EVMS) says, “…earned value is measured and at the point in time most suitable for the category of material involved….”. Notice the highlight on “suitable for the category of material.”

Let’s look at the two most common high-level types of material categories for discussion: Engineering and Manufacturing. Engineering material earned value (EV) is typically claimed at receipt. Manufacturing material EV is typically claimed when issued from inventory. The most common acceptable points for claiming earned value for the various material categories are illustrated below.

With the advent of MRP/ERP systems and the tendency for companies not to want to keep large stores for materials, many have gone to a “just in time” approach where they order delivery of their materials to be staggered over time to arrive just in time for their need dates. Large production or manufacturing facilities will still need to have inventories to ensure their lines continue in operation.

What happens in some facilities, however, is that contractors have placed the emphasis on the next part of Guideline 21 that says “…but no earlier than the time of actual receipt of material” as their authority to earn value for all material at point of receipt. These contractors are asking for trouble with this misinterpretation. Contractors should base their plans and EV on the category of material involved.

Whenever contractors earn value at the point of receipt for material they plan to maintain in their inventory bins for several months, they open themselves to have DCMA write Discrepancy Reports (DRs) or Corrective Action Requests (CARs) for using inappropriate points in time to earn value for material.

Rationale for this is – When you claim EV, you are telling the customer you are a certain percent complete with the program. For example, if materials represent 70 percent of your contract, earning value for all the material (or a large part of it) up front says (in the Contract Performance Report CPR to the customer) “I am 70% done with your program”. The customer tends to think in terms of “7 of my 10 airplanes are completed” when in fact none are completed.
The result – A very unhappy customer because you indicated incorrectly (in the CPR) you are ahead of schedule. This false lead erodes away until you are late delivering the planes, helicopters, ships, tanks, or other contracted items to the customer.
Bottom line – A number of contractors are incorrect in thinking they can earn value for all material at the point of receipt. The EIA-748 Guidelines – even back in the day when it was the Cost/Schedule Control Systems Criteria (C/SCSC) checklist – have always required the distinction by material category (there are always more than just the two categories discussed above). DoD and DCMA have always stated there is no one point for claiming material earned value.

Need help determining the appropriate earned value techniques to use for material? Humphreys & Associates can assist you with all your EVMS needs. Contact us today.

Earning Value for Material – The Correct Approach – Part 1 Read Post »

Authorized Unpriced Work (AUW) and Earned Value Management Systems

By Humphreys & Associates / August 27, 2012 / AUW, EVM, EVMS

AUW, EVM, EVMS

Authorized unpriced work (AUW) is an area that can cause contractors difficulties and when not handled properly, can result in a DCMA EVMS review team writing up a Corrective Action Request (CAR) as we have discussed in previous blogs.

At times, contractors can find themselves in a position where projects are not following commonly used and recommended practices that are described in the EIA-748 Standard for EVMS guidelines as well other guidance such as the NDIA Integrated Program Management Division (IPMD) EIA-748 Intent Guide and the DoD Earned Value Management System Interpretation Guide (EVMSIG).

It is always better to be proactive to ensure project personnel have the proper direction they need. H&A suggests that you review your EVM System Description as well as any related procedures to ensure that they:

Reflect the EIA-748 guidelines (for AUW in particular, see Guidelines 8 and 28) as well as related industry and government implementation guidance.
Are clear and specific on how project personnel are to handle authorized unpriced work.

Humphreys & Associates suggest verifying the following items are discussed in your EVM System Description.

How and when work scope and budget are distributed from undistributed budget (UB) to control accounts and subordinate work packages or planning packages. This includes:
- Describing what controls are placed on the use of UB.
- Stipulating a specific period of time that work scope and budget can be held in UB for fully negotiated work.
- Describing how and when UB is distributed to control accounts when the work scope has not been defined (i.e., the work scope represents AUW).
- The interim budgeting procedure used during the definitization process to distribute the work scope and budget from UB to the work package level for the near term effort (such as three to six months). This interim budgeting procedure should be followed until the AUW scope of work held in UB is definitized and distributed to control account work packages or planning packages.
Incorporating authorized changes in a timely manner. The EVM System Description will need to describe what:
- Constitutes an authorized change.
- Indicates authorized changes have been incorporated.
- Constitutes “timely” incorporation.
The process for establishing internal budgets for authorized but unpriced changes should be based on a resource plan for accomplishing the work. Project managers should have a detailed plan in place for the near term work using cost estimates and resource plans with appropriate direction to notify the customer when spending approaches any not to exceed (NTE) spending limits. It is critical that traceability through all steps of the process can be demonstrated.

For a more in-depth discussion on how to handle authorized unpriced work (AUW), see the article posted on the Humphreys & Associates EVMS Education Center, EVMS Practitioner section.

Humphreys & Associates is available for consulting and information on this topic. Give us a call!

Authorized Unpriced Work (AUW) and Earned Value Management Systems Read Post »

Interim Work Authorization and Earned Value Management Systems – How to Avoid Corrective Action Requests

By Humphreys & Associates / August 1, 2012 / Control Account Managers, Corrective Action Request

Control Account Managers, Corrective Action Request

Recently, several contractors have been cited – Corrective Action Requests or CARs – for performing work without customer authorization, which should never be done. Every reputable EVM System (EVMS) Description says unauthorized work is not permitted.

How do Earned Value contractors get trapped into these situations?

In many cases, it is well-intentioned. The customer has an urgent requirement that must be started immediately, but they have not yet written the authorization to proceed (ATP). In an effort to be responsive to the customer’s needs, the contractor often starts the initial planning and even commences some of the work with the mutual understanding that a contract modification will be forthcoming.

Unfortunately, this is exactly when “Murphy” (that famous lawyer) shows up with a DCMA surveillance team who finds the major violation of the work authorization related guidelines in the EIA-748 Standards for Earned Value Management Systems.

How can EVM contractors not get trapped?

Of course, the perfect solution is to have the customer issue an immediate authorization for whatever work scope has popped up. This is not always a realistic expectation, especially with the number of changes some programs experience in any given week. Contractors end up doing planning and start-up work without appropriate (or any) external or internal authorization to do so.

Since it is not likely the customers will be able to correct their authorization processes in a timely manner, contractors should still implement an internal authorization process that will keep the onus of this situation off the control account managers (CAMs) shoulders.

Some contractors already have mechanisms in place to resolve these situations, but others do not. Most (if not all) contractors have a pretty well-defined work authorization process in place that covers the CAMs for all definitive changes, and even for routine authorized, unpriced work (AUW) situations. For some reason, though, some systems do not have the flexibility to create an “Interim Authorization Document” that would cover them for these unique situations.

An interim authorization allows the contractor to authorize their CAMs to do advance planning, and even to start initial work. This could be similar to estimating the value for AUW, whereby a Rough Order of Magnitude (ROM) for the initial or start-up effort could be used for a limited scope of work over a short period of performance (1 month, 3 months, 6 months, etc.) until the final work authorization would supersede the interim document. Of course, the program is still at risk of receiving a CAR for authorizing their CAMs to do work that is not yet authorized by the customer, but at least this can be handled by the two Program Offices, instead of appearing to be a CAM level issue.

So how can the Program Office get out of that box they are in of authorizing work to CAMs that the program has not been “authorized” to do yet?

A higher level of “Interim Authorization” would seem to be in order. Some contractors already have mechanisms in place to cover this situation. They simply do not allow work to start without some definitive and documented direction from the customer.

This can take many forms and depends on the company implementing it as well as the flexibility of their software package or existing forms. Some companies have simplified the process by implementing the requirement for something called an “AVO” (Avoid Verbal Orders), or some other term that accomplishes the same result.

The basic concept that works is that whenever the customer wants the contractor to take some action – with formal direction to come later – the contractor will commence the work as long as the two contracting offices “jot down” the basics of the agreement on the “AVO” form that both offices sign prior to going their separate ways. Using the “AVO”, the contractor now has the “official OK” to issue start-up budgets to CAMs to begin their initial efforts. With these authorizations in place, the CAR issue goes away.

We hope this article on how to avoid corrective action requests saves your company time, productivity, and money while keeping your EVMS on track for all projects.

Humphreys & Associates is available for consulting and information on this topic. Contact us for questions you have.

Interim Work Authorization and Earned Value Management Systems – How to Avoid Corrective Action Requests Read Post »

EVMS Compliance Review Series #3 – Using Storyboards to Depict the Entire EVMS

By Humphreys & Associates / May 23, 2012 / DCMA EVMS Compliance Review, DCMA-INST 208, Earned Value Management System Compliance Reviews Instruction 208, EVMS Story Boards

DCMA EVMS Compliance Review, DCMA-INST 208, Earned Value Management System Compliance Reviews Instruction 208, EVMS Story Boards

UPDATE#1 NOVEMBER 10, 2017
UPDATE#2 DECEMBER 15, 2020

DCMA Compliance Review

This is the third topic in a series discussing the DCMA Compliance Review (CR) process. It is the second update to the original series #3 Blog that was based on the instruction book from the DCMA Website that identified the “DCMA 16 Step (and then their 8-Step) EVMS Compliance Review Process.” This change was documented in the DCMA “Earned Value Management System Compliance Reviews Instruction (DCMA-INST 208).” This Instruction has been rescinded and replaced with a set of DCMA Business Practices (BP). These Business Practices split out topics the old DCMA Instruction 208 covered in one document. Whether you are a contractor new to the EVM contracting environment or a seasoned veteran, if the Earned Value Management System (EVMS) compliance and acceptance authority is the Defense Contract Management Agency (DCMA), these new Business Practices apply to you.

EVMS Storyboards

The focus of this discussion is on using EVMS Storyboards to assist with the interviews and data traces that are part of any internal EVMS review, as well as during the conduct of any of Compliance Review, Surveillance Review, or Review for Cause (RFC). Storyboards can also be useful in supporting on-going surveillance activities. Even more important is their usefulness for training contractor and government personnel in how the EVM System operates.

Depict the Management System

An EVMS Storyboard depicts the entire management system as stratified flow diagrams with artifacts illustrating the inputs and outputs that demonstrate the system in operation. It is meant to clearly illustrate:

How the entire system functions (the flow),
Who is responsible for doing what (decision points and actions),
Products (forms, reports, outputs, and other artifacts), and
How all the process groups are interrelated to create a fully integrated EVMS.

Single Thread

The storyboard should also illustrate a single thread trace to demonstrate data integrity from beginning to end using actual project artifacts. Storyboards are an essential tool for training all levels of users and is invaluable for demonstrating to a customer or a review team how a contractor’s EVM System functions.

Formats

Storyboards can take many forms. The entire process can be displayed on panels or poster boards on a conference room wall. It can be contained in the EVM System Description document as an overall flow, or as segmented flows in the system description sections corresponding to the process flow. It can also be electronic or online flow diagrams with links to live artifacts.

The DCMA EVMS Center has made it clear that EVMS Storyboards are an important part of the compliance review process. During a compliance review, the contractor would be expected to use these stratified flow documents to walk through the various system processes. This includes the project manager, integrated product team (IPT) leads, control account managers (CAMs), and other functional leads. The various users of the EVMS should be able to use the storyboard flow documents to help tell their “story” and demonstrate data traceability using live project artifacts.

Compliance Review

When preparing for any compliance review, be sure to step through your EVMS Storyboard to verify:

It is complete and clearly illustrates how all the process groups are interrelated,
Roles and responsibilities are unambiguous,
Entrance and exit points are clearly marked,
Artifacts are up to date,
It accurately reflects how project personnel are using the EVMS to manage their work, and
All the data represented on the storyboard traces properly.

What if I don’t have an EVMS Storyboard?

If you don’t have an EVMS Storyboard in place, consider starting with the flow diagrams in your EVM System Description and building them out into a storyboard. An EVMS Storyboard is an essential tool to successfully navigate the compliance review process. It can help to prevent DCMA Discrepancy Reports (DRs) or Corrective Action Requests (CARs) being written because the DCMA review team didn’t know how to locate certain documents, or they didn’t understand how a process worked.

Humphreys & Associates can help you develop a new EVMS Storyboard or enhance your existing EVMS Storyboard, an important and cost saving tool. To contact us, (click here) or call (714) 685-1730.

EVMS Compliance Review Series

EVMS Compliance Review Series #3 – Using Storyboards to Depict the Entire EVMS Read Post »

Corrective Action Request (CAR)