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Management Reserve; Comparing Earned Value Management (EVM) and Financial Management Views of “Reserves”

By Humphreys & Associates / October 20, 2015 / Altria, BAC, EVM, EVM Analysis, EVMS, IPMD, management reserves, MR, PASEG, PMSC, SOW

Altria, BAC, EVM, EVM Analysis, EVMS, IPMD, management reserves, MR, PASEG, PMSC, SOW

Management Reserve & Earned Value Management

Perhaps you have witnessed the collision of earned value management’s views on “management reserve” with the Chief Financial Officer (CFO) and the finance department’s views on “balance sheet reserves.” Most companies tend to organize EVM, the function, reporting to either the programs’ organization or to the finance organization. Either will work but either can fail if the two organizations do not understand the interest of the other.

In this article we will outline three areas. The first will be EVM and Management Reserve (MR). The second will be finance and balance sheet “contingencies, loss provisions, or reserves.” The third will compare the two views and identify where they are similar and where they differ.

We will use two terms for both EVM and Financial Management; “in play” and “on the sideline.” “In play” for EVM means that it is in your Performance Measurement Baseline (PMB) and Budget at Completion (BAC). “On the sideline” for EVM means “not in scope” therefore in MR. “In play” for financial management means recorded on the balance sheet (e.g.: current liability; an accrued liability). “On the sideline” for financial management means not recorded on the balance sheet, because it is more likely than not that a liability has been incurred. If material, however, it will likely be disclosed in the notes to the financial statements, even if it is not recorded on the balance sheet.

Earned Value Management and Management Reserve

A program manager and his or her team must deal with – mitigate – risk or be consumed by those risks as they become issues. There are two types of risks, known and unknown. The known risks are entered into a risk register, and their likelihood and consequence are determined. Mitigation for those known risks is done at the activity level in a program’s Integrated Master Schedule (IMS) (Planning and Scheduling Excellence Guide — PASEG page 141, ¶ 10.3.1). Mitigation of known risks is part of the PMB (in the BAC) and is therefore “in play.”

The second type of risk – unknown or unknowable risks – are covered by management reserve if within the Scope of Work (SOW) of the existing contract. If contractor and customer conclude that the realized risk is outside the existing contract, then an Engineering Change Proposal (ECP) would likely be created by the contractor; and a contract modification would be issued by the authorized customer contracting officer if they agreed. The program manager should ask this question of his team: what work is “at risk” and what work is not “at risk?” Does labor or material present more risk? Management reserve “is an amount of the overall contract budget held for management control purposes and for unplanned events” (Integrated Program Management Report–IPMR DI-MGMT-81861 page 9, ¶ 3.2.4.6). Management reserve is “on the sidelines.” MR has no scope. MR is not earmarked. MR stands in waiting.

Earned Value Management Reserve (MR) Compared To Financial Management “Contingency”

Because the audience reading this blog is most likely from the EVM community, I’ll offer a Financial Management example of a company that faces many risks and must manage those risks or be consumed by them. Altria Group, Inc. and Subsidiaries (stock symbol: MO) are in the tobacco, e-Vapor and wine business. Altria’s history clearly shows that the company measures and successfully mitigates the risks they face. Altria faces a blizzard of litigation each year and must protect its shareholders from that risk. So how does Altria manage known risks (mostly from litigation) and how does Altria handle unknown risks?

Altria is a publicly traded company and its annual report (10K) is available on-line to the public. This data is from their 2014 annual report.

I am an MBA, not a CPA, so I’ll stick to Altria’s 2014 balance sheet. For those not familiar with financial statements, a balance sheet has on its left hand side all of a company’s assets – what the company owns and uses in its business (current assets = cash, accounts receivable, inventory; long term assets = property, plant and equipment). The right hand side of a company’s balance sheet shows current and non-current liabilities and shareholders’ equity. The top right hand side of the balance sheet includes current and non-current liabilities (accounts payable, customer advances, current and long-term debt, and accrued liabilities like income taxes, accrued payroll and employee benefits, accrued pension benefits and accrued litigation settlement costs) and the bottom of the right hand side of the balance sheet includes shareholders’ equity consisting of common and preferred stock, paid in capital and retained earnings.

Altria’s 2014 annual report shows under current liabilities; accrued liabilities; settlement charges (for pending litigation Contingency note # 18) a value of $3.5 billion dollars. The 2013 amount was $3.391 billion dollars.

So Altria has “in play” $3.5B for litigation for 2014. In financial terms, Altria has recorded $3.5 billion in expense related to the litigation, probably over several years as it became more likely than not that a liability had been incurred and was reasonably estimable. In EVM terms Altria has $3.5B in their baseline, or earmarked, or in scope for litigation (court cases).

What happens if Altria ultimately has more than $3.5B in litigation settlement costs? What does Altria have waiting on the “sidelines” to cover the unknown risks? Essentially Altria has on its balance sheet waiting “on the sidelines” $3.321 billion in cash and the ability to borrow additional funds or perhaps to sell additional shares of stock to fund the settlement costs. In EVM terms Altria has $3.5B in its baseline (on its balance sheet) to manage the risks associated with litigation. Altria’s market capitalization at the market close on May 17, 2015 was $52.82 billion and its 2014 net revenues were $24.522 billion. It is reasonable to understand that Altria has more than enough MR.

Differences Between EVM MR and Financial Management Balance Sheet Reserves

In EVM, MR is only released to cover unplanned or unknown events that are in scope to the contract but out-of-scope to any control account. A cost under-run is never reversed to MR, and a cost over-run is never erased with the release of MR into scope.

In industry in general, and Altria in particular, if the “in play” current liability for settlement charges of $3.5B are not needed (an under-run), then Altria will reverse a portion of the existing accrued liability into income, thereby improving profitability. If Altria’s balance sheet reserve of $3.5B is insufficient, then Altria’s future profits will be reduced as an additional provision will be expensed to increase the existing reserve (an over-run).

[Humphreys & Associates wishes to thank Robert “Too Tall” Kenney for authoring this article.]

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Control Account Manager’s Log – A Valuable Tool

By Humphreys & Associates / September 12, 2014

It is not always easy on a rapidly changing project for a Control Account Manager (CAM) to keep track of where the Control Account is with regard to the current scope, schedule, and budget status and the history behind revisions, both directed and requested, approved or disapproved, and incorporated or pending actions.

The Control Account Manager’s Log is a valuable tool the CAM could use to keep track of all of the transactions affecting control account scope, schedule and budgets. This tool is most helpful to the CAM when there have been multiple Baseline Change Requests (BCR) submitted that are not necessarily approved in the order submitted (if approved at all) or are not approved as submitted; i.e., Program Manager approval varies from the CAM’s submittal. Using this type of Log, the CAM can track change requests as they are approved, rejected or altered. The CAM can update the Log with the change in scope, schedule, and budget for every change. The CAM can also compare what was submitted to what was actually approved and ensure that the scope, schedule, and budget amounts on updated Control Account Work Authorizations are correct for each transaction, or at least understand any reasons for the differences.

An example CAM Log is shown below. Obviously, the example can, and should, be tailored to fit the organization’s requirements. For example, the budget shown below is a total; one may want to show budget elements in terms of labor, materials, or other direct costs. If the organization issues budgets through overhead costs to the CAMs, then a logical breakout would be to show those as well as the direct budget elements.

For example, as you can see in the second transaction adding WBS 6.6.3.5, the entire amount was approved, increasing the total budget to $2,086,570. For BCR 171, however, the CAM submitted a request for $11,310 in September; in October the Project Manager’s decision was to approve only $11,200 from Management Reserve (MR), raising the total budget to $2,097,770. Meanwhile, BCR 194 was submitted requesting $121,320, but that BCR has not yet been approved, and since then three other transactions have taken place (AUW 101, BCR 162 approved, and BCR 182 was submitted but not yet resolved).

As you can see, without a CAM level log, it could easily become very difficult for a CAM to keep track of the control account’s budget.

Feel free to call or email us if you have any questions regarding this article. Your comments are always welcome.

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Keeping Track of Budgets, Changes, and IPMR Data

By Humphreys & Associates / August 15, 2014

For projects, the moment the baseline is established it is subject to change and a disciplined approach in the change process must be in effect. The source of project changes can be either external or internal. External changes frequently affect all aspects of a contractor’s internal planning and control system and are generally for effort that is out-of-scope to the contract. Contract changes impact the Contract Budget Base (CBB) and are distributed to the Performance Measurement Baseline (PMB), which includes the distributed budgets containing control accounts, and Summary Level Planning Packages, and to the Undistributed Budget.

These changes may also impact the Management Reserve (MR) budget if the decision were made to withhold reserve from the budget for the change. The Work Breakdown Structure (WBS) serves as the framework for integrating changes within the project’s structure. Internal changes operate much the same, but they do not change the CBB. The most common reasons for internal changes are the allocation of MR for contractually in-scope effort, replanning of future work, and converting planning packages to work packages.

The Earned Value Management Systems Guidelines require that all changes, regardless of the source, be incorporated in a timely and disciplined manner. Consequently, the project needs to have a formal change process and procedures in place. Following these processes and procedures will also help minimize disruptions in the current effort while changes are being incorporated. An undisciplined change control process has the potential to create timing or quality issues that will lessen the baseline’s effectiveness as a management tool.

Baseline changes must also be tracked to ensure baseline integrity. The most effective way to do this is to establish baseline logs to track all approved changes. These can include the Contract Budget Base (CBB) Log, as shown below, the Management Reserve (MR) Log, and the Undistributed Budget (UB) Log. In addition, a log may be established to track all approved, unapproved and unresolved change requests.

Once established, these logs must be maintained and reconciled to the data reported in the Integrated Program Management Report (or Contract Performance Report) that is delivered to the customer on a monthly basis. This reconciliation helps validate that the PMB accurately represents the project’s technical plans and requirements.

To find out more about this topic or if you have questions, feel free to contact Humphreys & Associates.

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Is it OTB/OTS Time or Just Address the Variances?

By Humphreys & Associates / August 1, 2014 / EVM, EVM Analysis

EVM, EVM Analysis

No project manager and project team ever wants to go through an Over Target Baseline (OTB) or Over Target Schedule (OTS). The idea of formally reprogramming the remaining work and adjusting variances at the lowest level can be daunting and extremely time consuming. As painful as an OTB/OTS is, a project manager must first determine if the reprogramming is necessary. Several factors should be considered before an OTB/OTS is declared and implemented.

NOTE: This paper addresses a Formal reprogramming as including both an OTB and an OTS. If the Contract Performance Report is the CDRL Requirement, an OTS is not a part of a Formal Reprogramming. It is a separate action.

Performance Data

Projected successful execution of the remaining effort is the leading indicator of whether an OTB/OTS is needed. Significant projected cost overruns or the inability to meet scheduled milestones play a major role in determining the need for an OTB/OTS as these indicators can provide a clear determination that the baseline is no longer achievable.

Leading indicators also include significant differences between the Estimate to Complete (ETC) and the Budgeted Cost of Work Remaining (BCWR). This is also demonstrated by major differences between the Cost Performance Index (CPI) and the To Complete Performance Index (TCPI). These differences are evidence that the projected cost performance required to meet the Estimate at Completion is not achievable, and may also indicate that the estimated completion costs do not include all risk considerations. Excessive use of Management Reserve (MR) early in the project could also be an indicator.

Schedule indicators include increased concurrency amongst remaining tasks, high amounts of negative float, and significant slips in the critical path, questionable activity durations and inadequate schedule margin for remaining work scope. Any of these conditions may indicate that an OTB/OTS is necessary.

Quantified Factors

Various significant indicators in both cost and schedule can provide a clear picture that an OTB/OTS is warranted. The term “significant” can be seen as extremely subjective and vary from project to project. For further evidence, other more quantified indicators can be used to supplement what has already been discussed.

Industry guidelines (such as the Over Target Baseline and Over Target Schedule Guide by the Performance Assessments and Root Cause Analyses (PARCA) Office) suggest the contract should be more than 20% complete before considering an OTB/OTS. However, the same guidance also recommends against an OTB/OTS if the forecasted remaining duration is less than 18 months. Other indicators include comparing the Estimate to Complete with the remaining work to determine projected growth by using the following equation:

Projected Future Cost Overrun (%) = ([(EACPMB-ACWP) / (BACPMB-BCWP) – 1)] X 100

If the Projected Future Cost Overrun percentage were greater than 15%, then an OTB/OTS might be considered. Certainly the dollar magnitude must be considered as well.

Conclusion

There is no exact way to determine if an OTB/OTS is needed, and the project personnel must adequately assess all factors to make the determination. Going through an OTB/OTS is very time consuming, and the decision regarding that implementation should not be taken lightly.

After all factors are adequately analyzed, the project manager may ultimately deem it unnecessary and just manage to the variances being reported. This may be more cost effective and practical than initiating a formal reprogramming action.

If you have any questions about this article contact Humphrey’s & Associates. Comments welcome.

We offer a workshop on this topic: EVMS and Project Management Training Over Target Baseline (OTB) and Over Target Schedule (OTS) Implementation.

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Reviewing Authority Data Call – Not Just a Wish List

By Humphreys & Associates / June 20, 2014 / Statement of Work (SoW)

Statement of Work (SoW)

Data Call

One of the most important items needed to prepare for an Earned Value Management System (EVMS) review is the data call. This is not just a list of random data; the reviewing authorities have a defined set of data items they want to review so they can evaluate the EVMS implementation and compliance.

Required Artifacts

Over the years the reviewing authorities have fine-tuned the review process and created a very specific list of required artifacts. They use these items to pre-determine the review focus areas so they are prepared to get right to the soft spots in the system and processes.

Formal Review Notification

The process begins when the contractor receives a notification from the reviewing authority that they will conduct a formal review of a project. This could be a Compliance Review (CR); an Integrated Baseline Review (IBR); standard Surveillance; or one of many other reviews conducted to determine the implementation or continued compliance of the EVMS processes and reports. Regardless of the type of review, one of the key items is the data call request. The data call is used to request project information, and could consist of 12 reporting periods, or more, of data. This will vary by agency, type of program, and type of review. In most cases, a minimum of three months of project data will be required; typically, however, 6 to 12 months of data would be requested.

Basic Reports

Some of the basic reports requested are the Contract Performance Reports (CPRs), Integrated Program Management Reports (IPMRs), or similar time phased project performance reports produced from the earned value (EV) cost tool database. The data call request includes the detail source data from the EV cost tool as well as the Integrated Master Schedule (IMS) from the beginning of the program. This source data is often delivered electronically to a customer following the IPMR or Integrated Program Management Data and Analysis Report (IPMDAR) Data Item Description (DID) prescribed data formats. The Baseline Logs are often also requested.

Quality Data

It is essential to provide quality data in response to the Review Authority data call. The entire review process can be derailed when data call items are incomplete or inaccurate. Some of the things to consider are:

Make sure the list of requested items is fully understood (some nomenclature issues could cause an issue).
The data should be available in the format required in the call.
Determine the best way to support the data call delivery if it is not specified in the request. The data can be provided using electronic media such as thumb drive, as attachments to emails (the size of the files may prohibit this), or possibly establishing a secure access cloud server to store the data for the reviewing authority to retrieve.
Contact the requesting reviewing authority to establish a meeting to discuss the data call. This meeting should be used to resolve or clarify any issues regarding the requested information, negotiate potential equivalents of the project data if it does not exactly match the requested information, and establish a method to transmit all data files.
Develop an internal plan to monitor the progress of data collection. Be sure to have non-project personnel review the data for accuracy and compliance with the specifics in the data call.
Submit the data call to the requesting authority, follow-up with a phone call or meeting to verify the reviewing authority received the data, can open all the files, and agrees the complete set of data has been provided.
Follow-up with another call a few weeks before the review to check if the reviewing authority has any issues or problems in evaluating and understanding the data call information. Be willing to work with them until the authority is comfortable with the data.

[NOTE: The number of items on the list depends on (1) the agency conducting the review and on (2) the type of review being conducted. The number of items requested could vary from around 30 to 100 or more.]

Typical Data Call

Some of the basic items typically requested in the data call are:

Earned Value Management System Description including the matrix of the System Description and related system documentation mapped to the 32 guidelines in the EIA-748 Standard for Earned Value Management Systems as well as to the current version of the reviewing agency’s EVMS Cross Reference Checklist.
EVMS related policies, processes, procedures, and desktop instructions. Examples include organizing the work, scheduling, budgeting, work authorization, details about earned value techniques and how each is applied, change control, material planning and control, subcontract management, and risk/opportunity management.
Organization charts down to the Control Account Manager (CAM) level.
Accounting calendar.
Project directives including the Statement of Work (SOW) pertaining to Program Management or Statement of Objectives (SOO), EVM clauses, and EVM Contract Data Requirements List (CDRLs) or Subcontract Data Requirements List (SDRLs).
Work Breakdown Structure (WBS) Index and Dictionary.
Responsibility Assignment Matrix (RAM) including budget detail at the CAM level.
Project and internal work authorization documents.
Integrated Master Plan (IMP) or milestone dictionary.
Contract Budget Base Log, Management Reserve Log, and Undistributed Budget Log.
Risk/opportunity identification and assessments, risk/opportunity management plan.
Cost performance reports (all applicable formats) or datasets. Provide the reports or dataset in the format provided to the customer such as PDF, Excel, UN/CEFACT XML, or JSON encoded data per the DID on contract such as the CPR, IPMR, or IPMDAR.
Integrated Master Schedule (IMS) submissions and related native schedule file. This includes the IMS summary report if required.
IMS Data Dictionary.
Most recent Contract Funds Status Report (CFSR) or equivalent funding status report.
Variance Analysis Reports (VARs) or equivalent progress narrative reports as well as the internal and external variance thresholds.
List of subcontractors including value and type (such as cost reimbursable, firm fixed price, time and materials) including the applicable purchase orders. When EVM requirements are flowed down to the subcontractors, provide a copy of subcontractor EVM related contractual requirements (CDRLs and DIDs).
Major subcontractor CPRs, IPMRs, or equivalent cost performance reports (all applicable formats) or IPMDAR datasets.
Major subcontractor IMS submissions.
Previous audit or surveillance findings, resulting reports, corrective action plans, and resolution and tracking Logs.
List of specific software toolsets used for accounting, scheduling, cost management, resource management, risk/opportunity management, or performance analysis.
EVMS Storyboard and flowcharts.
Chart of accounts, including cost element definition.
Staffing plans or weekly/monthly labor reports.
List or copy of contract modifications.
Cost Accounting Standards (CAS) disclosure statement or equivalent internal corporate procedures.
Baseline Change Requests.
Any other data previously provided to the customer as part of a data call.
Basis of Estimates (BOE) or historical data/productivity rates and efficiency factors.
Estimate to Complete (ETC) and Estimate at Completion (EAC) documentation.
Budget reports or control account plans by element of cost (labor hours and dollars, material dollars, and other direct cost dollars) and associated burdens or overhead costs.
Actual cost reports.
Open commitment reports.
Bill of material including cost detail.
Quantifiable Backup Data for percent complete work packages including MRP/ERP Reports for production work packages.

Reacquaint Yourself

The list includes items that are used frequently, as well as items that are used only at specific times during the project, and will probably be less familiar to the review team. As the collection of the data call items progresses, be sure to establish quick refresher sessions on the less frequently used documents and any other items where the review team might be having difficulty. As part of the process of gathering the data call items, be sure internal reviews are conducted to verify accuracy and traceability, verify the users of the data are familiar with the data content so they can be prepared to answer questions, and current data are available to the review team.

NOTE: This Data Call List is intended for general guidance in preparation for any agency review (e.g., DCMA, DOE, FAA, etc.). For example, in the past, the DCMA Compliance Review Data Call item list contained 102 specific items, but this number varies from review to review and has changed over the years. The number is not as important as the quality of the data items that are delivered to the review authority.

First Impressions

The data call items will provide the first look at the project’s EVM data and process for many of the review team members. The review team members will have the data several weeks prior to the on-site review. They will be performing multiple validation checks using various analytical software tools as well as hands-on analysis of the information. If the data is incomplete, contains errors, and does not trace well, the review team will form a more negative opinion of the EVMS application.

Double Check the Data Call

The data analysis results will be a basis for where attention is focused during the on-site review, as it emphasizes areas that contain anomalies or indicates a lack of system integrity. Significant emphasis should be devoted to the data call items to ensure accuracy and compliance with the review authority’s requests, as it is a very positive way to begin the data call review.

A Humphreys & Associates EVM specialist is always available to answer questions. Give us a call or send an email.

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Common Problems Found in EVMS and Recommended Corrective Actions – Part 5

By Humphreys & Associates / June 6, 2014

This is the last of a five part series regarding common findings discovered in contractors’ Earned Value Management Systems (EVMS), and the recommended corrective actions to mitigate those findings.

The previous articles discussed:

Part 5 of this series includes: Inappropriate use of PERT and LOE; Misuse of Management Reserve; Administrative Control Account Managers.

1) Inappropriate use of PERT and LOE

The Program Evaluation and Review Technique (PERT) earned value method is a simple method for calculating the BCWP, where: BCWP = (ACWP/EAC) X BAC. In this method, the earned value is completely contingent upon cumulative expenditures (ACWP) divided by an estimate of total expenditures. Because the results of this formula often have little to do with actual progress, its use is limited to non-critical work, and generally is applied only to high volume, low dollar fixed price material. The PERT method should never be used for any critical path task, labor, or high dollar value material. Guideline 7 of the EIA-748-C Standard requires that an EVMS “Identify physical products, milestones, technical performance goals, or other indicators that will be used to measure performance”. The primary condition that must be satisfied in a review of earned value techniques is the application of “meaningful indicators” for use in measuring the status of cost and schedule performance.

Level of effort (LOE) tasks consist of management or sustaining type activities that have no identifiable end products or an established relationship to other measurable effort. The standard for the control of LOE is documented in Guideline 12, which requires that “Only that effort which is immeasurable or for which measurement is impractical may be classified as level of effort”. There is no standard threshold for a contract or WBS level that would signify “too much” LOE. However, a common practice during review discussions with the control account managers is to challenge any LOE to assess its appropriateness. There is always pressure on a contractor to minimize the LOE as the nature of LOE can easily mask or distort the performance of discrete work.

Most Common Corrective Action Plans

The most common response to findings regarding both PERT and LOE is to establish a screening/approval process, with thresholds, during the budgeting process. For PERT, most Earned Value Management System Description Documents (EVM SDD) will specify the limited use of the technique for high volume, low dollar fixed price material. Many also take the next step and create a threshold for what is considered “low dollar” and short duration. This is dependent on the nature of the work, but it is not unusual for an SDD to require that any material extended value (quantity of parts times budgeted unit value) or part number greater than $10,000 (or some other threshold) must be tracked discretely in the IMS and may not use the PERT method. Some also establish a a duration threshold like no greater than 3 months when there are many parts of low value. One of the signs that PERT is being used inappropriately is when variance analysis included in the Integrated Program Management Report (IPMR) or Contract Performance Report (CPR) Format 5 consistently refers to PERT accounts as drivers, or a schedule variance explanation that refers to material not being tracked in the IMS.

Level of Effort should be justified on a case-by-case basis. A common strategy for setting the appropriate level of LOE is to require the Program Manager’s approval on all LOE accounts. While control accounts may contain a mixture of LOE and Discrete Effort, many organizations establish rules concerning the maximum allowable LOE in a control account to prevent the distortion of status; often a threshold of 20% is established. Above that threshold, a separate control account would be required for LOE work. While it is a goal to have no more LOE than is required, care must be taken not to measure work that is truly LOE. CAMs have been known to say that they were required to establish a discrete account even though the nature of the work is impractical to measure. This type of discovery by a review team can also result in a finding for use of an inappropriate earned value technique.

2) Misuse of Management Reserve

Management Reserve (MR) is a portion of the overall contract budget held for management control purposes and unplanned events that are within the scope of the contract. H&A has often heard in the course of our consulting or training that there are few rules regarding MR, and the restrictions are unclear. This is not quite accurate. The Integrated Program Management Report Data Item Description (IPMR DID, DI-MGMT-81861) lists four restrictions on the use of MR:

MR shall not be used to offset cost variances.
MR shall never be a negative value.
If MR includes the contractor and subcontractor amounts together, the breakout shall be discussed in Format 5.
Amounts from MR applied to WBS elements during the reporting period shall be listed in Block 6.b of Format 3 and explained in Format 5.
- Format 5: Identify the sources and uses of MR changes during the reporting period. Identify the WBS elements to which MR was applied and the reasons for its application.

The EIA-748-C Standard adds a few more caveats for MR:

Held for unexpected growth within the currently authorized work scope, rate changes, risk and opportunity handling, and other program unknowns.
May be held at the total program level or distributed and controlled at lower management levels.
Held for current and future needs and is not used to offset accumulated overruns or under runs.
Is not a contingency that can be eliminated from prices during subsequent negotiations or used to absorb the cost of program changes.
Must not be viewed by a customer as a source of funding for added work scope. This is especially important to understand that it is a budget item and that it is not for added work scope.

In addition, the Defense Acquisition University Evaluation Guide (EIA 748 Guideline Attributes & Verification Data Traces) requires that the internal MR Log be reconciled with the IPMR (or CPR).

The specific nature of the above requirements reflects the types of abuse experienced with the MR budgets. The EVM SDD should establish specific organizational guidelines for the application of MR; however, those rules and the organization’s practices must fall within the bounds established by the EIA-748-C and the appropriate Data Item Description (DID).

The discrepancies found in recent reviews take two primary forms: inappropriate application of MR in the current accounting period and poor reporting and discussion involving MR use in the IPMR/CPR Formats 3 and 5. With the exception of rate or process changes, all applications of MR must be made in association with additional work scope authorized to control accounts. Because of the prohibition in the requirements regarding the offset of overruns or underruns, applications in the current period can be far more suspicious than in future periods. Care must be taken to fully justify the timing and use of MR in terms of additional scope. All applications of MR must have a full accounting in Formats 3 and 5 of the IPMR (or CPR).

Most Common Corrective Action Plans

Response to these discrepancies is usually a matter of policy, training, and discipline. The EVM SDD must contain a policy that enforces the rules in the guidance documents mentioned above, as well as document who has the authority for approval of MR application (generally the Program Manager). Those responsible for authorization of MR must be familiar with the approval policies, and their support staff must ensure there is complete visibility in the customer reporting and reconciliation to the program logs. One of the more common corrective actions is to structure the IPMR (or CPR) Format 5 so that reporting of MR transactions meets the intent of the guidance cited above.

3) Administrative Control Account Managers (CAMs)

The role of the CAM can change across organizations, and there is no standard set of criteria that defines the CAM’s duties. The National Defense Industrial Association (NDIA) Integrated Program Management Division (IPMD) Earned Value Management Systems Intent Guide states that “The control account manager is responsible for ensuring the accomplishment of work in his or her control account and is the focal point for management control”. The requirements for management control can be defined as having three essential attributes for the role of the CAM: responsibility, authority, and accountability. These attributes assume ownership of the technical, schedule and cost aspects of the scope authorized to a Control Account Manager (CAM). It is not always the case that the CAM must be the technical expert over the scope of the control account; sometimes that is the role of the “performing organization” rather than the “responsible organization”.

Primarily through discussion with the CAMs, it is easy to assess if they fail in performing any or all three of the above essential attributes. Because being a CAM brings a set of duties that are over and above those of a technical manager or engineer, the CAM’s role is often not a welcomed addition and some organizations hand it over to employees who have little knowledge of, or responsibility for, the effort. A comment on a Corrective Action Request (CAR) for an organization that was employing Administrative CAMs was “CAM does not stand for ‘Control Account Monitor’”. The role of the CAM does include necessary administrative responsibilities; such as, reporting status, maintaining records, and developing analysis for the control accounts. However, these cannot be the only functions the CAM performs.

A CAM should be active in the development of the control account plans in the IMS and EVM Systems, including being the primary architect for defining the tasks, logic for the schedule and the adequacy of the budget. The CAM should be the primary contact for the Program Manager regarding the control account, including risk management and corrective action planning. The CAM should also have the authority to assign and coordinate work performed by other organizations. The CAM should have enough knowledge of the scope and the executing environment to develop a realistic forecast of costs beyond that of mathematical extrapolation. If control accounts contain subcontracted work, the CAM is also responsible for management of that subcontractor effort.

Most Common Corrective Action Plans

Choosing the right personnel to fulfill the requirements of the CAM role can be difficult. One of the first considerations is the appropriateness of the organization that is given the responsibility for management. An example is for material control accounts where the organization responsible during a program’s development phase may not be appropriate for the production phase. It is very important for the contractor when submitting the corrective action plan (CAP) to treat the job of the CAM as being critical to project success, and not one relegated to people in the organization who do not have responsibility, authority, or accountability.

The Correction Action Plan should also include a list of essential CAM attributes, and be very clear on the responsibilities and authority of the CAM role. Companies should make a commitment to ensure that the position is considered critical and not just created to fulfill the requirements of earned value. This can be demonstrated by not only choosing the right individuals to perform the functions, but also providing the necessary resources, training, and support to function successfully.

This completes our 5 part series. Thank you for your readership.

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Common Problems Found in EVMS and Recommended Corrective Actions – Part 5 Read Post »