EVM Terminology

EVM Terms

Part 1 – Weekly Earned Value: Is It More Trouble Than it’s Worth?

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Part 1 - Weekly Earned ValueThe notion of implementing weekly Earned Value (EV) causes most Program Managers to cringe. Many companies, however, are now using weekly EV as an internal management process. The business driver for this decision is the benefits that contribute to the overall success of the program.

The discipline of performing weekly EV ensures a more thorough report to the customer at month-end.  Many areas of the Joint Strike Fighter (JSF) program are successfully using weekly Earned Value. The V-22, the F/A-18E/F, and the IRS PRIME programs have used weekly EV as a standard business practice.

 Why does weekly EV have an appeal? Is weekly just as good as monthly? Do the benefits outweigh the initial costs of implementation?  Analyzing weekly EV data is far superior to looking at a performance report on a monthly basis.  This can best be described as a “proactive” approach to program management rather than a “reactive” mode.  There are new processes and cultural impediments involved when implementing weekly EV, but the benefits outweigh the costs.

 In order for weekly EV to be successful: 

  • Planning must be sufficiently detailed to objectively provide status on a weekly basis;
  • The budget must be time phased on a weekly basis
  • Accruals of labor and material costs must be done every week.

These three processes, combined with trained and proactive personnel, form the ground work for successful weekly Earned Value Management (EVM).  Weekly EV will provide continuous visibility of program performance with real time status.

A successful Earned Value Management System (EVMS) begins with a well-designed schedule.  Without an accurate and valid schedule in place, the EVMS is virtually useless. The schedule must be time phased and resource loaded consistent with the work to be accomplished.  A proper scheduling tool that can be integrated with the appropriate cost software is essential.

The EVMS scheduling tool must have:

  • The ability to record and display status
  • Convert the status to a percent complete
  • Show milestone completions
  • Accurately compare that status to costs on a weekly basis

 The program’s organizations must be trained in providing schedule status on a weekly basis.

For companies without this existing infrastructure, acquiring a new scheduling will incur some initial costs.  Many companies have an adequate scheduling tool deployed, have the schedule status updated weekly and weekly performance assessments.   High-risk programs, such as R&D efforts, have work scheduled weekly to maintain tight control over schedule and cost. This makes integration of the schedule into a weekly EVMS nearly painless.

This is the first of a two parts on “Earned Value – Is it Worth It? presented by Humphreys & Associates, Inc. 

Part 1 – Weekly Earned Value: Is It More Trouble Than it’s Worth? Read Post »

EIA 748-C Released: EVMS

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Are you aware that a revision to Electronics Industry Association (EIA) standard 748 Earned Value Management Systems, has been released? The new revision is EIA 748-C. Officials have been discussing the changes at recent industry conferences.

No changes have been made to the 32 EVMS Guidelines in Sections 2.1-2.5 of the standard. The changes are primarily clarifications of the existing text:

Includes a new section about Budget Element Hierarchy. This section describes the components of Contract Target Price from the highest level to the lowest level of cost elements. It includes the same information that is taught in every basic earned value management seminar.

Emphasizes Risk and Opportunity management. Wording has been inserted in numerous sections of the standard (such as comprehensive planning, schedule, management reserve) to emphasize the consideration of risks and opportunities.

Includes Rate and Usage variance formulas in the standard. Labor rate and efficiency variance formulas are now specifically defined in Section 3.8.2. Similarly, material price and usage variance formulas are now specifically defined in Section 3.8.5.

Clarifies Control Account definition. Revisions to the standard note that the Work Breakdown Structure (WBS) is extended to the level at which control accounts are established and includes additional clarification regarding multiple control accounts existing within a lowest level WBS element.

Clarifies material progress points: Receipt, Stock, Issue. The revised standard states that the acceptable points for claiming earned value are when material is received, when it is entered into inventory, or when it is issued from inventory.

Clarifies OTB/OTS text. The revised standard corrects the terminology to use
“Contract Budget Baseline” instead of the Performance Measurement Baseline regarding Over Target Baselines (OTB), removes language about partial OTBs, and recommends reviewing the contract for implementation requirements prior to executing OTBs or Over Target Schedules (OTS).

Adds a list of suggested references. All NDIA guides related to Earned Value Management Systems are included as suggested references but not requirements.

Includes numerous minor clarifications.

  • Clarifies that multiple terms are used interchangeably for “scope”
  • Adds acronyms into the definitions in Section 2.6
  • Clarifies that Estimates at Completion (EACs) are summarized through the WBS and OBS
  • Clarifies that the performance measurement baseline must include all authorized changes, including current period changes
  • Clarifies that the System Description is not required to be a stand-alone document
  • Clarifies that there is no mandated Rolling Wave cycle
  • Emphasizes that planning packages must not start in the current period

In summary, EIA 748-C simply clarifies the text of the standard and does not change any of the implementation, reporting, surveillance, or enforcement aspects of Earned Value Management Systems.

Feel free to contact Humphreys & Associates for more information about the EIA 748 revisions or for expertise in implementation of EVMS contractual requirements. 

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Rolling Wave Planning for Earned Value Management Systems

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If someone were to ask you: “Can you please give me a detailed explanation of what you will be doing on this date three years from now?” you would probably look at that person as though he or she were crazy.  It would probably be difficult to provide a detailed schedule of events for a date one week from now – although that might be more likely since you know a lot more about what might be taking place next week than what might be happening three years out.

In the early days of earned value management, contractors were expected to detail plan the entire length of a program to establish a “good performance measurement baseline.”  For a year-long development program this expectation might be okay, but for a 10 to 12 year shipbuilding program it might be unreasonable and probably a monumental waste of time.  The program will no doubt change several times before its completion – maybe several times in the first year alone.  With industry’s “help” the government soon realized requiring detail plans on lengthy programs was not always possible – or even meaningful – especially when program requirements are often fluid.

The government and industry agreed that contractors could provide an overall (general, straight-line, “average”, etc.) plan for accomplishing a program very much like what is already done in preparing a proposal, and then provide more details on an incremental basis as more became known about the work to be performed.  The government is not keen on having contractors do detail planning whenever they felt the urge, so they sought to put reasonable rigor into the incremental planning process.  All the work that existed beyond the detail planned work was considered by the government to be general “planning packages”, although contractors were still permitted to detail plan as much of the future work as they wanted.

The government also expected the contractors to identify the planning increments and frequency of planning to ensure there was not a time when the detail planned work was completed and there was no more future work detail planned.  The expectation soon became that contractors were to expand a detail plan from those planning packages into detail planned work packages with enough frequency to ensure there was always a minimum number of months of detail plans in place when the next detail planning event took place.   It also became evident that more months of detail (often called a “planning horizon”) could be provided on production or manufacturing type work vs. for development type effort.

As this “straight-line” plan was converted into detailed work package plans, the straight line became more curved (such as bell curve or skewed bell curves), with more “waves” rolling in as it became time to detail plan.  This type of planning became known as “rolling wave planning”.  Some companies call their process “incremental”, “accordion”, or “inchworm” planning process – the name does not matter, so long as the application of the process results in a minimum amount of detail planned work packages always being in place on a program.

A production program might have, for example, a 9 month planning horizon with a quarterly frequency.  In this scenario, the program starts with 9 months of detail planning in place.  Three months later, the Control Account Manager (CAM) is to look at the next 9 months (6 already detail planned and 3 new months) to make sure the existing detail planning is still good and to plan out in detail those new tasks that should be starting in the new three months of the planning horizon.

A development program however, is likely to use a different planning horizon.  Because of program volatility, it often has a shorter horizon and a higher frequency, such as 4 months of detail planning in place, with a one or two month frequency.

An example for a production program is illustrated below.  The program manager determines production can do detail planning for nine months and then every quarter review the next nine months for:

  • New work scheduled to commence in the next three months of the planning horizon and
  • Five of the six months already detail planned in the prior incremental assessment (depending on the company’s “freeze period”) – WP No. 3 and beyond can be re-plannedRolling Wave Planning

3 Months later: Rolling Wave Planning

Rolling Wave Planning for long term projects is a common area where control account project managers need help.  Humphreys & Associates earned value management experts can provide the guidance you need for your unique production or development project.  Contact us for more information.

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EVM Material Earned Value – Price vs. Usage Variance Analysis – Part 3

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EVM (Earned Value Management) control account managers (CAMs) with material cost elements are required to conduct price vs. usage material cost variance analysis as a normal part of their root cause analysis for their control accounts.  This analysis is the material counterpart to conducting a labor rate versus hours (efficiency) cost variance analysis.

Material price/usage analysis looks at the two components of a material cost variance:

  • Price.  How much of the cost variance was caused by the unit price paid for the material item differing from the earned value unit price for the material?
  • Usage.  How much of the cost variance was caused by the earned value for the quantity of the material differing from the actual quantity of the material?

A common question is “How can we do this when we have thousands of material items to account for on a project?”

The answer:  Not all material items have to be tracked discretely to conduct an adequate price/usage analysis, with the general rule of thumb of discretely tracking about 80% of the material dollars.

Some contractors set a policy where material will be tracked discretely if it breaks a specific dollar value (for example, anything above a $5,000 unit price).  Other contractors conduct what is called an “80/20” analysis of their estimated bill of material (BOM).  The concept here is that on most programs, approximately 20% of the material items (larger dollar items) represent about 80% of the material dollars on the program, with the other 80% of the BOM being the smaller dollar items that total about 20% of the material dollars.  In this case, the discretely measured items are any of the items in the top 20% of the BOM.

Some contractors do this segregation by the unit price of each material item.  Others make the division based on the extended price (unit price times the number of units to purchase), sometimes placing a high volume/low price item on the discretely tracked 20% list.  Either method is acceptable.

Even with this discrete material segregation, the price/usage analysis still needs to be performed.  The difference is discrete items are tracked separately (e.g., a $250,000 radar antenna dish) from a commodity grouping (such as all connecting bolts – average planned price of $10 per pound).

The variance analysis method is the same for discretely measured items and for the homogeneous groupings of material items where:

Price Variance = (BCWP Unit Price – ACWP Unit Price) x ACWP Quantity

Usage Variance = (BCWP Quantity – ACWP Quantity) x BCWP Unit Price

Another common question is “Where do I get this sort of information?”

Most material departments or supply chain management teams maintain detailed listings of all materials the company receives as well as what particular projects receive.  While these listings are generally used to identify material deliveries, late deliveries, material availability for transfers or borrow-paybacks, etc., they generally have the unit price and quantity purchased information necessary for the CAMs (or at least the material department) to perform the price/usage analysis required.  It may require special runs, or sorts, of the BOMs or inventories that are maintained, but the information is usually available.

The CAMs can take these runs and conduct their algorithms to do the price/usage calculations described above.  Generally, these systems contain enough information to discretely measure every part number to the lowest unit price item on the project.  Earned value management, however, does not require reporting price and usage analysis on “connecting bolt #123 with a price of $0.0000134 per unit.”

Humphreys & Associates is available for EVM consulting, CAM certification and additional information on this topic. Contact us today.

View the other posts in the EVM Material Series

EVM Material Earned Value – Price vs. Usage Variance Analysis – Part 3 Read Post »

How to Avoid Corrective Action Requests Related to Level of Effort

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Has DCMA issued you a Level III Corrective Action Request (CAR) because you have had repeat Level 2 CARs for having “BCWP with no ACWP” (Budgeted Cost for Work Performed vs. Actual Cost of Work Performed) or “ACWP with no BCWP” that has not been corrected?

According to all the EVMS rules, this appears to be a legitimate finding. If left uncorrected, is a valid Level 3 CAR request that can have serious financial implications.

This would certainly be a valid finding for discretely measured tasks. However, what about level of effort (LOE) work? Because LOE earns value with the passage of time it may or may not align with actual accomplishment of the work planned in that LOE task.

This usually is not a problem for general support tasks that span the duration of the project (unless the project slips). The issue more often arises with shorter duration LOE tasks that are planned to support specific discretely measured tasks. Everything is fine if the discrete work task takes place as planned. But what happens when it doesn’t?

If you are not paying attention to the LOE tasks associated with the discrete work effort, e.g. the EVM system is on autopilot, and the associated discrete work starts early or late, the result for the LOE work effort is:

  • ACWP (Actual Cost of Work Performed) without BCWP
  • BCWS (Budgeted Cost for Work Scheduled) and BCWP without ACWP
  • Distortion in the system of when the support work is really happening

The issue is further compounded when contractors attempt to make previous period adjustments (something that should be avoided) for LOE work effort and do not explain to their customer why they made current or prior period adjustments to BCWS, BCWP, and ACWP.

How you do avoid these issues with LOE tasks? It takes proactive planning and management of LOE tasks.

Read our in-depth article on recommended practices for improving the planning and monitoring of LOE activities. The goal is to avoid changing past LOE data when the discrete work does not take place as planned and to avoid those repeat CARs for “BCWP with no ACWP” or “ACWP with no “BCWP”.

Need help with how you are handling LOE work tasks or need to develop guidance on how to use the various earned value techniques? Contact H&A today.

How to Avoid Corrective Action Requests Related to Level of Effort Read Post »

Earning Value for Material – The Correct Approach – Part 2

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Recall from our blog in early October about earning value for material, in which Guideline 21 in the EIA-748 Standard for Earned Value Management Systems (EVMS) states that earned value is measured “…at the point in time most suitable for the category of material involved, but no earlier than the time of actual receipt of material.”

In that earlier blog, two high-level types of material categories were discussed for illustration purposes. A common follow on question is “When Guideline 21 mentions category of material (highlighted above), are there pre-set categories of material that companies should use?”

The answer: Material categories are unique to each company, though companies may have general similarities to others in the same line of business. It is also dependent on whether a company has non-production or production type contracts (or both). In the previous blog topic, Engineering Material and Production Material were used as generic examples for material categories assuming a company has some level of production activity.

Even if a company is not a production (or manufacturing) facility, if they have material that sits in inventory for an extended length of time (generally longer than two months), the earned value point should be different from that of engineering (or receipt) type material. Some companies describe their material categories as “receipt type material” and “inventory type material.”

A company’s Earned Value Management (EVM) System Description should describe the various categories of materials that are typical in their line of business. For example, many contractors include subcontractors, staff augmentation subcontractors, temporary services, office supplies, etc. as material categories that are planned and earned differently.

When dealing strictly with materials used for engineering and/or production related effort, a number of EV approaches may be needed. This is based on the products a company typically builds for their government customer. This could include bar stock, sheet stock, wire or cable reels, nuts and bolts, various types of subassemblies, purchased parts, or consumables such as lubricants, gases, coatings, paints, acids, etc. Various materials could also have different handling requirements, including bonded stores, with different rules for use, issue, transfer, borrow/payback and so forth. As a result, the various types of materials may have different methods for planning and use and could all use different earned value techniques.

Another consideration when determining the appropriate earned value techniques for production environments is the approach used to determine high dollar value and low dollar value material.

  • High dollar value material should be planned and earned using discrete earned value techniques
  • Low dollar value material may be planned and earned as apportioned effort or as level of effort (LOE), as well as being discretely measured
  • Low dollar material may be planned as items in aggregate, or in homogeneous groupings (e.g., lubricants, fastening hardware, bar stock, coatings, etc.).

H&A recommends ensuring your EVM System Description provides the appropriate guidance to projects on how to properly plan for the various material categories and acceptable earned value techniques that should be used as well as the appropriate earned value points (receipt or issue) for the category of material involved.

Do you need an independent review your EVM System Description to ensure you are providing the necessary guidance to your projects? Humphreys & Associates has the earned value management experts to assess your EVM System Description. Contact us today.

Earning Value for Material – The Correct Approach – Part 2 Read Post »

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