EVM Terminology

EVM Terms

EVMS Variance Analysis — EVMS Analysis and Management Reports

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A Variance Analysis Report (VAR) that includes specific information about the cause, impact, and corrective action “provides management with early insight into the extent of problems and allows corrective actions to be implemented in time to affect the future course of the program” [reference: NDIA, IPMD EIA-748 (Revision D) EVMS Intent Guide]. Unfortunately, variance analysis is an easy target for criticism during EVMS reviews. There are many examples of inadequate variance analysis to choose from, but what they all have in common is the lack of specific information on the “why, what, how, when, and who” of any variance. The variance analysis reporting requirements are found in the EIA-748 (Revision D) Guidelines in Section IV., Analysis and Management Reports, Guidelines 22-27.

EIA-748 Guidelines
Section IV. Analysis and Management Reports
22 2-4a Control Account Monthly Summary, Identification of CV and SV
23* 2-4b Explain Significant Variances | Earned Value Management
24 2-4c Identify and Explain Indirect Cost Variances
25 2-4d Summarize Data Elements and Variances thru WBS/OBS for Management
26* 2-4e Implement Management Actions as Result of EVM Analysis
27* 2-4f Revise EAC Based on Performance Data; Calculate VAC

A VAR that includes specific information and data about a problem will allow management to make informed decisions and mitigate project risk. Getting specific about variance analysis reporting includes the following elements.

Overall:

  • Emphasis on the quantitative, not qualitative
  • Emphasis on the specific, not the general
  • Emphasis on significant problems, not all problems
  • Define abbreviations and acronyms at first use
  • The Control Account Manager (CAM) is the most knowledgeable person to write the variance analysis report but will need information from the business support team

Cause:

  • Isolate significant variances
  • Discuss cost and schedule variances separately
  • Clearly identify the reason (root cause) for the variance (ties to the corrective action plan)
  • Clear, concise explanation of the technical reason for the variance
  • Provide cost element analysis
    • Labor – hours, direct rates, skill mix, overtime (rate & volume)
    • Material – unplanned requirements, excess quantities, unfavorable prices (price & usage)
    • Subcontracts – changing requirements, additional in-scope work, schedule changes
    • Other Direct Costs – unanticipated usage, in-house vendor
    • Overhead (indirect) – direct base, rate changes
  • Identify what tasks are behind schedule and why

Impact:

  • Describe specific cost, schedule, and technical impact on the project
  • Project future control account performance (continuing problem)
  • Address effect on immediate tasks, intermediate schedules, critical path, driving paths, risk mitigation tasks
  • Describe erosion of schedule margin, impacts to contractual milestones or delivery dates, and when the schedule variance will become zero (this may only mean the work getting completed late (BCWPcum =BCWScum); and does not necessarily mean getting “back on schedule”
  • Describe any impact to other control accounts
  • Assess the need to revise and provide rationale for the Estimate at Completion (justify ETC realism – CPI to TCPI comparison, impacts of corrective action plan, risk mitigation, open commitments, staffing changes, etc.)
  • Note: If there is a root cause, there will be an impact. It could be related to cost, schedule, lessons learned to be applied to future activity, an update required to a process to support the corrective action or a re-prioritization of resources to meet a schedule.

Corrective Action Planning:

  • Describe specific actions being taken, or to be taken, to alleviate or minimize the impact of the problem
  • Include the individual or organization responsible for the required action
  • Include schedules for the actions and estimated completion dates (ECD)
  • If no corrective action is possible, explain why
  • Include results of corrective action plans in previous VARs.

Ask yourself, is the analyses presented in a manner that is understandable? Does the data support the narrative? Does the variance explanation provide specifics of:

“why” the problem occurred,
“what” is impacted now or in the future,
“how” the corrective action is being taken,
“when” the corrective actions will occur,
“when” the schedule variance will become zero, and/ or the work gets “back on schedule”
“who” is responsible for implementing the corrections?

Remember, a well-developed Variance Analysis Report can reduce the risk of a Corrective Action Request (CAR) during an EVMS review.

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DoD Earned Value Management System Interpretation Guide | EVMSIG

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The updated DoD Earned Value Management System Interpretation Guide (EVMSIG), dated February 18, 2015 was released in March, 2015.

This DoD update, per the GAO, focuses on “(1) problems facing the cost/schedule control system (CS2) process; (2) progress DOD has made with reforms; and (3) challenges DOD faces in fostering and managing potentially significant changes”.

The update commences with:

EVMSIG INTRODUCTION

1.1 Purpose of Guide

Earned Value Management (EVM) is a widely accepted industry best practice for program management that is used across the Department of Defense (DoD), the Federal government, and the commercial sector. Government and industry program managers use EVM as a program management tool to provide joint situational awareness of program status and to assess the cost, schedule, and technical performance of programs for proactive course correction. An EVM System (EVMS) is the management control system that integrates a program’s work scope, schedule, and cost parameters for optimum program planning and control. To be useful as a program management tool, program managers must incorporate EVM into their acquisition decision-making processes; the EVM performance data generated by the EVMS must be timely, accurate, reliable, and auditable; and the EVMS must be implemented in a disciplined manner consistent with the 32 EVMS Guidelines prescribed in Section 2 of the Electronic Industries Alliance Standard-748 EVMS (EIA-748) (Reference (a)), hereafter referred to as “the 32 Guidelines.”

The DoD EVMS Interpretation Guide (EVMSIG), hereafter referred to as “the Guide”, provides the overarching DoD interpretation of the 32 Guidelines where an EVMS requirement is applied. It serves as the authoritative source for EVMS interpretive guidance and is used as the basis for the DoD to assess EVMS compliance to the 32 Guidelines in accordance with Defense Federal Acquisition Regulation Supplement (DFARS) Subpart 234.2 and 234.201 (References (b) and (c)). The Guide provides the DoD Strategic Intent behind each guideline as well as the specific attributes required in a compliant EVMS. Those attributes are the general qualities of effective implementation that are tested in support of determining EVMS compliance as it relates to the 32 Guidelines. As applicable, the DoD Strategic Intent section may clarify where differences in guideline interpretation exist for development and production type work. DoD agencies and organizations charged with conducting initial and continuing EVMS compliance activities will establish amplifying agency procedures and/or guidance to clarify how they are implementing this Guide to include the development of evaluation methods for the attributes associated with each of the 32 Guidelines.

1.2 EVM Policy

The Office of Management and Budget Circular No. A-11 (Reference (d)), the Federal Acquisition Regulation (FAR) Subpart 34.2 and Part 52 (References (e) through (h)) require federal government agency contractors to establish, maintain, and use an EVMS that is compliant with the 32 Guidelines on all major capital asset acquisitions. Based on these federal regulations and the DoD Instruction 5000.02 (DoDI 5000.02) (Reference (i)), the DoD established the Defense Federal Acquisition Regulation Supplement (DFARS) 234.201 (Reference (c)), which prescribes application of an EVMS, via the DFARS 252.234-7002 EVMS clause (Reference (j)). When EVM reporting is contractually required, the contractor must submit to the government an Integrated Program Management Report (IPMR) (DI-MGMT-81861) (Reference (k)) to report program cost and schedule performance data. The IPMR is being phased in to replace the Contract Performance Report (CPR) (DI-MGMT-81466) and the Integrated Master Schedule (IMS) (DI-MGMT-81650). Hereafter, for simplicity purposes, the term “IPMR” is used to reference legacy or current CPR/IMS DIDs. There are times in this Guide when the IMS reference is to an output of the contractor’s internal management system, i.e., a work product, which may not be referred to in the same context as the IPMR. [The full EVMSIG update is found here.]

Furthermore, also in March, 2015 the GAO released its “Report to the Committee on Armed Services, House of Representatives: Defense Acquisition | Better Approach Needed to Account for Number, Cost, and Performance of Non-Major Programs”.

An overview:

The Department of Defense (DOD) could not provide sufficiently reliable data for GAO to determine the number, total cost, or performance of DOD’s current acquisition category (ACAT) II and III programs (GAO-15-188 “Better Approach Needed to Account for Number, Cost, and Performance of Non-Major Programs” overview). These non-major programs range from a multibillion dollar aircraft radar modernization program to soldier clothing and protective equipment programs in the tens of millions of dollars. GAO found that the accuracy, completeness, and consistency of DOD’s data on these programs were undermined by widespread data entry issues, missing data, and inconsistent identification of current ACAT II and III programs. See the figure below for selected data reliability issues GAO identified. [The full GAO-15-188 document is found here.]

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EVMS compliance: Material Transfers and Loan/Paybacks

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Earned Value Management System (EVMS) Compliance | Material Transfers and Loans/Paybacks

Last Updated May 22, 2025

In a high rate production environment, it is not unusual for different Contract Lot Buys to have demands for the same required parts. Circumstances driven by delivery schedules, fee incentives, national priorities, or quality issues will prioritize the demand for these common parts. Companies must ensure they are able to respond to these dynamics while satisfying contractual requirements and continuing to remain compliant with the EIA-748 Standard for Earned Value Management System (EVMS) guidelines. A documented Material Transfer and Borrow and Payback (e.g., TBLP) policy/procedure describing a disciplined, auditable approach is a mandatory prerequisite for project managers in an EVMS contract environment.

Material Management and Accounting System (MMAS)

There are a number of applicable Government documents that come into play but none more important than the Material Management and Accounting System (MMAS). It is a DoD Policy (DFARS 242.7202) that contractors have a MMAS that:

(1) Reasonably forecasts material requirements.
(2) Ensures the cost of purchased and fabricated material charged or allocated to a contract are based on valid time-phased requirements.
(3) Maintains a consistent, equitable, and unbiased logic for costing of material transactions.

DFARS.242-7004 Material Management and Accounting System Subpart, paragraph (d) System criteria includes a list of requirements. Selected subparagraphs discuss material transfers and loan/paybacks as follows:

  • Subparagraph 6 (Material Transfers) requires the contractor’s policies and procedures provide detailed descriptions of circumstances that will result in manual or system generated transfers of parts.
  • Subparagraph 7 (Material Costing) requires that the contractor’s system transfer parts and associated costs within the same billing period or use an Administrative Contracting Officer (ACO) approved “Loan/Payback” technique.
  • Subparagraph 8 (Inventory Allocations) requires that the contractor’s system handle allocations of common inventory in such a manner as to preclude improper allocation and costing of allocations.

Material Transfer versus Loan/Payback

For a number of reasons, a material transfer involves the most problematic issues for accommodating changing demands and priorities for common parts:

  • Transfer costs are based on labor, material and applicable burdens when originally incurred and not based on the year when they are physically transferred (i.e. 2024 costs vs. 2025 costs). Related funding issues may also surface (requesting 2014 funding to ‘build’ a 2024 requirement in 2025).
  • Replacement costs will, in most cases, be at a higher value and there may be a potential schedule impact; both represent negative impacts to the customer.
  • Previously reported Budgeted Cost for Work Performed (BCWP) and Actual Cost of Work Performed (ACWP) for work already accomplished will be impacted.
  • Potential for inadvertently gaining a cost benefit when transfers are made between a Cost Plus and Fixed Price contract.

A transfer approach should only be considered when there is no replenishment currently in the procurement system. If there is a replenishment currently in the ‘pipeline’ then a loan/payback approach should be used as this will result in no cost transfer.

Under a loan/payback scenario, a part is moved temporarily from the contract, but the cost of the part remains on the contract. As noted earlier, contractor procedures for the loan/pay-back technique must be approved by the ACO. When the technique is used, the contractor must have controls to ensure that:

  • Parts are paid back expeditiously.
  • Procedures and controls are in place to correct any over-billing that might occur.
  • Monthly, at a minimum, identify the borrowing contract and the date the part was borrowed.
  • The cost of the replacement part is charged to the borrowing contract.

Material management and planning within an EVMS environment is quite challenging. Thankfully, there are a number of Earned Value Management Systems software programs available to assist contractors in meeting and managing this challenge.

A number of Humphreys & Associates earned value consultants have extensive experience in production environments that can assist in guiding your efforts in this complex endeavor to ensure a firm foundation is established that meets or exceeds your material management and EVMS needs. Call us today at (714) 685-1730.

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EVM: The IPMR and Subcontract Flowdown

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EVM Contractors, EVM Subcontractors, IPMR & Flowdown

For decades government EVM project managers performed the task of integration of all prime and subcontractor performance and the associated data on a project. In the late 1960s things changed. The U.S. Federal Government mandated that the prime contractor become the integrator of the performance and the data. Many contractors undertook this responsibility nicely. However, for many contractors in this new role their subcontract management expertise and data accumulation capabilities were lacking on large R&D, SDD, and LRIP subcontract efforts in particular. The primes needed to include all of the data from their subcontractors that comprised as much as 80% of the contract effort. The timing of subcontractor reports became very important. However, software was “what it was” in the 1960s and ‘70s, and many EVM subcontractors were unable to meet the required delivery dates.

In the early 1980s the National Security Industrial Association [now the NDIA] conducted a survey and found that 40% of the subcontractor data was delayed by a month [additional reference, 2008 – NDIA.org source]. Consequently, January data from subcontractors would not be entered into the prime contractor’s performance reports [now IPMR or CPR] until the prime’s February report which may be delivered around 15 March. Today’s software has improved extensively and many EVM subcontractors recognize the importance of timeliness of data; they are also prime contractors on other EVM projects.

Many companies have not yet begun delivering performance data using the new Integrated Program Management Report (IPMR). Companies that are using the IPMR appear to be adapting well to the new requirements, specifically in regards to the submission date and successful retrieval of subcontractor data. The new IPMR Data Item Description, DI-MGMT-81861, specifically requires that “Formats 1-6 shall be submitted to the procuring activity no later than 12 working days following the contractor’s accounting period cutoff date. This requirement may be tailored through contract negotiations to allow submission as late as 17 working days, provided the contractor and Government agree that contract complexity and/or integration of subcontractor and vendor performance data warrant additional time and will yield more accurate performance.”

The table below illustrates the results of a survey H&A conducted of fifteen major contractors. While the sample size is small, the survey found that five prime contractors had an IPMR requirement flowdown to a subcontractor with NTE 12 working days submission CDRL requirement. In all five cases, the prime contractors were able to successfully incorporate subcontract data in time to meet the submission requirement.

EVM IPMR chart

While it has taken over 40 years, it is now recognized by both the government and contractors that timely incorporation of subcontractor performance data in the prime’s performance report helps validate the project data–the purpose of early visibility and prompt decision making.

Our survey found that those contractors submitting the IPMR are successfully incorporating subcontractors’ performance data in their IPMRs as the DID Instructions stipulate. It is hoped that the era of the “one-month lag” with subcontractor performance data has ended; and the government will be receiving accurate, timely IPMR performance data from its prime contractors.

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Using the Same Rate for BCWS and BCWP

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Using the Same Rate for Budgeted Cost for Work Scheduled (BCWS) and Budgeted Cost for Work Performed (BCWP)
There is often an EVMS project managers debate regarding which rates to use for common budget costing EVMS data elements. For Actual Cost of Work Performed (ACWP), it is fairly obvious as the most recently approved actual rates are applied. A planning rate is generally used for BCWS and BCWP, but many in the EVM project management industry use incorrect rate application for the BCWP calculation. In some cases EVM contractors use a weighted average rate; the percent complete in hours multiplied by the dollarized BAC to derive the BCWP in dollars. This method is noncompliant with the EIA-748 Guideline 22 which states that if work is planned on a measured basis, then the BCWP must be calculated on a measured basis using the same rates and values. In other words, the rate and methods used to calculate BCWS and BCWP must be the same. As shown in Example #1, it can be seen that work planned in hours (BCWS) was performed as scheduled (BCWP) each month. Each hour was planned at a rate of $100/hour until the end of the calendar year when the rate increased to $105/hour. In this example, the rates used to calculate BCWS and BCWP are the same.
EVMS: BCWS & BCWP rate calculation example table #1
EVMS: BCWS & BCWP rate calculation example table #1

Example #2 below illustrates a very common scenario. In this example work that was planned in November and December was not completed until the next year. In January, the rate increased from $100 to $105. What should the BCWP in dollars be for both January and February?

EVMS: BCWS & BCWP rate calculation example table #2
EVMS: BCWS & BCWP rate calculation example table #2

For both January and February, the original 10 hours planned was earned at $105/hour equaling $1,050. The work that was planned in November and December, but completed late in January and February, was earned at its planned rate of $100/hour resulting in $1,000 of BCWP.  The sum ($1,050 + $1,000) equals the BCWP of $2,050 in each month. See the Example #3 graphic below:

EVMS: BCWS & BCWP rate calculation example table #3
EVMS: BCWS & BCWP rate calculation example table #3

Even though the rate was escalated in the new year, the BCWP that should have been earned in the prior year is calculated using the rate that was originally planned. The same approach would be logical if the work planned at $105 per hour were performed ahead of schedule in let us say, December of the prior year. It would be earned at $105 per hour even though it was performed in a time frame where the planning rate is $100 per hour. In some instances, business systems are programmed to earn as a percent of the entire Budget at Completion (BAC). This could result in an inaccurate BCWP dollar value. As an example, let us assume 10 hours are earned in September. If those 10 hours were 1/8 of the total BAC, then the BCWP dollars associated with this 10 hours would be $102.50 per hour and the contractor would be earning too much for those 10 hours. They must earn at the planned $100 per hour! Thus the rate used for BCWP is the same as for BCWS and is compliant with Guideline 22; one earns in the same manner as they plan to earn.

In summary, EVM concepts require that in order for the work to be complete, cumulative values of BCWS and BCWP must equal the BAC.  So, from a common-sense standpoint, if BCWP is earned at a different rate than that used for planning the BCWS, the Control Account (or even the Contract) cannot be closed properly.  Examples:

  • If BCWP earns at a lower rate, the BCWP would be, say, 98% of the BAC when the actual work is done.
  • Likewise, if BCWP earns at a higher rate, the BCWP would be, say, 105% of the BAC when the actual work is concluded.

Both of these scenarios violate the EVM concepts.

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