Earning Value for Material – The Correct Approach – Part 1

by Humphreys & Associates | October 1, 2012 3:58 pm

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.

EVM - Cost Exposure Span
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.

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.

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