by Humphreys & Associates | September 12, 2012 4:44 pm
The use of estimated actual cost of work performed (ACWP) for material and subcontractors is something the Defense Contract Management Agency (DCMA) review teams expect to see in Earned Value Management Systems (EVMS).
DCMA increasingly sees variance analysis report (VAR) narratives for material with such statements as “My $1 million cost variance is caused by late receipt of the invoice from the vendor” or “is caused by the company not paying their invoice this month.”
These are misleading and needless variances because these drastic, temporary variances go away, or are minimized, once the invoice is paid and the actual costs in the accounting system catch up with the budgeted cost for work performed (BCWP) claimed. The intent for using estimated ACWP is to ensure that the ACWP recorded closely follows when the BCWP is claimed in the EVMS.
When the estimated ACWP is “reversed” at the end of a month and replaced with the true actual costs, there should not be a significant cost variance, unless there is a real cost problem in which case more information is required to describe the situation. Replacing the estimated ACWP with the true actual costs is considered a routine accounting adjustment.
Note that the term “estimated ACWP” and not “estimated actual costs” is being used. The intent is to align when ACWP and BCWP are claimed in the EVMS to prevent unnecessary variances. The estimated ACWP is not the actual cost recorded in the accounting system.
The estimated ACWP can vary depending on type of subcontracts involved. It could reflect:
Usually, these staff augmentation subcontractors are working with the contractor’s employees. The estimated ACWP could reflect:
For all of the above cases, the supplier or subcontractor invoice should clearly identify:
Using estimated ACWP does require direction on how to implement it in a disciplined manner. It is important to identify who is responsible for entering the estimated ACWP in the EVMS and the process used to replace the estimated ACWP with the recorded actual costs from the accounting system.
The CAMs may need assistance from their financial/materials/accounting departments to ensure they have the right information needed for the estimated ACWP and that the true actual costs are captured in the EVMS as soon as the data are available.
Have questions about using estimated ACWP in your EVMS? Humphreys & Associates is available for consulting on this topic and all stages of your EVMS implementation or ongoing projects. Feel free to contact H&A.
Source URL: https://blog.humphreys-assoc.com/evms-using-estimated-actual-cost-of-work-performed-acwp/
Copyright ©2021 Humphreys & Associates unless otherwise noted.