Planning and Managing EVM by Elements of Cost (EOC) – Over-Application of EOCs – Part 2

By Humphreys & Associates / April 1, 2019 / CAR, Corrective Action Requests, earned value training, EIA-748-C, Elements of Cost, EOC, EVM Standard 748, EVM Training

CAR, Corrective Action Requests, earned value training, EIA-748-C, Elements of Cost, EOC, EVM Standard 748, EVM Training

<< Review Part 1

In part one of our series on Elements of Cost (EOC), we explained what EOCs are and gave an analogy of how EOCs would relate to building a patio. We also reviewed how EOCs can be “over thought” and emphasized the importance of properly applying indirect cost rates. This post is going to be focused on the Over-Application of EOCs.

Over-Application of EOCs

During some government reviews, the teams issued Corrective Action Requests (CARs) citing multiple examples of ACWP occurring on “zero-budgeted” Work Packages within Control Accounts. On the surface, this sounds pretty serious, but there were several “over-applications” in play here.

First, the review was being performed at (and in some cases below) the Work Package (WP) level, when the intent of the Guidelines has always been for variance analysis to be performed at the Control Account (CA) Level;
Second, the CAR assumption was that a charge against an Element Of Cost (EOC) equals a charge against a “zero-budgeted WP”.

For the first point we’ll look at Guideline 22 in the EVM Standard 748:

GL 22. At least on a monthly basis, generate the following information at the Control Account and other levels as necessary for management control using actual cost data from, or reconcilable with, the accounting system:

1) Comparison of the amount of planned budget and the amount of budget earned for work accomplished. This comparison provides the schedule variance.

2) Comparison of the amount of the budget earned and the actual direct costs for the same work. This comparison provides the cost variance.

Even the government’s sub-question e. under GL 22 reiterates this requirement:

e. Are the following elements for measuring performance available at the levels selected for control and analysis (at a minimum at the control account level):

1) Budgeted Cost for Work Scheduled (BCWS)?

2) Budgeted Cost for Work Performed (BCWP)?

3) Actual Cost of Work Performed (ACWP)?

While the intent of the words “and other levels” and “at a minimum” was to ensure that contractors did not only perform analysis at some higher, summary level, the government’s choice of those sub-question words also opens up the application of the analysis at lower levels. Be that as it may, the over-application still exists where it should not. Variance Analysis is supposed to be at the CA level and rolled up to higher levels for analysis. The bottom line for each of the CARs written is that BCWS, BCWP, and ACWP existed at the Control Account level, and the EOC visibility was available for variance analysis explanations at the lower levels in the contractors’ systems.

For the second point, let’s look at all the EVM Standard 748 Guidelines, specifically Guideline 16.

There is no Guideline that specifically requires BCWP to be claimed the exact same way BCWS was planned; however, it is intuitive that this has to be true in order for cumulative values for BCWP and BCWS to equal BAC so that the work can be considered complete. [While the government’s sub-question b. under Guideline 22 expects BCWP to be calculated “consistent with the way the work is planned”, GL 22 itself (above) is silent on that inferred expectation.] The Guideline 16 and its sub-question b. also require consistency of the direct costs:

GL 16. Record direct costs in a manner consistent with the budgets in a formal system controlled by the general books of account.

Are elements of direct cost (labor, material, subcontractor, and other direct costs) accumulated within control accounts in a manner consistent with budgets using recognized acceptable costing techniques and controlled by the general books of account?

In the examples noted for the CAR referenced above, the work package task was a specific Element Of Cost (EOC) and was planned and completed in the same period, but no ACWP was accumulated for that specific EOC because the work was accomplished using another resource that fell into another EOC category. When the team looked at that EOC containing the ACWP, they interpreted the finding as a “zero-budgeted Work Package” with ACWP against it. [They also cited the original Work Package itself for having BCWP with no ACWP for the element of cost that was planned and earned.]

Humphreys & Associates is available for consulting and information on this topic. Give us a call!

Planning and Managing EVM by Elements of Cost (EOC) – Over-Application of EOCs – Part 2 Read Post »

Planning and Managing EVM by Elements of Cost (EOC) Example: Building a Backyard Patio – Part 1

By Humphreys & Associates / March 1, 2019 / Control Account, earned value management, earned value training, Elements of Cost, EVM, EVM Training, Planning Package, Work Package

Control Account, earned value management, earned value training, Elements of Cost, EVM, EVM Training, Planning Package, Work Package

What are “Elements of Cost”?

Labor, Materials, Subcontracts, Other Direct Costs, and their Indirect Costs (Overhead including General and Administrative —G&A) are the typical building blocks for any project: personal projects and projects we manage for the customers we support. These items are also what the Earned Value Management System (EVMS) Guidelines call elements of cost (or EOCs). So, when the Guidelines call for us to plan and manage by EOC, it really should not cause us any undue anxiety – it is just the natural way to manage any project.

Example: Outdoor Backyard Patio

Let’s use a simple home project example of building an outdoor backyard patio: What do you have to do to determine how much it will cost for this Backyard Patio Project (BPP if you like acronyms)? Generally, you look at such things as:

How much concrete; lumber for decking; nails, screws, bolts, washers, and other hardware, etc.; and weather-coating and paints/stains you will need (Material Element of Cost – EOC).
Work you cannot do by yourself: electricity for lights and power, and natural gas for the Barbecue/fireplace (Subcontract EOC).
Work you will do yourself (Labor EOC).
Costs unique to this project’s completion, such as: Home Owners Association permits, building code permits, local excavation application fee, etc. (Other Direct Cost EOC).
Costs incurred that do not necessarily go into the final product, such as: cleaning supplies, brooms, solvents, turpentine, weather tarpaulins, lighting and electricity, etc. (Indirect Costs/Overheads).

Unfortunately, when operating under the EVM requirement, often managers tend to overthink, and sometimes over apply the management of EOCs. Let’s look at the overthinking part first.

Overthinking EOCs

Guideline 9 of the EIA Standard 748 (Revision D) for EVM Systems requires:

Establish budgets for authorized work with identification of significant cost elements (labor, material, etc.) as needed for internal management and for control of subcontractors.

Some might propose: “I’ll have one Work Package for the Control Account with all the EOCs in it, and I’ll be okay.” That might meet the intent of that first part of the guideline, but would probably fail the requirement that says “as needed for internal management and control of subcontractors.” For example, what EV technique would you use for a “work package” that had labor, material, and subcontract work in it? The labor occurs as the work is performed, the material might be earned at the point of receipt on the dock, and the subcontract might earn value with the receipt of an Integrated Program Management Data and Analysis Report (IPMDAR) dataset at the end of a month. Since the Control Account (CA) has one total dollar budget, the “identification of significant cost elements” has to occur at the Work Package (WP) and Planning Package (PP) level within the CA, which requires each WP and PP to be identified as one of the EOCs mentioned above.

For Instance

In our example, if we lumped concrete and lumber into one “Material WP” and we incurred a serious overrun in material, how would we identify what caused the overrun: the concrete pour or the lumber portion? These are different categories of material that would “earn value” (be accomplished) in different ways and at different times. In order to determine the “guilty party” in the overrun, we should also have separate WPs for the different significant material categories. Some might call these major, or high value, or critical material items, which should be tracked separately.

On the other hand, for the lower-value materials, it may not be significant enough to management to know that a variance might have been caused by a 1-cent washer or a pint of deck stain. Consequently, a grouping of these low-value material items may be all that is required for visibility. Conversely, Management might actually want to break out categories such as, separating the paints/stains, and weather-coating from the nuts, bolts, washers and other hardware, since they are different categories of low-value material that could also earn value differently.

Indirect Cost Rates Must be Applied Properly

For Indirect Costs, some contractors put the burden of planning and managing these overhead costs on the CAMs, while others apply the indirect rates at a summary level of the Work Breakdown Structure (WBS) or organizational structure. Regardless of how a particular contractor does it, the indirect cost rates must be applied properly to the various direct elements of cost:

Material handling charges applied to material items
Indirect Labor rates applied to the direct labor hours
Subcontract overhead applied to the subcontract direct costs
ODC overheads charged to the ODCs identified.

Applying and managing overheads at the CA level would entail hundreds of applications across the number of Control Accounts on a project, but applying these at a summary level would require only a handful of Overhead lines in reports. Doing so would significantly reduce the number of possible errors in application – which is why many contractors do not require CAMs to “manage” overheads in their Control Accounts. [Our BPP example does not have the above types of Indirect Costs that are related to specific Direct Costs, but it does have its own specific Overheads related to the labor to build the Patio.]

Humphreys & Associates is available for earned value training and consulting. Give us a call!

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Earned Value: Fun with Numbers or Real Management Data?

By Humphreys & Associates / February 1, 2019 / Actual Cost of Work Performed, Budget At Completion, Budgeted Cost for Work Performed, Budgeted Cost for Work Scheduled, Contract Budget Base/Contract Target Cost, Cost Variance, Earned Value Basics, Estimate At Completion, Estimate to complete, Estimated Completion Date, Forecasted Program Schedule Slip, Management Reserve, Program Overrun, Schedule Slip, Schedule Variance, Time-Now, Variance At Completion

Actual Cost of Work Performed, Budget At Completion, Budgeted Cost for Work Performed, Budgeted Cost for Work Scheduled, Contract Budget Base/Contract Target Cost, Cost Variance, Earned Value Basics, Estimate At Completion, Estimate to complete, Estimated Completion Date, Forecasted Program Schedule Slip, Management Reserve, Program Overrun, Schedule Slip, Schedule Variance, Time-Now, Variance At Completion

What Are Earned Value Basics?

We used a quick quiz with some helpful links to give you an opportunity to test your basic understanding of an EVM graph from a real EVMS Program. We go into detail about each concept displayed in the graph and our overall analysis of the project based shown in the graph.

Earned Value: Fun with Numbers or Real Management Data? Part 1

In Part 1 we reviewed where you could find more information about EVM Implementation and Basic Concepts of Earned Value on our site. We also included a review quiz.

EVM Implementations
EVM Graph Quiz Testing Basic Earned Value Terms

Earned Value: Fun with Numbers or Real Management Data – Answers (part 2)

In Part 2 we provided the answers to the EVM Quiz and provided detailed definitions and descriptions for each of the quiz terms.

EVM Quiz Answers
Management Reserve
Schedule Variance
Budget At Completion
Contract Budget Base/Contract Target Cost
Budgeted Cost for Work Scheduled
Schedule Slip
Variance At Completion
Estimate At Completion
Actual Cost of Work Performed
Estimate To Complete
Cost Variance
Program Overrun
Time Now
Budgeted Cost for Work Performed
Forecasted Program Schedule Slip
Estimated Completion Date
Discussion of the displayed data

Earned Value: Fun with Numbers or Real Management Data? Read Post »

Project Controls/ Analyst Certification

By Humphreys & Associates / January 2, 2019 / EVM Certification, PC/Acert

EVM Certification, PC/Acert

Project Controls/Analyst Certification

This efficient and intensive certification program is designed for experienced earned value specialists looking to:

Distinguish themselves from their peers as a professional, certified Project Controls/Analyst.
Become a more valued asset to their current or future project and project management team in analyzing project control problems or challenges and determining appropriate actions to resolve them.

Effective and Comprehensive

Humphreys & Associates effective and comprehensive certification program is intended to further develop existing basic EVM skills into proficient and insightful analytical skills in various areas of project controls. It includes wide-ranging advanced EVM and project analysis coursework and concludes with a comprehensive exam requiring participants to demonstrate both analytic and technical Earned Value Management Systems proficiency.

Individuals that complete the Humphreys & Associates Project Controls/Analyst Certification program will have solid evidence of their ability to provide valuable analytical support to a project team in EVM as well as other critical areas of project management in an EVM environment. They will also satisfy job requirements as professionals in Project Controls/Analysis in the most challenging of project control environments.

Coursework

The coursework spans the guideline process areas in the EIA-748 Standard for Earned Value Management Systems which includes:

Organization
Planning, Scheduling, and Budgeting
Accounting Considerations
Analysis and Management Reports
Revisions and Data Maintenance

Expanding on these guideline requirements challenge individuals to understand, recognize, and analyze typical problems to be able to recommend possible solutions to management.

Important elements of the course include discussions of:

Establishing the initial technical scope, schedule, and cost structures for a project.
Risk and opportunity management analysis.
Performance, variance, estimate at completion (EAC), and estimated completion date (ECD) analysis.
Assessing the quality of the schedule and cost data.
Incorporating various types of scope, schedule, and budget baseline changes.
Common issues with customer reporting and how to resolve them.
Assessing compliance with EVM requirements.

The course stresses data integrity and traceability, highlighting Earned Value Management best practices to provide insights and to illustrate current methods and approaches. This results in improved project controls analysis and leads to better overall management and informed decision-making.

Included Course Materials

Humphreys & Associates Project Controls/ Analyst Certification uses extensive case studies and exercises that bring the EVM concepts to life and help to refine analytic expertise. Each participant will receive:

A binder with all course materials
The H&A Project Management Using Earned Value textbook
The pocket-sized H&A Guide to Project Management Using Earned Value

Benefits for Certified Project Controls/Analysts

H&A issues an education certificate as evidence of completing a course. We also issue a certification as evidence of passing an examination for meeting industry standards. We offer a custom “certified” polo shirt to each individual that successfully passes the exam with a 70% grade or higher honoring their accomplishment. Certified Project Controls/Analysts will also receive our newsletters and blogs about the latest changes to EVM regulations primarily for DoD, DOE, and NASA to help them keep up to date on EVM requirements and industry best practices.

Contact us today to learn more about Humphreys & Associates Project Controls/ Analyst Certification program at (714) 685-1730.

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EVM Consulting | Corrective Action Response

By Humphreys & Associates / December 3, 2018 / CAP, CAR, Corrective Action Requests, CPR/IPMR, EVM Consulting, IBR, IMS, SSI

CAP, CAR, Corrective Action Requests, CPR/IPMR, EVM Consulting, IBR, IMS, SSI

How do I respond to a Corrective Action Request?

In EVM Consulting, we deal with Corrective Action Requests (CARs) on a regular basis, so we have plenty of real-world experience. We created an outline of valuable information about DRs / CARs based on our collective experience. Part 1 of the guide is designed to inform you of why CARs are received and who issues them, so you can work to prevent them. Part 2 will prepare you to respond to a CAR in an effective and efficient way.

Corrective Action Response: Sources – Part 1 of 2

In Part 1 of the series we illuminated the varied sources of Corrective Action Requests:
1) Standard Surveillance Instruction (SSI)
2) Agencies that do not use the DCMA for surveillance, such as the Department of Energy.
3) Integrated Baseline Review (IBR)
4) Procedures that are compliant with the EIA-748 Guidelines
5) Contract Performance Report (CPR)
6) Integrated Project Management Report (IPMR)
7) Integrated Master Schedule (IMS)
8) Discrepancy Reports (Levels I-IV)

Corrective Action Response: Planning and Closure – Part 2 of 2

In part 2 of the series, we addressed responding to a Corrective Action Request (CAR):
1) Review the DRs/CARs with the customer
2) Organize for successful CAP management
3) Begin a thorough Root Cause Analysis
4) Develop and evaluate Corrective Action Plans
5) Develop verification closure steps
6) Develop a detailed Integrated Master Schedule for CAP implementation
7) Submit CAP and CAP IMS to the customer for approval prior to implementing the Corrective Actions
8) Implement Corrective Action Plans and track progress to successful completion
9) CAR closure and follow-up

EVM Consulting | Corrective Action Response Read Post »

Roles/Responsibilities and Incentives Used to Find the Right CAM

By Humphreys & Associates / November 1, 2018 / CAM, Control Account Managers, Finding CAMs, Promote from Within

CAM, Control Account Managers, Finding CAMs, Promote from Within

A Question of Incentive

A question commonly asked in the industry is “how companies are incentivizing their employees to become Control Account Managers (CAMs)”. Before answering this question, it is important to fully understand what the CAM’s roles and responsibilities are. In addition, it is important to understand the what authority and accountability a CAM has within his/her organization.

CAM Responsibilities

The CAM is the single point of contact for management of the Control Account. Consequently, the CAM is responsible for managing the cost, schedule and technical performance of the Control Account. Below is a list of specific CAM responsibilities that are common throughout the industry:

Establish and maintain Control Account budgets and schedules.
Define the tasks and the sequencing of the schedule for optimizing the accomplishment of the work scope.
Assure the scheduled activities for the Control Account have a realistic duration and performance logic.
Maintain the appropriate portions of the WBS Dictionary and approve the Control Account Authorization (CAA) and authorized changes to the CAA.
Proactively manage the personnel performing the Control Account detailed scope of work.
Identify, negotiate and implement required vertical and horizontal interfaces.
Manage Customer Expectation Agreements (CEA) and Memorandums of Understanding (MOU) with other organizations and programs.
Review and approve all resources and cost type charging to the Control Account and assure its accuracy.
Monitor and assess preponderance of Control Account and Work Directive.
Prepare Control Account Variance Analysis Reports that clearly address cause, impact and corrective action.
Develop, implement and manage corrective actions, as applicable.
Maintain an awareness of the Subcontract Data Requirement List (SDRL) items and other applicable contract deliverables.
Prepare Estimates to Completion for remaining Control Account work scope.
Provide forecast dates for accomplishing activities and milestones in the Control Account Schedule.
Evaluate applicable Critical Path tasks within the Control Account.
Manage the integration and monitor the development of any critical technologies.
Inform management of significant problems concerning Control Account performance.
Identify potential technical and programmatic risks and make effective use of the risk management tool.
Employ the baseline change control process for any revisions to the Control Account’s baseline scope, schedule and budget. Submit Budget Change Notices (BCN) as necessary.
Proactively manage all subcontractor effort that affects Control Account performance.
Lead or participate in Make/Buy decisions.
Evaluate alternatives and develop facility utilization plans as applicable.
Status all work scheduled within the Control Account.
Participate in applicable IPT meetings to assure technical integration.
Update the CAM Notebook to maintain currency and accuracy.

Review and Approve

In addition, the CAM has the authority to review and approve all work assignments, documents and commitments involving his/her Control Account. This results in the CAM being held fully accountable to the Program Manager for overall Control Account performance. Below are some specific items a CAM would have authority over. In addition, a list of accountable actions is provided.

Approve the Control Account Authorization documents.
Co-approve the Make/Buy Plan for any material used in the performance of the Control Account scope of work.
Approve Control Account Budget Change Notices and Requests.
Authorize and coordinate work performed by functional departments on Work Directives within the Control Account.
Determine the work schedule and prioritize work within each Work Directives issued for the Control Account.
Approve hours charged to the Work Directives supporting the Control Account.
Approve material and other direct costs charged to the Work Directives supporting the Control Account.
Identify potential technical, schedule and cost risks and enter them into the Risk Management Process.

Accountable actions by the CAM

Complete the Control Account scope of work within the schedule period authorized.
Complete the Control Account scope of work within the resources authorized.
Achieve the technical performance goals for the defined scope of work.
Achieve the technical quality.
Assure that the reported Earned Value performance is based on quantified back-up data including justification of variances, identified impacts and corrective action plans.
Mitigate all technical, schedule and cost risks associated with the Control Account.

Encouraging CAMs

Appropriate incentives for high performing individuals to become CAMs is a common question across the industry. Many believe they were hired to do the technical aspects of the job and do not want the responsibility of cost and schedule. You hear comments like “this is not what I went to school to learn.” Below are a few suggested avenues an organization can follow to better highlight the importance of the CAM’s role;

Companies will reward individuals with a ~$5k bonus for passing all the requirements in becoming a CAM. In many cases, this encourages individuals to better understand the cost and schedule aspects of the job in order to become an effective and successful CAM. They will be required to take an instructor led class of 3 days for basics of Scheduling, 3-day basics of EVMS, then 3-day Advanced course where both cost and schedule are covered. Then and only then can a title can change from Control Account Leader (CAL) to Control Account Manager (CAM).
Increased Upper Management support and emphasis on the CAM’s role motivates individuals in becoming a CAM. In one example company, the Vice President of Programs required potential CAMs to prepare a presentation proving what they had learned during the CAM Certification/Training process. Having upper management buy-in on the importance of the CAM’s role is crucial.
Organizations will use the CAM position as a stepping stone/pre-requisite toward becoming a Program Manager (PM). This can be an effective technique.
Assurance that the CAMs will have the appropriate Cost and Schedule support staff assisting them as required. CAMs cannot be expected to be the expert in the Technical, Cost and Schedule disciplines on their own. Qualified Cost/Schedule support is essential to properly managing the CAM’s role.

Room for Growth

Any or combination of the above examples can increase the desire of individuals into becoming CAMs. Management positions are not for everyone. Often individuals who are otherwise highly proficient in their existing positions fail as managers. The CAM role is no different. It important for organizations to fully define the roles and responsibilities of the CAM as well as the incentives and goals used. By doing so, organizations will be better equipped in placing the right individuals into CAM positions for success.

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