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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Humphreys & Associates Joins Project Management Institute’s Registered Consultant Program

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Humphreys & Associates Joins Project Management Institute’s Registered Consultant Program

Online Project Management resource helps organizations connect with consulting firms

IRVINE, Jan. 09, 2015 — Humphreys & Associates today announces that it has joined the Project Management Institute’s (PMI) Registered Consultant Program, an online resource that provides organizations with the convenience of accessing a PMI-maintained list of consulting firms that are able to improve their project, program and portfolio management practices.

As more organizations adopt project management as a strategic competency for achieving business results, many are seeking the advice of consultants to enhance their project management capabilities. The PMI Consultant Registry is complimentary to organizations, as is the PMI-developed A Guide on How to Select a Project Management Consultant.

The guide walks organizations through the necessary steps to best identify a consultancy that meets their requirements. Each firm listed in the directory provides one case study per area of expertise that highlights its previous consulting engagements.This feature gives organizations insight into the consultancy’s engagement style and its ability to meet the unique needs of a project.

Humphreys & Associates’ project management consultants have worked with all branches of the U.S. Department of Defense (DoD), the Department of Energy (DOE), NASA, other U.S. government agencies, and with foreign governments. “Our associates and teams have great admiration for the Project Management Institute’s global advocacy, education, collaboration, and project management research. As PMI is such a comprehensive resource for project managers Humphreys & Associates therefore is quite pleased to join PMI’s Consultant Registry,” asserted Gary C. Humphreys, President and CEO, Humphreys & Associates.

Humphreys & Associates joins more than 140 consulting companies in more than 35 countries that participate in the Program.

About Humphreys & Associates

Humphreys & Associates, led by Gary Humphreys, is the established leader in earned value management consulting and training. H&A has provided EVMS consulting services to over 850 companies and government agencies worldwide and we have trained over 900,000 individuals at all EVMS functional and management levels.

About Project Management Institute (PMI)
Project Management Institute is the world’s leading not-for-profit professional membership association for the project, program and portfolio management profession.  Founded in 1969, PMI delivers value for more than 2.9 million professionals working in nearly every country in the world through global advocacy, collaboration, education and research. PMI advances careers, improves organizational success and further matures the profession of project management through its globally recognized standards, certifications, resources, tools academic research, publications, professional development courses, and networking opportunities. As part of the PMI family, Human Systems International (HSI) provides organizational assessment and benchmarking services to leading businesses and government, while ProjectManagement.com and ProjectsAtWork.com create online global communities that deliver more resources, better tools, larger networks and broader perspectives. Visit us at www.PMI.org, www.facebook.com/PMInstitute, and on Twitter@PMInstitute.

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