EVM Systems – The 16 Foundational Guidelines

The Earned Value Management System (EVMS) – Standard Surveillance Instruction (SSI) (latest revision February 2012) defines the Defense Contract Management Agency (DCMA) standardized methodology to conduct contractor surveillance on EVM Systems. This includes assessment of contractor processes and procedures to ensure the 32 EIA-748 Guidelines are being followed when contractually required.

Of the 32 Guidelines, sixteen are considered high-risk or foundational for EVM Systems.  This means that if the requirements of those Guidelines are not met, considered noncompliant, the Earned Value Management System may not produce accurate, reliable and auditable data such that it provides the customer with the information necessary to reliably manage a program.

The 16 Foundational Guidelines are highlighted below in red.

EVM Systems - 16 Foundational Guidelines

Each year, the DCMA prepares a surveillance schedule which includes the five EVMS Areas and associated Guidelines to be reviewed and the programs/contracts involved.  Of the 32 Guidelines, the 16 high-risk Guidelines are evaluated every year and all 32 Guidelines evaluated within a 3 year period.  By concentrating on these 16 high-risk Guidelines, resources for both the Government and the contractor can be used more efficiently.  Concerns with non-high risk Guideline(s) could be surfaced during reviews and these can then be scheduled for additional surveillance.  Generally, a minimum of four surveillance events are planned covering the five EVMS Areas in a given year.

If guideline noncompliance were found in any of the high risk guidelines, this signifies that there are shortcomings in the system and the information produced from that system is not reliable for management purposes.

Although the Standard Surveillance Instruction requirements are that those Guidelines that are not foundational be reviewed by the DCMA at least every three years, it is still incumbent on the contractor to ensure that those Guidelines remain compliant.

The 16 foundational guidelines are:

ORGANIZATION

Guideline 1: Define the authorized work elements for the program.

Guideline 3: Provide for the integration of the company’s planning, scheduling, budgeting, work authorization and cost accumulation processes with each other, and as appropriate, the program Work Breakdown Structure (WBS) and the program organizational.

PLANNING AND BUDGETING

Guideline 6: Schedule the authorized work in a manner, which describes the sequence of work and identifies significant task interdependencies required to meet the requirements of the program.

Guideline 7: Identify physical products, milestones, technical performance goals, or other indicators that will be used to measure progress.

Guideline 8: Establish and maintain a time-phased budget baseline, at the Control Account level, against which program performance can be measured.

Guideline 9: Establish budgets for authorized work with identification of significant cost elements (labor, material, etc.) as needed for internal management and for control of subcontractors.

Guideline 10: To the extent it is practical to identify the authorized work in discrete work packages, establish budgets for this work in terms of dollars, hours, or other measurable units.

Guideline 12: Identify and control level of effort activity by time-phased budgets established for this purpose.  Only that effort which is immeasurable or for which measurement is impractical may be classified as level of effort. 

ACCOUNTING CONSIDERATIONS

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

 Guideline 21: For EVMS, the material accounting system will provide for:

      1. Accurate cost accumulation and assignment of costs to Control Accounts in a manner consistent with the budgets using recognized, acceptable, costing techniques.
      2. Cost performance measurement at the point in time most suitable for the category of material involved, but no earlier than the time of progress payments or actual receipt of material.
      3. Full accountability of all material purchased for the program including the residual inventory.

ANALYSIS AND MANAGEMENT REPORTS

Guideline 23: Identify, at least monthly, the significant differences between both planned and actual schedule performance and planned and actual cost performance, and provide the reasons for the variances in detail needed by program management.

Guideline 26: Implement managerial actions taken as a result of earned value information.

Guideline 27: Develop revised estimates of cost at completion based on performance to date, commitment values for material, and estimate of future conditions. Compare this information with the performance measurement baseline to identify variances at completion important to company management and any applicable customer reporting requirements including statements of funding requirements.

REVISIONS AND DATA MAINTENANCE

Guideline 28: Incorporate authorized changes in a timely manner, recording the effects of such changes in budgets and schedules.  In the directed effort prior to negotiation of a change, base such revisions on the amount estimated and budgeted to the program organizations.

Guideline 30: Control retroactive changes to records pertaining to work performed that would change previously report amounts for actual costs, earned value, or budgets.

Guideline 32: Document changes to the performance measurement baseline.

For more information on these guidelines or to inquire about EVMS implementation and remediation, contact Humphreys & Associates.

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7 Principles of Earned Value Management Tier 2 System Implementation | EVM Analysis

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Updated: Watch our review video of 7 Principles of Earned Value Management Tier 2 System Implementation Intent Guide



7 Principles of Earned Value Management Intent GuideThe Assistant Secretary for Preparedness and Response (ASPR) issued the “7 Principles of Earned Value Management Tier 2 System Implementation Intent Guide,” 21 December 2011.  Since most of BARDA acquisitions are unique in that they are not Information Technology (IT) projects or Construction projects, they developed a tiered approach to applying EVMS. Tier 1 are construction and IT contracts and will require full ANSI/EIA-748 compliance. Tier 2 contracts are defined as countermeasure research and development contracts that have a total acquisition cost greater than $25 million and have a Technical Readiness Level of less than 7. Tier 2 contracts will apply EVM principles that comply with the 7 Principles of EVM Implementation. Tier 3 are countermeasure research and development contracts between $10 million and $25 million and will require EVM implementation that is consistent with the 7 Principles approach. The focus of this implementation guide is on the Tier 2 contracts.

The Intent Guide contains explanations for each Principle, a Glossary of Terms, a Supplemental EVM Implementation Guideline, and Sample EVM Documents. The Supplemental EVM Implementation Guideline contains recommendations regarding EVM process flows, tools, the necessity to integrate the EVM engine with the accounting system, basic documentation requirements, ranges of implementation costs, recommendations on requirements for support personnel, and use of the 7 Principles on Tier 3 programs.

The Intent Guide defines Tier 2 as: “For countermeasure research and development contracts that have total acquisition costs greater than or equal to $25 million and have a Technical Readiness Level (TRL) of less than 7 will apply EVM principles for tracking cost, schedule and technical performance that comply with the 7 Principles of EVM Implementation.”

The 7 Principles of Earned Value Management

1. Plan all work scope to completion.

This Principle includes development of a Work Breakdown Structure (WBS) and WBS Dictionary that includes all of the work scope.  It is also recommended that detailed scope definition be accomplished at the work package level.

2. Break down the program work scope into finite pieces that can be assigned to a responsible person or organization for control of technical, schedule and cost objectives.

This Principle defines the schedule requirements.  Most scheduling functions are required including network scheduling, horizontal and vertical traceability, forecasting schedule start and complete dates, and critical path analysis.  The contract milestones must also be included in the schedule.

This Principle also discusses the organizational requirements.  The Control Account Manager must be identified but there is no requirement for the costs to roll up through organizational elements; this, and development of an Organization Breakdown Structure (OBS) is recommended if it can be done in a cost effective manner.

3. Integrate program work scope, schedule, and cost objectives into a performance measurement baseline plan against which accomplishments can be measured. Control changes to the baseline.

This Principle is discussed in the Intent Guide in two parts.  The first, 3a, regards integration of scope, schedule, and cost objectives into a performance measurement baseline. The schedule can be either resource loaded or the budgets loaded into a cost tool and a time-phased control account plan generated.  The cost tool must be linked to the schedule tool to ensure baseline integration.  The planning includes both direct and indirect dollars.

This Principle also defines the use of undistributed budget and management reserve.

The second part of this Principle, 3b, is the requirement to control changes to the baseline. This requires that contractual changes be incorporated to the baseline in a timely manner.

Budget logs are to be used to track both external and internal changes. All changes are to have documentation that explains the rational/justification for the change and the scope, schedule and budget for that change.

4. Use actual costs incurred and recorded in accomplishing the work performed.

This Principle requires that actual costs be accumulated in a formal accounting system consistent with the way the work was planned and budgeted.  A work order or job order coding system must be used to identify costs to the control account and allow summarization through higher levels of the Work Breakdown Structure.  The use of estimated actuals is also required for material and subcontractors to ensure that earned value data is not skewed.

5. Objectively assess accomplishments at the work performance level.

This Principle requires that schedule status and earned value assessment must occur at least monthly.  The allowable earned value techniques are discussed as well as the requirements of for the use of each.

6. Analyze significant variances from the plan, forecast impacts, and prepare an estimate at completion based on performance to date and work to be performed.

This principle is also divided into two parts.  The first, 6a, regards the analysis of variances from the plan.  The earned value system must be able to calculate cost and schedule variances, at least cumulatively, on a monthly basis.  The system should also be able to provide the Cost Performance Index (CPI), the Schedule Performance Index (SPI), and the use of the To-Complete Performance Index (TCPI) is also encouraged.  Variances that exceed the contract variance thresholds must be explained in terms of the cause, impact and corrective action.  Although this Principle does not discuss the preparation of a Variance Analysis Report (<abbr=”Variance Analysis Report”>VAR) by the CAM, Principle 7 does require that Program Managers hold their CAMs accountable to write a proper Variance Analysis Report (Earned Value Management Analysis).

The second part of this Principle, 6b, requires that an Estimate at Completion (EAC) be prepared based on performance to date and the work remaining to be performed.

7. Use earned value information in the company’s management processes.

This Principle regards Program Management use of the earned value data to manage the program’s technical, schedule and cost issues and how that data is used in the decision making process.

Although much of the language in the Intent Guide is similar to that of typical guidance documents for the EVMS requirements, it must be remembered that the EVMS Guidelines are not being implemented, only the 7 Principles.  The Principles define an approach to managing programs with the basic requirements of Earned Value; such that the cost of the system is minimized, but only those elements necessary to manage these types of programs are necessary.  This allows for further system flexibility and reduces the documentation needed.  For instance, in Principle 1, the requirements of the WBS Dictionary could be expanded to contain the information that would normally be included on the Work Authorization Document.  If this were done, Work Authorization Documents are not necessary because the WAD content normally contained would be embodied in the WBS dictionary; and the associated cost is reduced over the life of the program.

With the 7 Principles there is no need for an EVM compliance review.  An Integrated Baseline Review (IBR), also known as a Performance Measurement Baseline Review (PMBR), could be required.

The 7 Principles Comparison to the EIA-748 32 Guidelines

For those who are more accustomed to the EVMS Guidelines as described in the EIA Standard, EIA-748, in the table below the 7 Principles are loosely identified to the 32 Guidelines and Guideline areas.  This does not mean that all of the requirements must be met with the 7 Principles only that they can be cross-referenced.  Several of the Guidelines are not specifically identified but could be considered as incorporated by reference. The indirect cost requirements are incorporated by planning the work with both direct and indirect dollars; therefore, it is implied that budget, earned value, and actual costs would also include both direct and indirect costs.

The appendix also contains the requirement that the EVM Engine needs to be integrated with the company’s accounting system.  Further, some programs may also be required to be compliant with the Cost Accounting Standards.  Guideline 20, “Identify unit costs, equivalent units costs, or lot costs when needed” is not included; this more than likely would not be a requirement for HHS or BARDA programs.

Earned Value Analysis: 7 Principles of EVM Tier 2 System Implementation Cross-Reference to the EVMS Guidelines

7 Principles of EVM Tier 2 System Implementation Cross-Reference to the EVMS Guidelines
Principle Number Principle Title EVMS Guidelines Guidelines not Specifically Indentified ANSI/EIA-748 Areas
Principle 1 Plan all Work Scope 1 Organization
Principle 2 Break Work into Finite Pieces and Define Person/Organization Responsible for Work 2, 5, 6 4
Principle 3a
Integrate Scope, Schedule and Budget into a Performance Baseline 3, 7, 8, 9, 10, 11, 14 13 Planning & Budgeting
Principle 3b
Control Changes to the Baseline 15, 28, 29, 30, 31, 32 Revision & Data Maintenance
Principle 4 Use Actual Costs Incurred and Recorded in Accomplishing the Work Performed 16, 17, 18, 21 19, 20 Accounting Considerations
Principle 5 Objectively Assess Accomplishments of the Work Performance “Level 12, 22 EVM Analysis & Management Reports
Principle 6a
Analyze Significant Variances fomr the Plan 23, 25 24
Principle 6b
Prepare and Estimate at Completion based on Performance to-data and Workd to be Performed 27
Principle 7 Use EVM information in the Company’s Management Processes 26

Recommendations for Enhancement to the Intent Guide

The 7 Principles Intent Guide was issued in December 2011. In June 2012 the requirements for the Integrated Program Management Report (IPMR) was issued; this will replace the Contract Performance Report (CPR) for contracts issued after June 2012. When a revision to the Intent Guide is issued, the IPMR should be included.

The Intent Guide is a “what to do” document and contains little on “how to do it”. Internal procedural documents should be required to define how a company will implement the Guide requirements.

Principle 6a requires that the cost and schedule variances be calculated at least on a cumulative basis and only recommends calculation of the current month. The current month calculation should be a requirement since both the CPR and the IPMR require current month reporting.

Summary

The “7 Principles of Tier 2 System Implementation Intent Guide” requires the basic elements of earned value and the documentation necessary to demonstrate that earned value is being adequately implemented on Tier 2 programs. H&A personnel understand the requirements and are able to “size” those requirements to meet company and customer needs. Click to request a PDF copy of the Intent Guide.

Humphreys & Associates (H&A) has been providing Earned Value Management training and implementation services for over 35 years. H&A provides self-paced online, classroom and private training courses, as well as training tailored to specific industry needs, and can assist in all aspects of Earned Value Management Implementation.

For more information about EVM training or support, or with questions about your company’s requirements, please contact the Humphreys & Associates corporate office.

 

 

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Earned Value Management for Biotech and Pharma – Part 2 Accounting

By Ric Brock – Engagement Director, Humphreys & Associates

As a follow up to our article on the Earned Value Management for Biotech and Pharma Industries, this is a quick look at how Biotech and Pharma companies collect and manage costs compared to accounting requirements on federal acquisitions.

The Operating Model for the Biotech and Pharma Industry

The basis of the Biotech and Pharmaceutical operating model is to discover/invent a compound or device to meet a need, validate its safety and efficacy, ensure proper patent protection, market it as quickly as possible, and maximize commercialization while there is still patent protection.  In short, it is about speed to market and maximizing the commercial life cycle.

Operating costs are collected and managed from a process costing basis.  Internal costs are usually not collected by a cost objective, as they are not managed to that level of detail.  Most internal labor is collected by department total headcount and labor dollars.  Project or activity based timekeeping is not practiced; i.e. time cards are not used.  External costs (materials, contract services, subcontractors, etc.) are collected within the purchasing system and can be tied to specific activities and traced to the originating departments.  Most companies do have the ability to set up and track job costs within their capital management system.

Federal Acquisition Regulations (FAR), Cost Accounting Standards (CAS), and Timekeeping

The ability to plan and collect actual costs in a consistent and systematic manner by contract/project is a key to the Earned Value Management System requirement.  The costing of items and services purchased by the US Government on a non-firm fixed price basis are covered in the Federal Acquisition Regulations (FAR) and the Cost Accounting Standards (CAS).  The ability to collect costs in a consistent and timely manner is an EVMS prerequisite.

Federal Acquisition Regulations

Federal Acquisition Regulations (FAR) are a set of regulations governing the US Government processes of purchasing goods and services.  Among the guiding principles are to have an acquisition system that satisfies the customer’s needs in terms of cost, quality, and timeliness; to conduct business with integrity, fairness, and openness; and to fulfill other public policy objectives.

Part 52 of the FAR contains standard contract clauses and solicitation provisions. Many clauses incorporate parts of the FAR into government contracts by reference, thereby imposing FAR rules on contractors.

Part 30 of the FAR describes policies and procedures for applying the Cost Accounting Standards Board (CASB) rules and regulations [48 CFR Chapter 99 (FAR Appendix)] to negotiated contracts and subcontracts. This part does not apply to sealed bid contracts or to any contract with a small business concern [see 48 CFR 9903.201-1(b) (FAR Appendix) for these and other exemptions].  Part 30 also identifies the standard contract clauses and solicitation provisions contained in FAR Part 52 that are to be incorporated when applying the CASB rules and regulations to a contract or subcontract.

When a government agency issues a contract or request for proposal, it will specify a list of FAR clauses that will apply.  In order to be awarded the contract, a bidder must either comply with the clauses, demonstrate that it will be able to comply at time of award, and/or claim an exemption from them.  A bidder must also ensure that it understands the contractual commitments, as complying with some FAR clauses may require changes to operating processes.

Cost Accounting Standards

Cost Accounting Standards (CAS) are a set of 19 standards and rules (CAS 401 – 420) that the US Government uses in determining the costs on negotiated procurements.

A company may be subject to full CAS coverage (required to follow all 19 standards), modified CAS coverage (required to follow only Standards 401, 402, 405, and 406), or be exempt from coverage.

Full coverage applies only when a company receives either one CAS-covered contract of $50 million or more, or a number of smaller CAS covered contracts totaling $50 million. In addition to complying with the standards, the company must also file a CAS Disclosure Statement (CASB DS-1) which clearly describes the company’s accounting practices (such as what costs are treated as direct contract charges and what costs are treated as part of an overhead expense). There are two versions of the CAS Disclosure Statement: DS-1 applies to commercial companies while DS-2 applies to educational institutions.

Modified coverage applies when a company receives a single contract of $7.5 million or more. 

Timekeeping

Despite the significant role timekeeping plays in government contracting, the FAR provides little direction on timekeeping.  This lack of guidance has been left to government audit agencies (such as the Defense Contract Audit Agency (DCAA) to establish audit standards.  The DCAA uses its Contract Audit Manual (CAM) to provide audit guidance to its auditors.  The CAM provides guidance on auditing timekeeping procedures in section 5-909.  The audit manual states that timekeeping procedures should be able to “assure that labor hours are accurately recorded and that any corrections to timekeeping records are documented…”.

This timekeeping system should feed a labor distribution system that maintains labor hours and dollars by employee, by project/contract, and type of effort account.  This labor distribution should be reconciled to the general ledger labor accounts at least monthly.

Timekeeping is critical.  Unlike other contract costs, labor charges are not supported by external documentation.  The move by a Biotech/Pharma company to a formal timekeeping system may require extensive cultural change.

Summary

As Biotech and Pharmaceutical companies move to FAR contracting, it will require a transition to a project/job costing basis from a process costing basis.  This change may appear straight forward, but any process change requires sound change management.

All aspects of EVMS are critical to ensure the utility of an effective program management tool.  In this blog we provided a summary level look at cost accounting data.  The ability to collect valid, timely, and auditable cost is the foundation for the Actual Cost of Work Performed (ACWP).  Without knowing what we accomplished and what we spent to get to where we are, it is very hard to predict where we are going: the Estimate to Complete (ETC).   As a company designs and develops its EVMS, it must make sure actual cost collection and management is also addressed within the FAR and CAS requirements.

For questions or inquires on how to implement Earn Value project management in the biotechnology or pharmaceutical industries, contact one of the experts at Humphreys & Associates.

Ric Brock - Engagement Director, Humphreys & AssociatesMr. Brock has over 30 years of experience in program and project management, operations, and quality assurance in government and commercial environments.  He has extensive experience working with all levels of an organization, from top management to performing personnel. Ric has extensive experience supporting Pharmaceutical companies in life cycle management, filing new drug applications, and launching new drugs.  He has a wealth of experience with EVM systems across a variety of industries from defense to commercial including biotech/pharma. You can find Ric on LinkedIn

 

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EVM for Biotech and Pharma – Part I Implementation and Training

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Updated December 13, 2017

 

EVM for Biotech and PharmaAs you know, the Earned Value Management System (EVMS) is a management process with characteristics that are absolutely logical to manage projects whether there is an external customer or not. The EVMS is also required by the Federal Government on DOD, DOE, FAA, NSA, DOT, DOJ, NASA, etc. contracts over $20M.

With the phasing in of the Affordable Health Care Act and recent funding for research and preparation in the event of bio-terrorism, other branches of the Government, such as Health and Human Services (HHS) and Biomedical Advanced Research and Development Authority (BARDA), are becoming more involved in the healthcare sector. Implementing and using EVMS is a baseline requirement for biotech and pharmaceutical firms awarded large contracts by the Federal Government.

This will require companies and universities that receive funding to understand and implement Earned Value Management and that key project personnel, including management and executives, will require high quality Earned Value Training.

Why EVM and Government Contracts

Earned Value Management has been used since the 1960’s and has become the standard by which the Government measures and evaluates the management and reporting processes on projects awarded to contractors. Initially, it was implemented on projects; such as the development of satellites, long-range missiles, fighter aircraft, etc., but has become the US Government’s gold standard to manage the technical, schedule and cost progress of projects and to identify and manage risk and opportunities.

In order for defense contractors to be eligible for large contracts, they are required to follow the 32 Guidelines of the EIA-748-C which can entail system design and development and a substantial learning curve. Earned Value Management company-wide training and proper implementation becomes critical for project efficiency, future funding and to meet Government requirements.

Integral to EVM are the uses of the Integrated Master Plan (IMP)/Integrated Master Schedule (IMS) and risk and opportunity management.  The Integrated Master Schedule is the basis for developing the Performance Measurement Baseline (PMB) which in turn, is the basis for measuring performance on a project.   Measurement of progress against the baseline provides early identification of problems and helps to identify and mitigate costs and risks, while also identifying opportunities, by implementation of appropriate corrective actions.

Earned Value Management Systems for Project Management

The basic concept of the Earned Value Management System is more than a unique project management technique.  The EIA-748-C contains 32 Guidelines that define a set of requirements that a contractor’s management system must meet. The objectives of an EVMS are:

  •  Relate time phased budgets to specific contract tasks and/or statements of work
  • Relate technical, schedule and cost performance information
  • Furnish valid, timely and auditable data/information for proactive management action and decision making
  • Provide the basis to capture work progress assessments against the baseline plan to facilitate realistic project costs and completion dates
  • Supply managers with a practical level of summarization for effective decision making

Once a contractor’s EVM System is designed and implemented, there are significant benefits to the contractor and to the customer:

  • Contractor benefits include increased visibility and control to quickly and proactively respond to issues which makes it easier to meet project technical, schedule, and cost objectives
  • Customer benefits include confidence in the contractor’s ability to manage the project, early problem identification, and objective rather than subjective contract cost and schedule status

Earned Value Management Training

Experienced project managers will tell you that understanding the scope, schedule and costs of a project is essential to its success. The primary objective of the EVMS is to ensure that all elements of a project are planned, authorized, managed, and controlled in a consistent and cost-effective manner.  There is an increasing demand for training for organizations beyond the traditional aerospace and defense related construction, software, research and development, and production environment to now include non-defense companies to implement and use the Earned Value Management System.

EVM for Biotech and Pharma

Biotech and Pharma companies are not strangers to dealing with government regulations and requirements. Most have gone through rigorous Food and Drug Administration (FDA) processes to receive approval of compounds and/or devices. Nonetheless, learning how to design and use an EVM system can take a considerable investment of time and money, but is an essential requirement for initial and ongoing funding.

In addition to the EIA-748-C, there are numerous documents that give direction regarding the implementation and use of an EVM system.  Some of these are the National Defense Industrial Association (NDIA) Integrated Program Management Division (IPMD) EIA-748 Intent Guide, Cost Accounting Standards (CAS), Data Item Descriptions (DID), Military Standards (MIL-STD) such as MIL-STD-881, the Earned Value Management System Interpretation Guide (EVMSIG), and many others.  We have helped many organizations to ensure that they do not overkill or underkill based on their desired management system characteristics.  H&A personnel understand the requirements and are able to “size” those requirements to meet company and customer requirements.

Although Biotech and Pharma are relatively recent industries to use EVM, Humphreys & Associates (H&A) has been providing Earned Value Management training and implementation services for over 35 years. H&A provides self-paced online, classroom and private training courses, and can assist in all aspects of Earned Value Management Implementation.

For more information about EVM training or support, or with questions about your company’s requirements, please contact the Humphreys & Associates corporate office.

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DFARS 252.234-7001 – “Thou Shalt Do Earned Value”

Overview

Earned Value Management (EVM) have become increasingly relevant for industries like Biotech and Pharma.

Hypothetically, your organization has received a Request for Proposal (RFP) and wishes to bid for the work.  The RFP includes the clause DFARS 252.234-7001 if the cost to the government is anticipated to be in excess of $20M.  What choices does a company have?  First, the clause could be ignored and the bid made as Firm Fixed Price (FFP). However, this places the entire cost risk on the company and unless the scope is well known and routinely achievable, this risk may be unacceptable.

Otherwise, with any other kind of contract, be it incentive or cost plus, it will require the company to comply with the Earned Value Management Systems (EVMS) clause.  Assume that the proposal is anticipated to be in excess of $50M (as this is the most stringent requirement), your company does not have an EVMS, and it is decided to bid and include a plan to reach compliance.

The subject DFARS Clause requires that a contract be managed with a fully compliant Earned Value Management System as defined in EIA-748 (the latest revision is “C” dated March 2013).  If a system has not been validated, meaning accepted by the Government, the company must include in its proposal how validation will be achieved.

This includes a description of the system proposed to be used including an annotated checklist which addresses each of the 162 management system characteristics, proposed changes to the current system, resumes of the personnel who will design and implement a compliant system, how the Guideline requirements will be met, subcontractor compliance, and a time-phased plan to achieve EVMS compliance.

What is the Extent of the Requirement?

The answer to this question is the object of the first steps towards full Earned Value Management (EVM) system design, implementation, operation, and acceptance.

Step 1: Familiarize company management with the EIA-748 Guideline requirements.  This is usually done with a two to four hour presentation to management conducted by experienced EVMS personnel.  The single most important outcome from this presentation, leading to a successful EVMS implementation and acceptance by the customer, is senior management’s commitment in fully supporting the steps that follow.

Step 2: Review the current management control systems including existing software and identify which of these fully support the earned value requirements.  This information is then used to develop an implementation plan of the necessary tasks, their associated schedule as well as the costs of needed changes.

Step 3:  This significant step helps senior management to:

    1. Review the cost benefit of the EVMS and either change the proposal strategy to a Firm Fixed Price (FFP) bid and stopping the EVMS process without significant investment
    2. Decide to implement the system a step at a time and proceed with the design and subsequent implementation and maintenance of the EVMS; or
    3. Simply not bid

The Choice – Proceed to Implement

Assuming the answer is to proceed, the question becomes what are the next steps?

First, the management system is divided into the required subsystems such as:  work definition and assignment, planning and scheduling, budgeting, work authorization, accounting, material and subcontract management, data analysis and reporting, and change control.  Next, pertinent existing information and materials (forms, documents, reports, etc.) are gathered that support these same subsystems. Interviews are also conducted to determine the “real” needs.  After collecting the existing system documentation and understanding the processes from interviews conducted, the  system documents  are placed in sequence on wall flow charts, commonly called storyboards, which allow the identification of system/subsystem “holes” and/or “gaps and overlaps” versus the EVMS requirements.  New forms, procedures, software modifications and other additions can then be identified and developed to fill these holes.

At this point in the process, the final management system design should be developed and a revised implementation plan/schedule presented to senior management for approval.  Upon approval, the first step is now accomplished.

Second, is to develop an EVMS compliant System Description, procedures and associated desk top instructions.  The System Description is a document that defines the management system much like the operator’s manual to your automobile.  It is a “what to do” document and includes definition of the processes, depicts forms and reports used in and produced by the system, and describes how the system meets the requirements of the EIA-748 Guideline requirements. This is typically organized by the Nine Process Groups of organizing, scheduling, etc.  The procedures and desk top instructions define how to do it and support the requirements outlined in the System Description.  Procedures and desk top instructions define the detailed steps necessary for all requirements and what organizations are responsible for those steps.   With the system documentation in place, and upon its presentation and acceptance by management, the second step is now complete. You could say that you have now designed and built a new automobile and it is time to train people how to drive.

The third step is to train all levels of management in the operation and use of the EVM System.  This can be accomplished in groups (functional management, control account managers (CAM), IPT Leads, senior management, etc.), and/or by one-on-one training.

Fourth, once all of the above has been accomplished, the company is ready to apply and operate the EVM system on a project.  Ideally the project that was proposed has now been won, and it is the one with which the system will be implemented—and used.  It is much easier to put the system in place and begin to operate it on a new project/contract than it is to try and retrofit it onto an existing project.  This entails following the definition, planning, and authorization subsystem steps defined in the approved Management System Description, procedures and associated desk top instructions, and then producing the required data for analysis and reporting to management and the customer.  Generally speaking, three months of system data and reports are required by the customer before the next step can be undertaken.

Fifth, the next major step is the customer’s review of the EVM system and its subsequent acceptance and validation.  Once system operation has begun, at least one visit will be conducted by the customer’s EVMS representative (in the case of DOD contracts it is the Defense Contract Management Agency (DCMA)).  The visit(s) is conducted to assess the progress against the plan that was submitted in the original proposal.  The visit(s) is usually two to three days in length and conducted by three or four well qualified government representatives.

Once an organization conducts a self assessment and informs the reviewing agency that it is ready for their review, that agency reviews the documentation provided by the organization to determine readiness for a Validation Review.  This review will then be scheduled with the company.  It may be quite some time in the future, as there are very few DCMA representatives available and there are many companies requiring reviews of one kind or another.  A “data call” will occur which is a request for information such as 12 months of Contract Performance Reports (CPRs) or Integrated Program Management Reports (IPMR), the baseline logs from the beginning of the program, etc. When the review does occur, the program team should plan on 15 to 20 reviewers for at least two weeks. The company will need to provide all of the support the review team requires. This will include work rooms, computers, printers, and other elements that will be specified in the review notification.  Other preparations will include development of in-briefings, construction/updates of storyboards, and conduct of mock interviews with project and management personnel to prepare them for their government interviews.

The company cannot expect to complete the Validation Review without action items being assigned.  The DCMA will create Discrepancy Report(s) which will lead to Corrective Action Reports (CARs) that are rated by the degree of severity from 1 to 4. These system discrepancies will each require a Corrective Action Plan (CAP) to be developed and accepted by the DCMA, monitored, and progress reported to the DCMA.  Once the DCMA has accepted all of the responses, the company can expect to receive a formal “System Acceptance Letter,” but it should not heave a sigh of relief – there is still one more step to be accomplished.

The On-Going Process

This last step is Surveillance, the development and execution of a plan that ensures continued system operation in accordance with the EIA-748 Guidelines.  History has proven over the past 46 years that EVM Systems’ operation tends to degrade over time.  This occurs because of taking short cuts, lack of continued management commitment and emphasis, degrading system use, a “we are too big to be failed” attitude, and an occasional laissez-faire attitude.

While all of the steps except this last one can usually be accomplished in nine months to a year, the last one, Surveillance, will need continued operational discipline as long as a validated EVM system is required.

If you have questions on the DFARS clause 252.234-7001 or would like to explore EVM training options, please feel free to contact Humphreys & Associates.

DFARS 252.234-7001 – “Thou Shalt Do Earned Value” Read Post »

Level Of Effort Decision Tree – Clarifying Source Articles

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Level Of Effort Decision Tree – Clarifying Source Articles

Updated January 20, 2021

 

Level of Effort Decision Tree – Introduction

If you have not read the LOE source articles, Level of Effort (LOE) Replanning and How to Avoid Corrective Action Requests Related to Level of Effort, it is necessary to read prior to these articles in order to have the context for the following subject matter.

Humphreys & Associates, Inc. prepared an article a couple of months ago in order to increase the awareness of Earned Value Management Systems (EVMS) reviews related to Level of Effort (LOE) replanning. This resulted in considerable attention because we did not adequately explain our intention.

We had hoped readers would recognize that there are many strong and diametrically opposed opinions on acceptable approaches to LOE replanning. An important point to remember is that the principal purpose of an EVMS is to provide adequate information from which to make logical, well-informed decisions based on the best data available.

Our article resulted in a request for the National Defense Industrial Association (NDIA) Integrated Program Management Division (IPMD) to address this topic in its EVMS Clearinghouse Working Group. The company that submitted the issue used one of the approaches that we listed, which led to a DCMA Discrepancy Report. Consequently, they were clearly concerned. To address that one issue would not have provided an intelligent approach – it would have resulted in even more concerns for other organizations. For that reason, we chose to provide an update to our article in the form of a “white paper.” We do not address the many approaches being employed, as some display thinking that is “way out of the box;” such as earning whatever the actual costs are – as opposed to the budget.

We chose to leave some of those approaches out of the options addressed below. One could almost conclude that we are observing the classic consultant response to some issues – “It depends.”

BACKGROUND

The distinctive feature of the Level of Effort (LOE) earned value technique is that it earns value through the passage of time with no consideration of any work being performed. Therefore, it can earn value with no incurrence of actual costs and incur actual costs without earning value. Both of these conditions are currently considered by some DCMA review teams as noncompliant to the EVMS Guidelines (#16 and/or #22) that could result in a DCMA issued Corrective Action Request (CAR).

This is usually not an issue for the typical LOE that is support to the entire project (e.g., project management, contract management, financial management, systems engineering, security, safety, etc.) because these efforts almost always start on time and only face a problem if the support extends past the contract baseline. However, it is frequently an issue for LOE that provides support to discrete efforts that could slip or be moved up for various reasons (e.g., test site availability, equipment failures, successes that eliminate future planned effort, etc.) if the LOE work is not allowed to be replanned to the time period where the discrete work is actually being performed.

The LOE baseline period of performance should match the discrete effort’s period of performance. While the discrete effort can occur early or late and have earned value and actual costs coincide, that is not necessarily true for the supporting LOE, because it earns its value as planned in the baseline regardless of when the work actually starts or when the actual costs are incurred. The examples below show the possible LOE conditions when discrete effort starts early, finishes early, starts late, and finishes late. Each condition trips a significant item of concern when the DCMA runs its diagnostics of a contractor’s EVMS data:

If the discrete effort starts early, and LOE is not allowed to replan, LOE incurs ACWP with no BCWP.

H&A 1 - LOE Decision Tree

If the discrete effort finishes early, the remaining months of LOE support earn BCWP with zero ACWP.

H&A 2 - LOE Decision Tree

If the discrete effort starts late, LOE earns value (BCWP) with no actual costs (ACWP).

H&A 3 - LOE Decision Tree

If the discrete effort finishes late, LOE incurs ACWP without accompanying BCWP because the BCWP now equals the BAC. However, when the support effort’s manager reports an EAC that includes the to-go LOE to report an accurate EAC, it creates the situation of EAC>ACWP with BCWP=BAC, again tripping a DCMA significant item of concern.

H&A 4 - LOE Decision Tree

These conditions have resulted in Corrective Action Requests (CARs) from some local DCMA representatives because they are identified as significant items of concern by the DCMA diagnostics. Unfortunately, the diagnostics applied to discrete work packages are also applied to LOE tasks. There is no consideration of the special circumstances associated with LOE in the diagnostic software being used by review teams.

It is important to note that LOE is often (erroneously) called a work package just like discrete effort is called a work package and, therefore, work package rules are automatically applied to LOE. But not all work package attributes apply to LOE. For example, LOE does not consist of discrete tasks, is not required to be of short duration, and does not measure performance. The special circumstances of LOE were recognized in 1991 by the Department of Defense issuance of the Performance Measurement Joint Executive Group (PMJEG)’s Supplemental Guidance to the Joint Implementation Guide (JIG) involving the Cost/Schedule Control Systems Criteria (C/SCSC). Section 3-6, Revisions, subsection b (Internal Replanning) specified special handling of LOE for the circumstances cited above. However, the JIG Supplemental Guidance has not been incorporated into current implementation guidance. Please note that some DCMA EVMS Center of Excellence personnel have stated that the 1991 JIG Supplemental Guidance is applicable to current guidance. This is the way it used to be and was understood by all. But that position has not been documented and distributed to DCMA field office personnel, resulting in different determinations as to which actions are allowable and which are not. Many DCMA field office EVMS personnel have never been exposed to the JIG Supplemental Guidance. Those that are aware of the 1991 JIG Supplemental Guidance or who would agree with the JIG Supplemental Guidance approach as being compliant tend not to create CARs for the same conditions, while, unfortunately, those who are not aware of the Guidance write CARs.

INTRODUCTION TO THE DECISION TREE

The following decision tree relies heavily on the JIG Supplemental Guidance for recommending actions to avoid CARs. It is organized in outline format with major sections being the four discrete effort status possibilities that can cause LOE to result in a CAR as shown above. The first sub-topic in each section is the supporting LOE condition that results in tripping a significant item of concern in the diagnostic software DCMA employs from the Data Call before arriving on-site. The second sub-topic provides a quotation from the PMJEG Supplemental Guidance to the C/SCSC JIG, Section 3-6 Revisions, Subsection b. Internal Replanning that applies to the identified condition. The third sub-topic provides suggestions on how to implement the guidance to avoid the condition. The following sub-topics provide the advantages, disadvantages, and reporting requirements for each avoidance action.

In presenting these actions we need to make the point that depending on the interpreter none of these or only some of these would be acceptable to a DCMA reviewer. We are merely attempting to bring forth the options observed so that many can consider which approach is best for them and then use simple examples to present their desires to their customers.

Note that JIG references to “cost account” apply to control accounts.

LEVEL OF EFFORT (LOE) DECISION TREE

OUTLINE

Discrete Effort Starts Early

  1. Condition that may result in a DCMA CAR
    1. The LOE BCWS does not start until a later period (cannot earn value in the current period).
    2. LOE has ACWP without BCWP, a significant item of concern condition.
    3. Applicable JIG Supplemental Guidance, Internal Replanning
      1. Paragraph (3)(c).
      2. “Replan future LOE to correlate to the changes in work. LOE, whether planned in separate cost accounts or as part of predominantly discrete cost accounts, has additional flexibility and may be adjusted within the current accounting period without government approval, provided no actual costs (ACWP) have been charged to the LOE.”
      3. How to implement the Supplemental Guidance
        1. In the current accounting period, replan the LOE to begin in the current period.
        2. Determine whether the discrete effort’s early start will result in an early finish (length of the period of performance remains the same).
          1. If so, no BAC change should occur – only the shift in the BCWS.
          2. If not, either provide additional BAC from MR or re-spread the BAC over the revised future period of performance (often called the “peanut butter” approach).
  2. Advantage
    • Avoids the ACWP without BCWP condition.
  3. Disadvantage
    • Changes the baseline in the current period. If the local DCMA office is not aware of the Supplemental Guidance or knows about its existence but disagrees with it, a CAR may be issued. Also, some DCMA teams consider the stretching out of current budget over a longer period of time as creating “token budgets” – for which they have written CARs.
  4. Reporting requirement
    • Must be reported in Integrated Program Management Data and Analysis Report (IPMDAR) database for Format 5.

Discrete Effort Finishes Early

  1. Condition that may result in a DCMA CAR
    1. The discrete effort has finished early and if the LOE had not previously been replanned in anticipation of the early finish, no LOE support effort would be required for the remaining period(s) of the LOE BCWS that must still earn value.
    2. The LOE has BCWP without ACWP, a significant item of concern condition.
    3. Applicable JIG Supplemental Guidance, Internal Replanning
      1. Paragraph (3)(b).
      2. “Replan incomplete future work and adjust the work package budget at completion (BAC) to reflect the change in accordance with normal replanning guidance…”
      3. How to implement the Supplemental Guidance
        1. Because the “incomplete future work” has been eliminated, close the LOE package. The BCWS will already be equal to the BCWP earned to date.
        2. Subtract the BCWP from the BAC and return the BCWR initially to the UB Log and subsequently to the MR Log.
        3. If this can be achieved in the period in which the discrete effort was completed, this is a change to the next accounting period, thus avoiding a change to the current period baseline.

        NOTE: There is another point to be made here. The LOE task was to support the discrete work scope no matter how long it took. If the discrete task finished early because its work scope was reduced, the LOE task requirement was also reduced and the above action is justified. If the discrete task simply finished early, this would be a cost variance in that it cost less to support the unchanged work scope. The above action would be done solely to avoid the BCWP without ACWP condition.

  2. Advantage
    • Avoids the BCWP without ACWP condition.
  3. Disadvantage
    1. If the change is made in the same period in which the discrete effort was completed (or a prior period), there is no disadvantage although some would argue that this approach would be “changing budgets based on performance” which is akin to using MR to hide true cost variances.
    2. If the change is made in the period subsequent to the completion of the discrete effort, the current period baseline will change. If this is a repetitive occurrence, it probably means that a contractor is constantly changing the baseline to avoid true cost variances; therefore, it may result in a DCMA CAR.
  4. Reporting requirement
    • Must be reported in IPMDAR database for Format 5 (MR was increased).

Discrete Effort Starts Late

  1. Condition that may result in a DCMA CAR
    1. The discrete effort has not started (no ACWP or BCWP), hence no LOE was required. This results in zero ACWP for the LOE, but it does report BCWP because of the passage of time.
    2. The LOE has BCWP without ACWP, a significant item of concern condition.
    3. Applicable JIG Supplemental Guidance, Internal Replanning
      1. Paragraph (3)(c).
      2. “Replan future LOE to correlate to the changes in work. LOE, whether planned in separate cost accounts or as part of predominantly discrete cost accounts, has additional flexibility and may be adjusted within the current accounting period without government approval, provided no actual costs (ACWP) have been charged to the LOE.”
      3. How to implement the Supplemental Guidance
        • In the current month replan the LOE to begin in the month that the discrete effort is currently scheduled to begin.
  2. Advantage
    • Avoids the BCWP without ACWP condition.
  3. Disadvantages
    1. Changes the baseline in the current period. If the local DCMA office is not aware of the Supplemental Guidance or disagrees with the Supplemental Guidance, a CAR may be issued.
    2. If the discrete effort recovers its schedule variance, the LOE will be put in the position of having BCWP yet to be earned with no LOE required (equivalent to the early finish condition presented below).
  4. Reporting requirement
    • Must be reported in IPMDAR database for Format 5.

Discrete Effort Finishes Late

  1. Conditions that may result in a DCMA CAR
    1. The LOE incurs ACWP with no accompanying BCWP.
    2. The LOE incurs ACWP with no accompanying ETC, usually indicated by ACWP>EAC.
    3. Both of these are significant items of concern conditions.
    4. Applicable JIG Supplemental Guidance, Internal Replanning
      1. Paragraph (3)(b).
      2. “Replan incomplete future work and adjust the work package budget at completion (BAC) to reflect the change in accordance with normal replanning guidance…”
      3. How to implement the Supplemental Guidance
        1. In or before the last period of performance of the LOE, replan the LOE to cover the extended discrete effort.
        2. Use one of two methods to provide budget for the additional effort:
          1. If ACWP is less than BCWP, recover budget from the previously earned LOE BCWP by using the single point adjustment technique of setting BCWS and BCWP equal to ACWP and replan the recovered budget (BAC minus BCWP) into the future.
          2. If ACWP is equal to or greater than BCWP, but less than BAC, replan the unearned budget (BAC minus BCWP) into the future.

        NOTE: Alternative to 3) implementing the Supplemental Guidance

        1. Allow the LOE package to complete without replanning, which results in accepting the ACWP without BCWP condition.
        2. To mitigate the severity of this approach, be certain to provide an ETC for the periods beyond the LOE baseline period of performance. This action would avoid an ACWP>EAC condition.
  2. Advantages
    1. Avoids the ACWP without BCWP condition.
    2. Avoids the ACWP>EAC condition.
  3. Disadvantage
    • There will be a baseline change in the current period. Because ACWP has occurred, the LOE exception to be able to make a change in the current period if no ACWP has been recorded does not apply. Therefore, a DCMA CAR may be issued.
  4. Reporting requirement
    • Must be reported in IPMDAR database for Format 5.

Observations/RECOMMENDATIONS based on the foregoing:

  1. First and foremost, because many DCMA personnel are not familiar with the JIG Supplemental Guidance or may not agree with it (remember that the DCMA Center of Excellence has not formally confirmed that the JIG Supplemental Guidance remains in effect), contractors must determine the desired approach of the cognizant DCMA personnel for handling the LOE conditions noted above. Early discussions to determine acceptable approaches to the LOE special conditions will avoid many of the CARs/DRs being issued.
  2. Eternal vigilance is required. If a potential change in the performance period of the discrete effort becomes apparent sufficiently early, the change can be accomplished with little chance of incurring a DCMA CAR. This assumes that people recognize the right to change LOE in an “open LOE task”.
  3. The DCMA Center of Excellence must officially transmit additional guidance to the DCMA field offices to ensure consistent application of EVMS Guideline requirements to LOE.
  4. Some may suggest using the Apportioned Effort technique in lieu of LOE, but that would require that the supporting budget be estimated as a percentage of the discrete effort and its time-phasing be established at the same percentage as the time-phasing of the base. Usually, LOE budget is based on an average level of support that is inconsistent with or has a “loose” relation to the discrete package’s time-phasing.
  5. One alternative approach is to consider short duration (3-4 months) LOE for supporting discrete effort. An advantage to this approach is that while the first LOE in the series might incur a significant item of concern condition, the following efforts could be adjusted without penalty.
  6. Another alternative approach is to make the entire support effort a percent complete EVT work package with the Quantifiable Backup Data (QBD) being the milestones in the supported discrete effort.
  7. If the LOE has been reported as complete in the prior month, it has been suggested by some in the DCMA EVMS Center of Excellence that the LOE BCWP that has already been earned can be “harvested” to budget a continuation of the LOE past its original period of performance. This was not a consideration of the JIG Supplemental Guidance and most would argue that this approach is in direct conflict with Guideline 30. Contractors should not use this method unless it is formally approved by the DCMA EVMS Center of Excellence.

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