NDIA and Earned Value Management – Humphreys & Associates Marks 35+ Years of Participation

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NDIA and Earned Value ManagementThe National Defense Industrial Association (NDIA), Integrated Program Management Division (IPMD) plays a central role in defining earned value management within the defense contracting community. Earned value management, or EVM, is a project management methodology that measures the technical, cost and scheduling performance of projects and/or programs. EVM systems (EVMS) are widely used and in some cases required by federal government agencies on large and complex contracts. The NDIA IPMD is industry’s opportunity to work closely with the federal government to set policy and provide guidance to its members.

NDIA and Eared Value Management Standards – Their Leadership Role

The NDIA has long taken the lead in setting EVM standards. In the 1990s, it recommended modifications to the 35 Department of Defense Cost Schedule Control Systems Criteria (C/SCSC) and proposed 32 guidelines that included the needs of industry as well as meeting the government requirements. The Defense Contracting Management Agency (DCMA) concurred with the use of the 32 guidelines which became the 748A standard. The NDIA IPMD has since maintained the role of managing the standard.

The NDIA Integrated Program Management Division (IPMD) also provides guidance in the implementation and use of EVM systems (EVMS) to achieve integrated program management. While IPMD membership is limited to industry representatives, government personnel from the various agencies implementing EVMS are regular participants in the IPMD’s quarterly working group meetings. The various IPMD working groups focus on strengthening the understanding and implementation of compliant EVM systems.

NDIA EVM System Guides

The IPMD has published a series of widely used EVMS guides. The Earned Value Management Systems Intent Guide provides an interpretation of the EIA 32 guidelines for  companies seeking to implement a compliant EVM system. The committee revised the Earned Value Management System Intent Guide in 2014 and continues working on further improvements. The Planning and Scheduling Excellence Guide (PASEG) Version 3 was released in 2016 and is used in the development of Integrated Master Plans (IMP) and Integrated Master Schedules (IMS) EVMS compliant processes and artifacts.    Other IPMD documents address specific aspects of the EVM process, such as the Earned Value Management System Acceptance Guide, the Integrated Baseline Review (IBR) Guide and the Surveillance Guide. Other recent additions include a Guide to Managing Programs Using Predictive Measures and an Industry Practice Guide for Agile on EVM Programs.

At set contract value thresholds, the Office of Management and Budget (OMB), Federal Acquisition Regulations (FAR), and Defense Acquisition Regulations (DFAR) requires the government program offices to ensure their supplier’s program management system meets the intent of the Earned Value Management Systems (EVMS) of the EIA 748 standard. In some cases these systems must be validated by the Defense Contract Management Agency (DCMA) as being compliant with the EIA standard.  The NDIA continues to work with government and industry to drive the evolution of standards for Earned Value Management Systems implementation and acceptance in the United States and internationally.

Humphreys & Associates has been an active participant in the NDIA IPMD for more than 35 years. Three of our consultants, including the founder of the company, were part of the eight person committee that developed the EIA 748 Standard for EVMS. We also have three past chairs of the National Defense Industrial Association (NDIA) Integrated Program Management Systems Committee (IPMD) on our staff. Our consultants continue to be active participates in the working groups responsible for the system guides and the continuing improvement of the EVMS guidelines.

Humphreys & Associates is the industry leader in Earned Value Management Systems design, implementation and EVMS training.  You can learn more on the Humphreys & Associates website.

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EVM Lite – Part 2: Tailoring approaches to EV Lite

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So, what if there is no EVMS contract requirement, but a company wants to use the EVM principles to measure performance on important work?

Approaches for tailoring EVM Lite (also called EV Lite):

  • First, the levels of the Work Breakdown Structure (WBS) could be limited to minimal extension.  With fewer lowest level WBS elements, fewer control accounts are created which results in a reduction in the overall administrative costs of the system.
  • Similarly, responsibility can be assigned to managers higher in the Organization Breakdown Structure (OBS), or Integrated Product Teams can be used to combine functions.  By having fewer lowest level OBS elements, fewer control accounts will be created.  Most contractors are well aware of these implementation tactics and actively engage in them.
  • Other approaches include the Project Schedule – more distance between the milestones and use of the Percent Complete Technique, providing the validity of the Earned Value (EV) data is unaffected.  Also, the Variance Analysis Report Thresholds could be tailored to specific risk areas and made less stringent.  The Change Control Process could be tailored to a more streamlined transfer of work and budget involving Stop Work Orders.
  • With respect to reporting, The Integrated Program Management Report (IPMR) or Contract Performance Report (CPR), Format 2, Organizational Categories, and Format 4, Staffing, could be eliminated.
  • In some cases, Format 3, Baseline is eliminated.  Note: The new IPMR Guidance does not allow tailoring of the Contract Data Requirements Item List (CDRL) to removed reports on contracts that exceed $50 million.  None of the bulleted “EVM Lite” items above are even in the realm of the acceptable items for EVMS tailoring.  If a company has an EVMS contract requirement, EVM Lite will not receive a favorable reaction from the DCMA.

Some companies use EVM for critical internal Research and Development projects or fixed priced work.  Companies need to ask the question “Where do we want to fit in the EVMS Continuum?”  Consider the graphic below:

EVM Lite: Part 2 -EVMS Continuum by Humphreys & Associates

The right hand side of the continuum represents implementation of EVMS to the maximum, and represents the highest cost to operate and maintain an EVMS.  The left hand side represents something that looks like EVMS because it contains Earned Value, but none of the discipline necessary to ensure the integrity and traceability of the EVMS data.  Most people that talk about EVM Lite want to be closer to the left hand side of the continuum.

Any alternative approaches must consider the trade-off between the steps necessary to maintain good baseline control and system discipline versus implementation/ maintenance costs.  If the performance measurement baseline is not adequately controlled, a good basis for measurement does not exist.  If the earned value is not reliable and other data integrity issues exist, status reporting is suspect and the data cannot be used with confidence to forecast expected outcomes.

Humphreys & Associates can help a company’s team sort out which methods would work best for its project.  H&A EVM experts can help determine which requirements can be relaxed, which ones need to be implemented and still maintain the fundamental EVM principles within each subsystem.

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What Does it Mean When Somebody Says “We use EVM Lite” – Part 1

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Here is why Humphreys & Associates takes an interest in this approach to Earned Value Management.

Earned Value Management (EVM) “lite” or EV Lite is a hot topic because people recognize that budgets versus actual costs are not meaningful enough for assessing true project technical/schedule/cost status. An awareness exists that there is a significant advantage to using Earned Value (EV) measurement to manage projects.

The EVM Lite approach is common for Independent Research and Development and Firm Fixed Price (FFP) projects. Therefore, it is important to understand what this term means.

EVM Lite is a title that could mean a combination of any of the following:

  • Relaxation of the level of detail (fewer control accounts of larger size, fewer work packages of larger size with less milestones/technical achievement points and  more dependence on subjective earned value techniques )
  • Less rigor in approvals for Work Authorization Documents (WAD) and Budget Change Requests (BCR)
  • Less rigor in Rolling Wave Planning and enforcement of the freeze period
  • Less rigor in the variance analysis process, including looser variance thresholds
  • Compliance with only the 16 “critical” American National Standards Institute, EIA-748 Guidelines
  • Earned Value Management System (EVMS) not subject to third party verification
  • Less detail in the EVM System Description (fewer examples, no “live” data examples)
  • EVMS Cross Reference Checklist only at the Guideline level

EVM Lite implies an EVMS with relaxed requirements or a less rigorous approach that still meets the spirit and intent of the EIA-748 Guidelines. But it is important to note that none of the descriptions of EVM Lite above would pass muster in a DCMA review to determine whether a contractor’s EVMS complies with the EIA-748 Guidelines and cannot be used in that event.

If a contract mandates the use of an EVMS then EVM Lite is not an option. It is important to us our customers know this. However, if your contract does not mandate the use of EVM, then EVM Lite might be a viable option to pursue if management desires insight into their programs.

Part 2 to follow – Tailoring Approaches to EVM Lite 

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Aligning ACWP with BCWP for Proper EVM | Earned Value Management

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ACWP and BCWP by DAU

What is estimated Actual Cost of Work Performed (ACWP)?

Estimated ACWP is an adjustment to the Actual Cost of Work Performed (ACWP) in the earned value “engine” to align ACWP with Budgeted Cost for Work Performed (BCWP).  Estimated ACWP is synonymous with “estimated actuals.”

Why is Estimated ACWP necessary?

Without Estimated ACWP, timing mismatches between ACWP and Budgeted Cost for Work Performed (BCWP) cause false cost variances to appear in the Integrated Program Management Data Analysis Report (IPMDAR) information reported to the customer.  Typically these variances are favorable and can mask other unfavorable variances.  Additionally, if these variances exceed reporting thresholds, the explanations clutter Format 5 of the IPMDAR with variance explanations that discuss timing problems of the accounting system rather than actual performance issues.

To what types of cost does Estimated ACWP apply?

Estimated ACWP is most typically required for material costs.  When BCWP is claimed upon receipt of the material, the actual cost accrual typically occurs one or more months following material receipt, which creates the timing mismatch between BCWP and ACWP.  Other cost element types that may require Estimated ACWP include subcontracts and Other Direct Costs (ODC).  Examples of ODCs that may require Estimated ACWP include consultants, purchased labor, and travel.

How does Estimated ACWP function?

Receipt-type material:

  1. First, a determination must be made whether Estimated ACWP is necessary.  For some categories of material, when a material item is received, the BCWP is claimed.  If actual costs for the materials do not enter the accounting system in the same period that the BCWP was claimed, Estimated ACWP is necessary to ensure ACWP occurs when BCWP occurs.
  2. Second, the Estimated ACWP adjustment is entered into the Earned Value engine as a current period transaction.  The amount of the Estimated ACWP is based on the best information available for the material item using the invoice, purchase order, or receiving report.
  3. Third, the Estimated ACWP adjustment transaction is reversed in the EV engine prior to the next month’s update.  If actual costs were to come in that month and the transactions were not reversed, the ACWP would be double-counted when the actual cost data from the accounting system gets transferred to the EV engine.
  4. Finally, remember that if the actual data does not occur as expected in the month following material receipt, the Estimated ACWP is re-entered and the reversal process must continue every month until the accounting system receives the cost of the material item.  Also, Estimated ACWP transactions should be recorded in a log to maintain traceability.

Production-type (inventory) material:

The transactions described above were for material categories for which Earned Value is claimed at receipt of the material item.  For production type materials, or materials that are common to many control accounts or even contracts, that go into inventory, Earned Value is claimed upon issuance from inventory, sometimes several months after receipt of the material and after the incurrence of actual costs in the accounting system.  In this case, the opposite condition would exist.  The accounting actuals occur before earned value is claimed for material, but EVM rules in Guideline 21 (and common sense) state that ACWP is not to occur until BCWP takes place.  Therefore, the accounting actual costs have to be “suppressed” from entering the EVM engine until material Earned Value occurs. Since some companies say they cannot suppress actual costs, they let the actual costs enter the system, but make an off-setting “Negative Estimated ACWP” entry in the EVM system until the material is issued and BCWP can be claimed for the material.

Do you need to implement an Estimated ACWP process in your Earned Value Management System?  Humphreys & Associates has the earned value training experts to assess your material management processes and implement the appropriate procedures. Contact us today.

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Part 2 – Weekly Earned Value: More trouble than it’s worth?

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Part 2 – Continues with the benefits and implementation of weekly Earned Value Management. Here is the link to Part 1

Part 2 - Weekly Earned ValueIn the past, accounting systems were not able to update actual on a weekly basis. The legacy systems could accrue actual every two weeks or at month end. Now, most labor timekeeping systems are linked to a cost system that updates daily. With this daily labor cost input capability in place, weekly Earned Value (EV) provides real time information on what has been spent for the work accomplished.  Newer software tools are more accommodating with regards to material and subcontractor cost accruals.

It is now easier to input estimated actual for invoices to accommodate the lag between an acquisition commitment and the actual billing for services or material.   On a single project with multiple subcontractors using different software, the weekly accounting of data can become complicated.  The prime contractor may end up manually inputting data from the subcontractors each week. The ideal situation is for all subcontractors to use the same software or data exchange format in order to have a seamless transition of data to the prime contractor. This ensures accurate and timely submittal of data on a weekly basis.

Weekly earned value takes some initial effort to establish. Management must be committed to a proactive stance. The biggest challenge is changing the culture of the program team. This requires a new paradigm of effective weekly management of the program and proper use of the available software tools. Earned Value Management (EVM) is an effective way of managing work whether done weekly or monthly and can be more efficient than month-end reporting.

The major hurdles in implementing weekly EV include:

  • Gaining user and management acceptance
  • Getting everyone, including subcontractors, integrated with compatible schedule, cost, contract and internal change tracking software
  • Processing schedule changes in a timely manner

Many companies already have many of the software tools to make the transition from a monthly basis to a weekly basis. Weekly earned value drives more effective automation which can potentially decrease overhead, a important factor over large or multiple projects. It provides quality, real time performance data for decision analysis and corrective actions.  Weekly EV also reduces the chances of being surprised with major cost or schedule variances by improving the overall early warning features of the system.   More time is available for management to respond to variances and develop corrective action plans. For many companies this is a business best practice and their customers are taking note.

Good business practices dictate that programs have schedule, cost, and change information available on an ongoing basis. Weekly EV insures this process. Implementing a weekly Earned Value Management System is proving to be well worth the time and effort.

For more information about implementing weekly earned value, contact Humphreys & Associates. We have many years of experience in efficient Earned Value Management processes

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Part 1 – Weekly Earned Value: Is It More Trouble Than it’s Worth?

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Part 1 - Weekly Earned ValueThe notion of implementing weekly Earned Value (EV) causes most Program Managers to cringe. Many companies, however, are now using weekly EV as an internal management process. The business driver for this decision is the benefits that contribute to the overall success of the program.

The discipline of performing weekly EV ensures a more thorough report to the customer at month-end.  Many areas of the Joint Strike Fighter (JSF) program are successfully using weekly Earned Value. The V-22, the F/A-18E/F, and the IRS PRIME programs have used weekly EV as a standard business practice.

 Why does weekly EV have an appeal? Is weekly just as good as monthly? Do the benefits outweigh the initial costs of implementation?  Analyzing weekly EV data is far superior to looking at a performance report on a monthly basis.  This can best be described as a “proactive” approach to program management rather than a “reactive” mode.  There are new processes and cultural impediments involved when implementing weekly EV, but the benefits outweigh the costs.

 In order for weekly EV to be successful: 

  • Planning must be sufficiently detailed to objectively provide status on a weekly basis;
  • The budget must be time phased on a weekly basis
  • Accruals of labor and material costs must be done every week.

These three processes, combined with trained and proactive personnel, form the ground work for successful weekly Earned Value Management (EVM).  Weekly EV will provide continuous visibility of program performance with real time status.

A successful Earned Value Management System (EVMS) begins with a well-designed schedule.  Without an accurate and valid schedule in place, the EVMS is virtually useless. The schedule must be time phased and resource loaded consistent with the work to be accomplished.  A proper scheduling tool that can be integrated with the appropriate cost software is essential.

The EVMS scheduling tool must have:

  • The ability to record and display status
  • Convert the status to a percent complete
  • Show milestone completions
  • Accurately compare that status to costs on a weekly basis

 The program’s organizations must be trained in providing schedule status on a weekly basis.

For companies without this existing infrastructure, acquiring a new scheduling will incur some initial costs.  Many companies have an adequate scheduling tool deployed, have the schedule status updated weekly and weekly performance assessments.   High-risk programs, such as R&D efforts, have work scheduled weekly to maintain tight control over schedule and cost. This makes integration of the schedule into a weekly EVMS nearly painless.

This is the first of a two parts on “Earned Value – Is it Worth It? presented by Humphreys & Associates, Inc. 

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