EVMS – Using Estimated Actual Cost of Work Performed (ACWP)

Using Estimated Actual Cost of Work Performed (ACWP)

Estimated Actual Cost of Work Performed

The use of estimated actual cost of work performed (ACWP) for material and subcontractors is something the Defense Contract Management Agency (DCMA) review teams expect to see in Earned Value Management Systems (EVMS).

The review teams know:

  • Many contractors earn value for a large amount of material at receipt
  • Suppliers or subcontractors do not always invoice at the same time
  • Contractors do not pay at the same time

VAR Narratives

DCMA increasingly sees variance analysis report (VAR) narratives for material with such statements as “My $1 million cost variance is caused by late receipt of the invoice from the vendor” or “is caused by the company not paying their invoice this month.”

These are misleading and needless variances because these drastic, temporary variances go away, or are minimized, once the invoice is paid and the actual costs in the accounting system catch up with the budgeted cost for work performed (BCWP) claimed. The intent for using estimated ACWP is to ensure that the ACWP recorded closely follows when the BCWP is claimed in the EVMS.

Real Cost Problem

When the estimated ACWP is “reversed” at the end of a month and replaced with the true actual costs, there should not be a significant cost variance, unless there is a real cost problem in which case more information is required to describe the situation. Replacing the estimated ACWP with the true actual costs is considered a routine accounting adjustment.

Note that the term “estimated ACWP” and not “estimated actual costs” is being used. The intent is to align when ACWP and BCWP are claimed in the EVMS to prevent unnecessary variances. The estimated ACWP is not the actual cost recorded in the accounting system.

Examples

That said the estimated ACWP must be based on documented, verifiable information. What are some examples of sources for the estimated ACWP?

Materials

  • For large, discretely tracked items, use the purchase order (PO) value for the parts earned
  • For small value items that may not be discretely tracked, one could use:
    1. PO value (may be cumbersome)
    2. Priced bill of material (BOM) for items received in the month (sorted by receipt dates). This can be actual prices or average prices for similar parts groupings (best estimate, without going to an excruciatingly painful amount of work to get it)
    3. Homogeneous groupings of material based on units of measure (pounds, reels, feet, tons, gallons, etc.) times the average price for that grouping (e.g., various sized washers: “received 3,000 pounds of various washers at approximately $4.00 per pound” instead of trying to track each washer at $0.000023 per washer)

Subcontractors

The estimated ACWP can vary depending on type of subcontracts involved. It could reflect:

  • The CPR/IPMR/IMPDAR value for ACWP (yes, this is an estimated ACWP until the invoice is paid)
  • Other cost report values for ACWP or subcontractor actual costs
  • Earned value claimed by the subcontractor (what it was supposed to cost). If history shows poor or good performance, the control account manager (CAM) can modify the estimate for ACWP accordingly
  • Work performed reported by the subcontractor. The CAM should have a “valuation” of all the deliverables or anticipated receipts based on the subcontractor’s billing plan or delivery schedule

Labor Subcontractors

Usually, these staff augmentation subcontractors are working with the contractor’s employees. The estimated ACWP could reflect:

  • Hours performed, priced out at the contract rate (this does not account for overtime, premiums, etc.)
  • Months or weeks of support priced out labor at the planned rate, contract rate, or known actual rates

Clearly Identified Invoices

For all of the above cases, the supplier or subcontractor invoice should clearly identify:

  • What was sent or what services were provided
  • The actual costs for each of those items (subject to contract terms)

Disciplined Direction

Using estimated ACWP does require direction on how to implement it in a disciplined manner. It is important to identify who is responsible for entering the estimated ACWP in the EVMS and the process used to replace the estimated ACWP with the recorded actual costs from the accounting system.

The CAMs may need assistance from their financial/materials/accounting departments to ensure they have the right information needed for the estimated ACWP and that the true actual costs are captured in the EVMS as soon as the data are available.

Have questions about using estimated ACWP in your EVMS? Humphreys & Associates is available for consulting on this topic and all stages of your EVMS implementation or ongoing projects. Feel free to contact H&A.

EVMS – Using Estimated Actual Cost of Work Performed (ACWP) Read Post »

Authorized Unpriced Work (AUW) and Earned Value Management Systems

, ,

Authorized Unpriced Work (AUW)

Authorized unpriced work (AUW) is an area that can cause contractors difficulties and when not handled properly, can result in a DCMA EVMS review team writing up a Corrective Action Request (CAR) as we have discussed in previous blogs.

At times, contractors can find themselves in a position where projects are not following commonly used and recommended practices that are described in the EIA-748 Standard for EVMS guidelines as well other guidance such as the NDIA Integrated Program Management Division (IPMD) EIA-748 Intent Guide and the DoD Earned Value Management System Interpretation Guide (EVMSIG).

It is always better to be proactive to ensure project personnel have the proper direction they need. H&A suggests that you review your EVM System Description as well as any related procedures to ensure that they:

  1. Reflect the EIA-748 guidelines (for AUW in particular, see Guidelines 8 and 28) as well as related industry and government implementation guidance.
  2. Are clear and specific on how project personnel are to handle authorized unpriced work.

Humphreys & Associates suggest verifying the following items are discussed in your EVM System Description.

  1. How and when work scope and budget are distributed from undistributed budget (UB) to control accounts and subordinate work packages or planning packages. This includes:
    • Describing what controls are placed on the use of UB.
    • Stipulating a specific period of time that work scope and budget can be held in UB for fully negotiated work.
    • Describing how and when UB is distributed to control accounts when the work scope has not been defined (i.e., the work scope represents AUW).
    • The interim budgeting procedure used during the definitization process to distribute the work scope and budget from UB to the work package level for the near term effort (such as three to six months). This interim budgeting procedure should be followed until the AUW scope of work held in UB is definitized and distributed to control account work packages or planning packages.
  2. Incorporating authorized changes in a timely manner. The EVM System Description will need to describe what:
    • Constitutes an authorized change.
    • Indicates authorized changes have been incorporated.
    • Constitutes “timely” incorporation.
  3. The process for establishing internal budgets for authorized but unpriced changes should be based on a resource plan for accomplishing the work. Project managers should have a detailed plan in place for the near term work using cost estimates and resource plans with appropriate direction to notify the customer when spending approaches any not to exceed (NTE) spending limits. It is critical that traceability through all steps of the process can be demonstrated.

For a more in-depth discussion on how to handle authorized unpriced work (AUW), see the article posted on the Humphreys & Associates EVMS Education Center, EVMS Practitioner section.

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

Authorized Unpriced Work (AUW) and Earned Value Management Systems Read Post »

IPMR DID Change – Office of Secretary of Defense Publishes New Procedure

Office of Secretary of Defense (OSD) Publishes the Integrated Program Management Report (IPMR) Data Item Description (DID)

This is important, new information for companies with U.S. Department of Defense EVMS contractual requirements.

The Department of Defense Integrated Program Management Report (IPMR), Data Item Description (DID), DI-MGMT-81861, replaces the Contract Performance Report (CPR) DID, DI-MGMT-81466A, and the Integrated Master Schedule (IMS) DID, DI-MGMT-81650.

The IPMR DID can be downloaded from the ASSIST database:  IPMR ASSIST document

The IPMR DID will apply to new contracts and may be applied to follow on contracts, subject to negotiation with the government customer.

In summary:

  • The IPMR DID combines the CPR and IMS DIDs into one.  The intent is to emphasize the integration of the schedule and cost data for performance reporting.
  • CPR Formats 1 to 5 are now the IPMR Formats 1 to 5.  There are a few content changes for Formats 1 to 5 which are mostly confined to Format 3.  The Baseline Changes (Block 6.b.) row columns have been opened up for change detail content.
  • The Integrated Master Schedule (IMS) becomes IPMR Format 6.  There are additional schedule data elements that are required including specific data coding details.
  • A new Format 7 has been added for time phased cost data (historical and future time periods).  Format 7 is an annual submission.
  • The electronic data delivery format for the OSD EVM Central Repository is changing from the ANSI X12 standard to the UN/CEFACT XML standard.  Additional information about the XML data submittal instructions is available on the OSD EVM Central Repository website.

We highly recommend being prepared to support the new IPMR DID as it will impact existing EVM Systems.  It will be necessary to reference the old and new terms and forms.  Existing contracts will be against older DID requirements (unless otherwise negotiated with the client) and new contracts will be against the IPMR DID.

Be prepared to update:

  • Training materials to reflect the updated cost Formats 1 to 5 as well as discuss the new Format 6 and 7.
  • System Description and Storyboard text as well as example formats and/or artifacts.
  • Procedures or project directives that specify schedule data coding requirements and related details necessary to produce the required IMS data for submission to the OSD EVM Central Repository.
  • Desktop instructions for producing the cost IPMR Formats 1 to 5 as well as the new Format 7.
  • Software toolset outputs and electronic deliverables.
  • Contractor self-surveillance and subcontractor surveillance materials.

Most cost and schedule software vendors are aware of the IPMR data requirements.  You may want to check with your toolset vendor of choice to see when they plan to have software updates available to support the IPMR DID and the UN/CEFACT XML data submissions to the OSD EVM Central Repository.

Humphreys & Associates is available for consulting on this topic.  Contact us for more information.

IPMR DID Change – Office of Secretary of Defense Publishes New Procedure Read Post »

EVMS Compliance Review Series #4 – Training to Prepare for Interviews

, ,

Updated November 10, 2017
Updated December 15, 2020

DCMA Compliance Review Series

This is the fourth topic in a series discussing the DCMA Compliance Review (CR) process. It is the second update to the original series #4 Blog that was based on the instruction book from the DCMA Website that identified the “DCMA 16 Step (and then their 8-Step [UPDATE #2]) EVMS Compliance Review Process.” This change was documented in the DCMA “Earned Value Management System Compliance Reviews Instruction (DCMA-INST 208).” This Instruction has been rescinded and replaced with a set of DCMA Business Practices (BP). These Business Practices split out topics the old DCMA Instruction 208 covered in one document. Whether you are a contractor new to the EVM contracting environment or a seasoned veteran, if the Earned Value Management System (EVMS) compliance and acceptance authority is the Defense Contract Management Agency (DCMA), these new Business Practices apply to you.

This is a continuing discussion about the interviews that are part of the optional contractor self-assessments and as part of conducting any Compliance Review, Surveillance Review, or Review for Cause (RFC). The DCMA uses a standard set of interview forms for the control account managers (CAMs), project managers, integrated product team (IPT) leads, risk managers, business managers, and accounting. Contractors should use similar interview questionnaires to simulate the DCMA interview process as closely as possible to prepare the CAMs and others for the DCMA interviews.

CAM Interviews are Critical

While it is important to have successful interviews with everyone, the CAM interviews are critical. The CAMs are the primary interview subjects during a compliance review. The CAMs must be able to demonstrate they have a full understanding of their scope of work and show how they use the company’s EVMS artifacts to manage their work on a day-to-day basis, in addition to the normal weekly or monthly business rhythm. The CAMs need to have a good understanding of their role to provide acceptable responses to interview questions and to be comfortable with the interview process.

CAMs must be able to demonstrate a working knowledge of:

  • EVM,
  • The 32 guidelines in the EIA-748 Standard for Earned Value Management Systems,
  • The company’s EVMS,
  • How to perform the applicable data traces for their scope of work, and
  • How they fit into the grand scheme of the project.

The CAMs must also have a level of proficiency with the project control toolsets. Many companies use electronic CAM notebooks integrated into the EVMS Storyboard to assist the CAMs.

Three-Step Training for CAMs

Conducting training for the CAMs is an important preparation step. Based on our long history of successfully preparing CAMs, project managers, and others for compliance reviews, Integrated Baseline Reviews (IBRs), or surveillance reviews, we suggest a three-step training process for the CAMs.

Set Expectaions

Step 1. Conduct training sessions for the CAMs on what is expected during a DCMA interview. This training can include conducting an example group interview the CAMs and others can observe. The group interview session typically includes an open discussion at the end to critique the interview process.

  • What were the good techniques?
  • What could be improved?
  • What are some things to avoid?

This helps to set expectations and provides a preparation guide for the people to be interviewed.

White Hat Interview

Step 2. Conduct “white hat” interview sessions with the CAMs. These are more one-on-one mentoring sessions to help the CAMs through the interview process. Providing feedback at the end of each session reinforces the learning process and increases their level of proficiency. This dry run helps the CAMs to feel more comfortable with the interview process. It also helps to increase their confidence level and ability to think on their feet.

Black Hat Interview

Step 3. Conduct “black hat” interview sessions with the CAMs. For these sessions, the interviewers conduct the interview as if they were members of the DCMA review team. If the CAM is unable to undergo a thorough interview, the session evolves into a mentoring session to help them through the process. The “black hat” interview sessions should continue until each CAM is comfortable with the interview process.

Identify Deficiencies

A summary of the findings from the interviews can help a company to be proactive in addressing known issues. The goal is to identify any deficiencies whether in the EVMS design, implementation, end-user knowledge, or data quality. Deficiencies can be reported in self-assessment Discrepancy Report (DR) forms along with the corrective action plans that will be implemented to resolve the issue.

It is far better for the company to find and address any issues as part of the internal self-assessment process than to have DCMA find them during the formal Compliance Review. This can make a difference in whether or not DCMA issues Corrective Action Requests (CARs) or recommends moving to the next step in the compliance review process.

Contact H&A to help train your Control Account Manager (CAM) with one-on-one mentoring, conducting mock review interviews, or as part of preparing for an Integrated Baseline Review (IBR). We can be reached at (714) 685-1730 or email us.


EVMS Compliance Review Series


EVMS Compliance Review Series #4 – Training to Prepare for Interviews Read Post »

EVMS Compliance Review Series #3 – Using Storyboards to Depict the Entire EVMS

, , ,

UPDATE#1 NOVEMBER 10, 2017
UPDATE#2 DECEMBER 15, 2020

DCMA Compliance Review

This is the third topic in a series discussing the DCMA Compliance Review (CR) process. It is the second update to the original series #3 Blog that was based on the instruction book from the DCMA Website that identified the “DCMA 16 Step (and then their 8-Step) EVMS Compliance Review Process.” This change was documented in the DCMA “Earned Value Management System Compliance Reviews Instruction (DCMA-INST 208).” This Instruction has been rescinded and replaced with a set of DCMA Business Practices (BP). These Business Practices split out topics the old DCMA Instruction 208 covered in one document. Whether you are a contractor new to the EVM contracting environment or a seasoned veteran, if the Earned Value Management System (EVMS) compliance and acceptance authority is the Defense Contract Management Agency (DCMA), these new Business Practices apply to you.

EVMS Storyboards

The focus of this discussion is on using EVMS Storyboards to assist with the interviews and data traces that are part of any internal EVMS review, as well as during the conduct of any of Compliance Review, Surveillance Review, or Review for Cause (RFC). Storyboards can also be useful in supporting on-going surveillance activities. Even more important is their usefulness for training contractor and government personnel in how the EVM System operates.

Depict the Management System

An EVMS Storyboard depicts the entire management system as stratified flow diagrams with artifacts illustrating the inputs and outputs that demonstrate the system in operation. It is meant to clearly illustrate:

  • How the entire system functions (the flow),
  • Who is responsible for doing what (decision points and actions),
  • Products (forms, reports, outputs, and other artifacts), and
  • How all the process groups are interrelated to create a fully integrated EVMS.

Single Thread

The storyboard should also illustrate a single thread trace to demonstrate data integrity from beginning to end using actual project artifacts. Storyboards are an essential tool for training all levels of users and is invaluable for demonstrating to a customer or a review team how a contractor’s EVM System functions.

Formats

Storyboards can take many forms. The entire process can be displayed on panels or poster boards on a conference room wall. It can be contained in the EVM System Description document as an overall flow, or as segmented flows in the system description sections corresponding to the process flow. It can also be electronic or online flow diagrams with links to live artifacts.

The DCMA EVMS Center has made it clear that EVMS Storyboards are an important part of the compliance review process. During a compliance review, the contractor would be expected to use these stratified flow documents to walk through the various system processes. This includes the project manager, integrated product team (IPT) leads, control account managers (CAMs), and other functional leads. The various users of the EVMS should be able to use the storyboard flow documents to help tell their “story” and demonstrate data traceability using live project artifacts.

Compliance Review

When preparing for any compliance review, be sure to step through your EVMS Storyboard to verify:

  • It is complete and clearly illustrates how all the process groups are interrelated,
  • Roles and responsibilities are unambiguous,
  • Entrance and exit points are clearly marked,
  • Artifacts are up to date,
  • It accurately reflects how project personnel are using the EVMS to manage their work, and
  • All the data represented on the storyboard traces properly.

What if I don’t have an EVMS Storyboard?

If you don’t have an EVMS Storyboard in place, consider starting with the flow diagrams in your EVM System Description and building them out into a storyboard. An EVMS Storyboard is an essential tool to successfully navigate the compliance review process. It can help to prevent DCMA Discrepancy Reports (DRs) or Corrective Action Requests (CARs) being written because the DCMA review team didn’t know how to locate certain documents, or they didn’t understand how a process worked.

Humphreys & Associates can help you develop a new EVMS Storyboard or enhance your existing EVMS Storyboard, an important and cost saving tool. To contact us, (click here) or call (714) 685-1730.

 


EVMS Compliance Review Series

 


EVMS Compliance Review Series #3 – Using Storyboards to Depict the Entire EVMS Read Post »

Scroll to Top