Management Reserve Best Practice Tips

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A recurring theme H&A earned value consultants find themselves discussing with clients is emphasizing that management reserve (MR) is a very precious budget set aside that must be protected and used appropriately. Unfortunately, MR is often used inappropriately, and quickly depleted in the early stages of a project.

What happens when MR is consumed for other uses than what it was intended? There is no budget available for appropriate uses of MR such as for emerging work, rework, redesign, or make/buy adjustments within the scope of the contract when it is needed in the latter stages of a project. When that happens, a project manager is forced to create a “home” for actual costs for these activities. This results in other inadvisable actions such as:

  • Zero budget work packages which are also known as estimate to complete (ETC) only work packages.
  • De earning the budgeted cost for work performed (BCWP) and opening completed work packages to accept charges.
  • Culling budgets from future unopened work packages, and if they exist, planning packages, summary level planning packages (SLPP), and undistributed budget (UB).

These actions will call into question the integrity of the EVMS and EVM data. The customer conducting EVMS surveillance will also be quick to point out this deficiency in the EVMS implementation and raise the issue to ensure it has management’s attention to correct. The inappropriate use of MR has created a cascade of problems that could have been avoided. In some instances, project personnel were simply not following the rules for the use of MR found in the contractor’s EVM System Description. That’s an easier problem to resolve than other root causes.

The Role of Risk and Opportunity Management in Establishing MR

What H&A earned value consultants often uncover as the root cause of inappropriate uses of MR was that a robust risk and opportunity (R&O) management process would have made a difference in establishing a quantified set aside for MR to handle realized risks. Proactively identifying and managing risks improves project performance. The expectation of specific risks occurring leads to risk handling plans that lower the likelihood and impact of risks. It also provides an informed basis to establish an adequate amount of MR that reflects identified and assessed risks.

The risk assessment provides additional information that assists a project manager’s decision making process to validate a request to use MR is appropriate and has the backup data needed to justify the use of MR and the amount of MR allocated. This detail is necessary for the baseline change request (BCR) approval process as well as the Integrated Program Management Report (IPMR) Format 5 or Integrated Program Management Data and Analysis Report (IPMDAR) Performance Narrative Report (PNR). A project manager is required to identify the changes to MR during the reporting period and provide a brief explanation of the change. This explanation has the potential to pique the interest of the customer to gain a better understanding of why MR was used and the potential impact to the integrity of the EVM data.

Note: MR may increase or decrease for a variety of reasons. The primary use of MR is to handle realized risks within a control account that is within the statement of work (SOW) for the contract. All MR debits or credits should be tracked in a log for full traceability for the entire life of the project. Remember that MR can never be a negative value.

Acceptable Uses of MR

As highlighted in an H&A article titled “The Effective Use of Management Reserve,” examples of the appropriate uses of MR include:

  • Newly identified work is authorized and assigned to a control account manager (CAM). It may be that once the work begins, one or more tasks that were missed in the original planning process now need to be scheduled and resource loaded. Newly identified work could also be the result of internal replanning that required a change in approach or resource requirements.

    An example of this could be a project manager issued a work authorization to a CAM to conduct three tests to meet the requirements in the contract SOW. In the middle of the first test, it becomes clear to the CAM and project manager that a fourth test will be necessary. The project manager and CAM should be aware of this potential risk and be prepared to implement their risk handling strategy as a result of the R&O management process. The CAM can quickly prepare a BCR that the project manager can immediately approve to allocate MR budget to complete the fourth test. 
  • It is necessary to redo a task. This may include unanticipated redesign, remake, or retest. Hopefully, the project’s risk register identified the potential risks associated with the original tasks and management was prepared for the realized risk. 
  • Make/buy adjustments.  This could result in an MR debit or credit. 
  • Statement of work transfers from one organization to another. This could result in an MR debit or credit. 

Inadvisable Uses of MR Commonly Allowed

Although it is often allowed in a contractor’s EVM System Description, it is inadvisable to use MR for direct and indirect rate changes in the future. Note: MR should never be used to make any rate adjustments (or any other adjustments) to historical budgeted cost for work scheduled (BCWS) or BCWP data.

A rate change is not a change to the SOW for a CAM. It is merely a change to the cost of that work. Cost variances that occur because of direct and/or indirect rate changes can easily be explained in a Variance Analysis Report (VAR). Ironically, this use of MR is typically treated as a one-way street. Contractors apply MR when the direct and/or indirect rates are going up in the future but do not return to MR when the rates are projected to go down.

When a contractor’s EVM System Description allows MR to be used for future direct and/or indirect rate changes, ideally, the likely rate changes are identified as a risk and quantified when the initial MR is established for a project. This requirement should be noted in the EVM System Description. That way the set aside for MR includes budget for corporate rate adjustments that are outside of the control of the project manager or CAM. 

Another example of a commonly allowed but inadvisable use of MR is to “true up” a purchase order that is in excess of the original budget at completion (BAC) for material, equipment, or purchased services. For example, a project manager issues a work authorization to a CAM that includes purchasing material, equipment, or services from a supplier. The CAM then reaches an agreement with a supplier with scope, schedule, and budget. If that agreement is greater or less than the BAC, MR should not be applied, nor should budget be returned to MR to make the BAC match the PO value. Assuming the scope does not change, then MR should not be used to wipe out a cost variance whether positive or negative. The cost variance can be easily explained and the EAC can be increased or decreased. This is another example where contractors are treating this as a one-way street; they apply MR when it goes up, but do not return to MR when it goes down. A contractor would not “true up” for internal work overruns/underruns so why “true-up” for material or services provided by a supplier? 

Best Practice Tips

The following is a short list of best practices H&A earned value consultants often recommend clients implement for managing MR.

  • The EVM System Description should clearly spell out what are appropriate and inappropriate uses of MR. It should also provide guidance to eliminate instances of the “one way street” debit from MR. If needed, provide supplemental procedures, decision trees, or other work instructions to help project personnel follow EVM best practices and preserve MR for handling realized risks which typically occur in latter stages of a project.
  • Ensure that the R&O management process is integrated with the EVMS and provides the necessary risk identification and assessment information for the project manager to establish a realistic MR set aside based on quantifiable information. Where applicable, ensure likely rate changes are captured as a potential risk to the project and considered when the initial MR for the project is established if they intend to use MR for rate changes in the future.
  • Conduct recurring training to reinforce the purpose for MR and the appropriate use of MR. A recommended approach is to discuss a variety of use cases with project personnel so they know how to handle various situations that may occur on a project. 

Have you noticed “creative” uses of MR that are contrary to EVM best practices? Hopefully, you identified those situations as part of your EVMS self-governance process and were able to quickly implement corrective actions before your customer pointed out the issue to you. H&A earned value consultants often assist clients with producing procedures or work instructions that clearly spell out how to use MR appropriately. We also offer a range of EVMS training to reinforce EVM best practices including the appropriate use of MR. Call us today to get started.

Management Reserve Best Practice Tips Read Post »

Introduction to the Cost and Software Data Reporting (CSDR) Reporting Requirements

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A common client request is to assist them with sorting through the various DoD contractual reporting requirements and contract value reporting thresholds that apply. We frequently run into situations where a contractor needs clarification on why they have a Cost and Software Data Reporting (CSDR) requirement and whether they should seek to waive the requirement. Subcontractors to a prime often question the requirement to provide actual cost data directly to the DoD, especially for Firm Fixed Price (FFP) contracts.

Background

CSDRs are the primary means the DoD uses to collect data on the development, production, and sustainment costs incurred by contractors performing DoD acquisition contracts. It is a DoD system for collecting actual costs, software data, and related business data. The resulting data repository serves as the primary source for contract cost and software data for most DoD resource analysis efforts including cost database development, applied cost estimating, cost research, program reviews, analysis of alternatives (AoAs), and life cycle cost estimates.

CSDR reporting requirements are determined by the contract value regardless of the acquisition phase and contract type. In general, CSDR reporting is required for Acquisition Category I-II programs and Information System (IS) programs valued at more than $50M. They can also be required for Middle Tier Acquisition programs (greater than $20M) and other programs (greater than $100M). Risk can also be a determining factor regardless of the contract value.

DoD Instruction (DoDI) 5000.73, Cost Analysis Guidance and Procedures (March 2020), provides additional details about the cost data reporting. Table 1 in the 5000.73 lists the cost reporting requirements contract value thresholds. The DoD Manual 5000.04 Cost and Software Data Reporting (May 2021) is the primary requirements document for the development, implementation, and operation of the DoD CSDR system to ensure data reported is accurate and consistent.

About CADE

The Office of the Secretary of Defense Cost Assessment and Program Evaluation (OSD CAPE) established the Cost Assessment Data Enterprise (CADE), a secure web-based information system that hosts the controlled unclassified CSDR repository, the Defense Acquisition Cost Information Management System, and the forward pricing rate library. CADE also contains a selected acquisition report database, a contracts database, data analytics capabilities, and a library containing cost estimating content such as cost analysis requirement descriptions and cost estimates. CADE is access-controlled, and available through the public-facing CADE Portal website.

Similar to the cost estimating and proposal pricing functions within contractor’s organizations that rely on historical actual costs to assess the validity of a proposed cost estimate, independent and sound cost estimates are vital for effective DoD acquisition decision making and oversight. CADE plays a critical role in capturing the expenditure, technical, and programmatic data after contract execution in a consistent manner to enable independent cost estimating and analysis. This cost estimate data is essential to support efficient and effective resource allocation decisions throughout the planning, programming, budgeting, and execution process for the DoD.

CSDR Reporting Requirements

There are a series of Data Item Descriptions (DIDs) for this reporting requirement.  Some forms are submitted electronically using DoD defined XML schemas, Excel, or JSON encoded data in accordance with a File Format Specification (FFS) and Data Exchange Instruction (DEI). The list of DIDs are as follows. These DIDs can be downloaded from the CADE website.

  • Contract Work Breakdown Structure, DI-MGMT-81334D (May 2011).
  • Cost Data Summary Report, DI-FNCL-81565C (May 2011), DD Form 1921, XML Schema.
  • Functional Cost-Hour Report, DI-FNCL-81566C (September 2015), DD Form 1921-1, XML Schema.
  • Progress Curve Report, DI-FNCL-81567C (May 2011), DD Form 1921-2, XML Schema. 
  • Sustainment Functional Cost-Hour Report, DI-FNCL-81992 (May 2011), DD Form 1921-5, XML Schema.
  • Contractor Business Data Report, DI-FNCL-81765C (March 2021), DD Form 1921-3, Excel. 
  • Software Development Report, DI–MGMT-82035A (October 2022), DD Form 3026-1, XML Schema. 
  • Software Maintenance Report, DI–MGMT-82035A (October 2022), DD Form 3026-2, XML Schema.
  • Enterprise Resource Planning (ERP) Software Development Report, DI-MGMT-82035A (October 2022), DD Form 3026-3, XML Schema.
  • Cost and Hour Report (FlexFile), DI-FNCL-82162 (November 2017), JSON encoded data file following FFS and DEI.
  • Quantity Data Report, DI-MGMT-82164 (November 2017), JSON encoded data file following FFS and DEI.
  • Maintenance and Repair Parts Data Report, DI-MGMT-82163 (November 2017), Excel.
  • Technical Data Report, DI-MGMT-82165 (November 2017), Excel.

The Cost and Hour Report (FlexFile) and Quantity Data Report play a critical role in collecting cost data from contractors for the DoD data repository because they use JSON data encoding to organize the content. They are intended to replace the legacy 1921 series of paper-based formats including the DD 1921, 1921-1, 1921-2, and 1921-5. It also requires contractors to provide significantly more historical cost data than the 1921 formats. As a result, the DoD cost estimating community has additional insight into historical costs. The goal is to establish a common framework and standard nomenclature to collect data from different contractors, all of them with unique cost accounting structures, that are mapped to the DID, FFS, and DEI requirements for use in the data repository.

Establishing a Consistent, Repeatable Process to Produce the CSDR Data Deliverables

For contractors new to the CSDR reporting requirements and in particular, the FlexFile JSON data encoding, can appear to be daunting. That’s where software tools such as those from Midnite Dynamics can help. Midnite Dynamics specializes in assisting contractors with producing the CSDR data deliverables. 

Their software tool, C*CERT+, streamlines, automates, validates, and produces the legacy 1921 family of Excel and XML reports as well as the FlexFile and Quantity Data Report JSON submittals. C*CERT+ eliminates what otherwise is a manually intensive, resource draining, tedious and costly effort subject to recurring rejections. It is one thing to create the required legacy reports or FlexFile JSON files for submittal, it is another to pass the submittal validation process. C*CERT+ provides numerous data validations and analysis reports to ensure the data is 100% compliant before it is submitted. For example, the software includes over 90 FlexFile validations to ensure data compliance as illustrated in Figure 1.

Figure 1: Example of FlexFile data validation results.
Figure 1: Example of FlexFile data validation results.

The software includes a Validation and Remarks utility to analyze the source data details that could result in a Validation Trip. Remarks can be entered directly into the validation module for anything that requires an explanation. This is illustrated in Figure 2. This narrative is included with the data submittal.

Figure 2: Example of providing remarks about the FlexFile data content.

C*CERT+ also interfaces with existing EVM cost tools and accounting systems to produce the existing legacy 1921 reports, the FlexFile, and other data submittals as well as to consolidate separate projects/CLINs/task orders into a single contract report.

Once the C*CERT+ Standard Category Mapping Rules are set up, they can be shared throughout the corporation or business unit to establish a standard and repeatable process for producing the data deliverables. This mapping process translates the contractor’s source data into an output that matches the CSDR data submittal format rules. This saves a tremendous amount of time and makes it much easier to consistently produce the CSDR data deliverables. An example of the Mapping Rules is illustrated in Figure 3.

Figure 3: Mapping Rules translate contractor unique cost data into a format that matches the CSDR data submittal requirements.

Do your process and procedures or training materials need an update to include specific guidance for project control teams to produce required DoD contractual reports or data submittals using your tool sets of choice? Give us a call today at (714) 685-1730 to get started. 

Introduction to the Cost and Software Data Reporting (CSDR) Reporting Requirements Read Post »

The Role of EVM Consulting in Effectively Managing Projects Using Agile

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Understanding EVM Consulting 

EVM consulting helps in effectively managing projects where some work elements are using Agile product development processes by providing expertise in Earned Value Management and how to implement an EVMS that accommodates Agile. Since Agile is a product development methodology and EVM is project management discipline, it is possible to implement both approaches on the same project provided care is taken to document their alignment and linkages. EVM consulting assists with defining the specific areas where Agile and EVM processes and data integrate, increasing the likelihood of project success. 

Consultant Explaining about Managing Agile Projects Effectively

How EVM Consulting Helps Manage Projects Using Agile 

EVM consulting helps to effectively manage projects that are using Agile product development processes by providing expert guidance on implementing Earned Value Management practices that accommodate Agile. It allows project managers to track project performance, identify potential issues, and make informed decisions to ensure the project stays on track. EVM consulting also helps in establishing a realistic Performance Measurement Baseline (PMB), improving project forecasting, and enhancing communication among project stakeholders.

Key Components of EVM Consulting 

EVM consulting involves implementing a structured and integrated approach to organize, accomplish, and manage all project work effort. The processes include integrating project scope, schedule, and cost objectives, establishing a baseline plan to accomplish project objectives, and using earned value techniques for performance measurement throughout the project execution phase. The main components include:

  • Performance Measurement Baseline (PMB): Establishing the PMB is a culmination of the integrated planning, scheduling, and budgeting processes and provides a common basis to measure work accomplished as well as to track scope, schedule, and budget changes.
  • Variance Analysis: Identifying and addressing deviations from the plan helps to ensure technical, schedule, and cost objectives are met by implementing timely corrective actions. 
  • Forecasting: Predicting future project performance based on current trends. 
  • Risk Management: Assessing and mitigating potential threats to project success. 

Implementing EVM Consulting for Projects Using Agile 

EVM consulting can be an effective way to manage projects that are using Agile product development processes. It helps in tracking project performance and ensuring that it stays within budget and on schedule. With EVM consulting, you can gain valuable insights into the project’s progress and identify any areas needing improvement early on. For those interested in enhancing their EVM proficiency, the EVMS DOD Virtual Learning Lab offers an intensive online EVM training course. This can lead to better decision-making and more efficient project management, ultimately contributing to the project’s success.

Best Practices for EVM Consulting for Projects Using Agile 

Incorporating EVM consulting for projects using Agile helps in effective project management. Some best practices include: 

  • Integration: Producing a project directive or procedure that defines how the Agile processes will be integrated with the EVM processes to ensure alignment and data traceability for scope management, scheduling, budgeting, and forecasting as well as to track project progress and performance efficiently. This integration allows for greater visibility and control over the project’s financial and schedule performance, aiding in proactive decision-making and risk management. 
  • Adaptation: Incorporating content into your EVM System Description that discusses the touch points between the Agile and EVM processes to support the iterative and incremental nature of Agile product development, allowing for more accurate measurement of progress and forecasting of project outcomes. 
  • Transparency: Ensure clear communication between the project control team and Agile product development teams to foster collaboration and decision-making. Transparency strengthens trust and enables everyone to make informed contributions towards project success. 
  • Continuous Improvement: Regularly review and adapt EVM practices to enhance project control and product delivery. By embracing continuous improvement, project control teams can refine their EVM processes to better align with evolving project needs and industry best practices. 

Conclusion: Maximizing Project Management Effectiveness with EVM Consulting 

EVM consulting plays a vital role in maximizing project management effectiveness, especially for projects using Agile product development processes. By leveraging EVM techniques, project managers can gain valuable insights into project performance, identify potential risks, and make informed decisions to drive project success. With EVM consulting, project teams can maintain a strong focus on project objectives, assess progress against predefined criteria, and adapt their approaches as needed. This approach enables more effective resource allocation, risk mitigation, and ultimately, project success. 

FAQs: Frequently Asked Questions About EVM Training Courses 

  • Are EVM courses suitable for those who have no knowledge of EVM? Yes, the EVM courses offered by Humphreys & Associates are suitable for both beginners and professionals who want to improve their skills. They offer a range of course options, including online self-paced and live virtual instructor-led courses, to accommodate different schedules and learning styles. 
  • What is the method of delivery for the training? Humphreys & Associates offers online self-paced and live virtual instructor-led courses. The online training is a complete presentation of Humphreys & Associates’ highly regarded three-day EVMS training workshop in an online, interactive, multimedia format. 
  • What documentation is available that can help me understand EVMS and Agile and how they are related? To understand the relationship between EVMS and Agile, the DoD Acquisition Data and Analysis (ADA) Integrated Program Management (IPM) Division has produced resources such as the “Agile and EVM: A Program Manager’s Desk Guide.” This guide explains how Agile methodologies can be integrated with existing DoD program management and system engineering processes, including EVM: NDIA IPMD Industry Practice Guide for Agile on Earned Value Management Programs.
  • Does the fact that Agile/Scrum Sprints have very short durations cause a problem with EVMS? Agile/Scrum Sprints with very short durations do not cause a problem with EVMS. Teams update their progress daily, and it is preferable if the Sprints are four weeks or less and align with the cut-off dates for the EVMS. 
  • What roles within the Project Management Office (PMO) are there for EVMS and for Agile and how do they relate? The roles within the Project Management Office (PMO) for EVMS and for Agile are varied. For instance, the Scrum Master is a facilitator on the Scrum team and there is no corresponding EVMS role. The team members organize themselves so there is no team lead like the control account manager (CAM) in an EVMS, however, someone on the team will need to function as the CAM for required EVMS actions.
  • Should the EVM System Description be a single document or a summary document with supporting procedures?  There are pros and cons to each approach. The benefit of a single document is that it provides an integrated view of the entire EVMS process without having to reference multiple documents.
  • How can I ensure that my EVMS complies with the EIA-748 guideline requirements? Humphreys & Associates recommends conducting a requirements analysis or gap analysis to assess what you are currently doing against the EIA-748 32 guidelines taking into account your desired end state and current or impending contractual requirements. The assessment identifies strengths and weaknesses and provides specific recommendations to implement a compliant EVMS.
  • How can I prepare for an EVMS compliance review? Humphreys & Associates recommends conducting mock EVMS reviews. These reviews provide an independent, fact-based assessment of your EVMS, its implementation, data quality, and proficiency level of EVMS project personnel. 
  • What is the importance of continuous training in maintaining quality schedule and cost data in EVMS? Continuous training is important to ensure project personnel are using the schedule and cost tools effectively, are following the EVMS processes and procedures, and understand what is required to produce and maintain quality data. Humphreys & Associates recommends a proactive stance, with robust change control processes, continuous enhancement of documented practices, and improvements to data management systems to ensure accuracy and traceability.
  • How can I ensure data integrity in my EVMS? Ensuring data integrity in your EVMS involves making sure that the schedule and cost software tools are properly configured, data validation checks are routinely performed, and that schedule and cost data align. Humphreys & Associates recommends a proactive stance, with robust change control processes, continuous enhancement of documented practices, and improvements to data management systems to ensure accuracy and traceability.

EVM Training Course List 

To enhance your skills in this area, we present a comprehensive list of EVM Training Courses tailored to meet the needs of various stakeholders, from project managers to government contractors. Whether you’re preparing for a customer Integrated Baseline Review, seeking to improve your EVM proficiency, or aiming to pass certification exams, these courses offer valuable insights and practical experience. Delivered in an online format, these courses provide the flexibility to learn at your own pace while ensuring a deep understanding of EVM principles and their application in real-world scenarios. 

CAM Discussion: The CAM Discussion serves as an essential component of the preparation process for a customer Integrated Baseline Review (IBR), compliance review, or surveillance review. This simulation offers a practical experience of a CAM documentation review and interview session, illustrating how a proficient CAM conducts an interview with a government customer. Additionally, it provides a useful recap emphasizing key technical points along with suggestions for follow-up action items. 

CAM Essentials_DOD: CAM Essentials provides comprehensive training to improve EVM proficiency and understanding of the basics. This online training bundle features the EVMS Virtual Learning Lab (DOD), Scheduling Virtual Learning Lab, and CAM Discussion courses, all available separately. 

CAM Essentials_DOE: CAM Essentials offers comprehensive tools for improving EVM skills and understanding the fundamentals. This online training bundle includes the EVMS Virtual Learning Lab (DOE), Scheduling Virtual Learning Lab, and CAM Discussion courses, each available separately. 

CAM Essentials_NASA: CAM Essentials provides comprehensive training to improve EVM proficiency and understanding of the basics. The online training bundle includes the EVMS Virtual Learning Lab (NASA), Scheduling Virtual Learning Lab, and CAM Discussion courses, which are also available individually. 

CPR/IPMR/CFSR Completion and Reconciliation: The Integrated Program Management Report (IPMR) and Contract Funds Status Report (CFSR) are crucial communication tools between contractors and their customers. This online course provides valuable insights into the proper completion of these reports and their reconciliation. 

EVMS Certification and Preparation Quiz: This online course comprises 120 questions in four separate quizzes, covering the nine EVMS process groups, the Contract Performance Report (CPR)/Integrated Program Manager Report (IPMR), earned value data analysis, Integrated Baseline Review (IBR), and compliance reviews. It serves as an excellent study and preparation resource for the AACE International Earned Value Professional (EVP) or the PMI Project Management Professional (PMP) certification exams. 

EVMS DOD Virtual Learning Lab: The EVMS Virtual Learning Lab offers a comprehensive 21-hour instruction program. This online training delivers Humphreys & Associates’ acclaimed three-day EVMS workshop in an interactive, multimedia format. The video content includes all workshop coursework, quizzes, and case studies, allowing students to assess their understanding and receive prompt feedback through scored quizzes and exams. 

EVMS DOE Virtual Learning Lab: The EVMS Virtual Learning Lab offers a comprehensive 21-hour online training program. This interactive multimedia format is based on Humphreys & Associates’ acclaimed three-day EVMS workshop, delivering all course content, quizzes, and case studies in a video format. Students can assess their understanding through scored quizzes and exams. 

The course can be used for project personnel to enhance their EVM proficiency or for someone who wants to learn the basics of earned value management at their own pace.  

EVMS NASA Virtual Learning Lab: An intensive 21-hour online training program that offers a complete presentation of Humphreys & Associates’ three-day EVMS workshop. The course has been adapted into an interactive multimedia format, including all quizzes and case studies from the original workshop. Students can test their knowledge and receive immediate feedback through scored quizzes and exams. 

The course can be used for project personnel to enhance their EVM proficiency or for someone who wants to learn the basics of earned value management at their own pace.  

IBR – Online Video: The Integrated Baseline Review (IBR) course is designed to provide a comprehensive understanding of the IBR process. It is a fast-paced presentation that is essential for ensuring a clear grasp of the technical requirements of a project and establishing accurate schedule and cost goals. This course offers a detailed explanation of the review process and can be tailored to provide training for specific needs and timings. The approximate duration of the course is 2 hours. 

OTB/OTS Implementation – Online Video: Learn about Over Target Baseline (OTB) and Over Target Schedule (OTS) Implementations in this approximately 1 hour and 30-minute video. 

A formal re-programming action, known as an OTB and/or an OTS, may occur during risky major acquisitions. Understanding the rationale for and the various methods used to implement an OTB/OTS, as well as correctly completing the IPMR/CPR formats in accordance with the Data Item Description (DID) instructions, is not a simple process. Our video provides clarity on this complex process. 

The video includes completed IPMR/CPR Formats 1, 2, and 3, showcasing four OTB methods, along with before and after Baseline graphs for each method. It also contains examples and Baseline graphs for Over Target Schedule, Format 3. 

Scheduling Virtual Learning Lab: The Scheduling Virtual Learning Lab offers an intensive 21 hours of instruction covering critical path fundamentals, schedule baseline, float, network logic development, risk assessment, changes, and scheduling in an EVMS environment. The content is based on the well-regarded three-day Project Scheduling Workshop by Humphreys & Associates, adapted to a video format and featuring quizzes and case studies for immediate knowledge testing and feedback. 

The course is designed for project personnel looking to enhance their project scheduling skills and for individuals who want to learn the fundamentals of project scheduling at their own pace. 

A student who completes the Scheduling course will earn 21 Professional Development Units (PDUs) or 2.1 Continuing Education Units (CEUs). 

For information on Corporate or Quantity Discount pricing, please contact us at products@humphreys-assoc.com or call us at (714) 685-1730. 

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Level of Effort (LOE) Best Practice Tips

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Level of Effort (LOE) Best Practice Tips

Clients are often seeking advice from our earned value consultants about implementing a practical approach in response to government customer requirements to proactively manage level of effort (LOE) tasks. The DoD EVMS Interpretation Guide (EVMSIG), NASA guidance, and DOE guidance such as the Compliance Assessment Governance (CAG) document clearly state the requirements for contractors related to planning, maintaining, and managing LOE. DOE also specifies a limit to the percentage of LOE allowed within a control account to avoid skewing performance measurement of the discrete work effort. In addition, both the DCMA and DOE EVMS data quality test metric specifications include manual and automated tests with thresholds specific to LOE.

Common accepted best practices for LOE include:

  • Reducing the amount of LOE to the lowest level possible to minimize the number of activities that need to be actively managed. Objective measures of performance are always preferred.
  • When LOE activities are included in the schedule, they should not drive the date calculations of discrete activities in the integrated master schedule (IMS). They should also not appear on the critical path.
  • LOE must be segregated from discrete work effort. In practice, this means a work package can only be assigned a single earned value method. The work package is one of three types. It is either 1) discrete effort with an assigned earned value technique such as the Milestone or Percent Complete technique, 2) apportioned effort, or 3) LOE. 
  • It must be verified it is truly LOE, i.e., it is management or sustainment type of activity that has no identifiable end products or established relationship to other measurable effort. It is clearly not discrete effort or apportioned effort. Remember that with LOE, the passage of time is the only measurement criteria. At the end of the performance month, the budget value for that month is earned. For this reason, LOE is the least desirable earned value method. 
  • The budget or estimate to complete the work effort is time phased and reflects the planned or forecast period of performance. The period of performance and resource requirements must be substantiated. Determining the basis of estimate for the LOE activity can also help to verify the work is truly LOE.

So, what is the problem? 

Common situations H&A earned value consultants run into are contractors where:

  • Managing the LOE is put on “auto pilot.” This might work for project management type of activities that span the duration of the project. It does not work so well when the LOE is associated with the occurrence of discrete work effort that is subject to change – i.e., the discrete work effort duration changes or the start date and/or the complete date changes. The result?
  • LOE tasks may incur actual cost of work performed (ACWP) with no budgeted cost for work performed (BCWP);
  • LOE tasks earn BCWP with no ACWP; or
  • The estimate at completion (EAC) is greater than the ACWP with BCWP equal to the budget at completion (BAC).

    Any one of these conditions would trip the DCMA and DOE test metrics and should be avoided. These types of situations were illustrated in a previous blog, “Level of Effort Decision Tree” that discusses how to properly replan LOE. 
  • Their EVM System Description doesn’t provide sufficient guidance to project personnel on what proactive management of LOE means. What are the rules for planning and maintaining LOE? How is LOE handled differently from discrete work packages?

    Some System Descriptions allow LOE replanning to occur within the “freeze period,” usually defined as the current reporting period and often plus one additional month. This is contrary to other best practice guidance about how to handle changes for open discrete effort work packages. For discrete effort work packages, changes within the freeze period are not allowed and the work package must be closed to replan the remaining work. What’s the process for handling that open LOE work package? What about retroactive changes when the LOE work occurs earlier or later than planned, or the duration is different than planned? Then what?

    When project personnel lack guidance, then arguments often ensue about what is the “correct” interpretation of the wording in governing documents or test metric specifications that are often inconsistent.
  • Validation checks are not routinely performed. This includes validation checks to ensure that control account managers (CAMs) are selecting the appropriate earned value method for a work package following the EVM System Description guidance during the work definition and planning phase. It also includes routine monthly data checks to identify common data anomalies typically associated with LOE such as ACWP and no BCWP or BCWP with no ACWP. The goal is to fix problems in the current reporting month and avoid making any retroactive changes. You should be catching and fixing avoidable DCMA or DOE EVMS test metric “triggers” every reporting period.

Best Practice Tips

Here is a short list of best practice tips that H&A earned value consultants have helped clients to implement over the years to ensure LOE is properly planned and proactively managed. The approach is tailored for each client to reflect the type of work the company typically performs. This is documented in their EVM System Description, related procedures, and recurring training to ensure project personnel have clear, specific guidance they can follow.

  • Consider using the Percent Complete earned value technique instead of LOE. A best practice is to identify quantifiable backup data (QBD) for a work package using the Percent Complete earned value technique. The QBD for the LOE type of work package could be the milestones identified for the discrete effort work package the LOE work package is supporting. This helps to ensure the work packages are reviewed and managed together.
  • Could the Apportioned Effort method be used instead of LOE? Is it possible to establish a direct relationship between the discrete effort and supporting effort? For example, is historical data available to document that the support number of hours is a given percentage of the discrete effort labor hours? If so, then using the Apportioned Effort method is a much better alternative. When the discrete work package is statused, the apportioned effort work package would be automatically statused as well. 
  • Consider shorter durations for the LOE when that LOE is supporting discrete effort. Should the first occurrence of the LOE trigger a data anomaly test metric, it can be proactively handled along with any future replanning. The remaining LOE would already be in one or more separate work packages so there won’t be any criticism for changing open work packages. Any adjustments can be made in the current reporting period avoiding any retroactive changes that would trigger other data metric tests. What is considered to be “short duration” should be defined in the EVM System Description. An example would be LOE work packages of 3 to 4 months in duration. Be sure to provide specific guidance to project personnel on how to process these types of current reporting period LOE replanning adjustments. The LOE work package breakpoints should be technically related. For example: “Phase I Support,” “Drawing Support,” and so forth instead of generic descriptions such as “April Support,” “May Support,” or “June Support.”
  • Use rolling wave planning. This is by far one of the better solutions. This helps to ensure the discrete tasks and any supporting LOE tasks are planned together before the work is authorized to begin. Shorter durations for the LOE tasks are often used to align with the forward planning window.
  • Incorporate LOE earned value method checks into your routine status and data analysis process. Identify any upcoming LOE activities (for example, the next 60 to 90 days), along with the CAM responsible for the work effort to verify they accurately reflect the current plan. It is always better to proactively replan future LOE when needed instead of defaulting to an “auto pilot” mode. The CAM should understand this is part of their responsibilities.

Does your EVM System Description or training materials need a refresh to include specific guidance for project personnel that documents the preferred approach for planning, maintaining, and managing LOE? H&A earned value consultants frequently help clients with EVM System Description content enhancements or creating specific procedures that reflect your unique business environment. Call us today at (714) 685-1730 to get started.

Level of Effort (LOE) Best Practice Tips Read Post »

Comprehensive Guide to EVMS Training 

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Section 1: Understanding the Basics of EVMS 

Earned Value Management Systems are a critical component in the project management landscape. At its core, an Earned Value Management System (EVMS) offers a systematic approach to integrating scope, schedule, and cost. Implementing an EVMS enables project managers to measure project performance and progress in an objective manner that increases management visibility and control.

Key Principles and Terminology 

To grasp the fundamentals of Earned Value Management, one must become familiar with its primary principles and associated terminology. Some of these key terms include Planned Value (PV), Earned Value (EV), and Actual Cost (AC), which form the basis for evaluating project performance and predicting future outcomes. Understanding these concepts is essential for anyone seeking to implement an EVMS. 

The Role of EVM in Project Management 

Effective project management hinges on the ability to forecast potential issues and measure ongoing performance against the project plan. An EVMS provides a structured framework for this purpose, allowing managers to identify variances in cost and schedule before they become critical. By integrating scope, schedule, and cost, an EVMS serves as a compass for project managers, guiding them through the complexities of project execution. 

The Benefits of Implementing an EVMS 

Implementing an EVMS reaps several benefits, including enhanced visibility into the health of a project and the ability to make data-driven decisions. An EVMS enables stakeholders to objectively assess project performance against the baseline, ensure alignment with strategic objectives, and encourage accountability among team members. Moreover, with an EVMS in place, organizations are better equipped to meet contractual requirements, especially for government contracts which oftentimes mandate the use of such systems. 

By grasping the basic principles of EVM and the role it plays in project management, professionals can start their journey toward effective project control and successfully implementing an EVMS. With a comprehensive understanding of the basics, they can build a solid foundation for further exploration of the practices and principles that will lead to mastery of Earned Value Management. 

Section 2: Steps to Obtain a Professional EVM Certification 

Eligibility Criteria for a Professional EVM Certification 

Before embarking on the journey to obtain a Professional EVM Certification, it is important to clarify the prerequisites. Typically, these may include a certain level of experience in project management, understanding basic accounting principles, and familiarity with the EIA-748 Standard for EVMS Guidelines. Professionals who wish to get a professional certification should review the specific eligibility requirements as dictated by the certifying body to ensure they qualify to undergo the certification process. 

Detailed Step-by-Step Guide to the Professional Certification Process

  • Research and Select a Certifying Organization: Begin by identifying an organization that offers an EVM Certification. 
  • Undergo Formal EVM Training: Enroll in and complete a formal training program that covers the core components of Earned Value Management. This step is pivotal, as it lays the groundwork for the practical application and understanding of EVM. Humphreys & Associates provides online EVM Training for employees of contractors that do business with the DOD, DOE, NASA, and other U.S. government agencies such as the FAA. 
  • Study the Standards and Guidelines: Gain a comprehensive understanding of industry standards, such as the EIA-748 Guidelines. Knowledge of these standards is fundamental, as they will inform the set-up and management of an EVMS. 
  • Prepare for the Examination: Most certifications will require passing an exam to demonstrate your proficiency. This will involve rigorous study and attending review courses to prepare. 
  • Apply for the Certification Exam: Submit your application along with any necessary documentation and fees to the chosen certifying body. Ensure all prerequisites have been met before applying. 
  • Take the Certification Exam: Schedule and sit for the certification exam. This will typically cover a range of topics, from the basic principles of EVM to more advanced concepts. 
  • Receive Certification: Upon successful completion of the exam, you will receive your EVM Certification, which endorses your knowledge and understanding of EVM. 

Essential Documentation and Preparation Tips 

To ensure a smooth certification process, maintain an organized file of all coursework, training certificates, and professional references. Consider using study guides, practice exams, and other preparatory materials to fully equip yourself for the certification exam. 

How to Maintain and Renew EVM Certification 

An EVM Certification is not a one-time event but requires ongoing professional development to maintain. Stay abreast of any Continuing Education Units (CEUs) or Professional Development Units (PDUs) required to keep your certification active. Engage with the community of practice, attend EVMS workshops, and continue learning to stay current in Earned Value Management best practices.   

Section 3: EVM Consulting and Expert Guidance 

The Need for Expert Consultancy in the Professional EVM Certification Process 

As professionals navigate the path towards EVM certification, expert consultancy can play a pivotal role. These consultants have extensive experience with EVM principles and the process for implementing an EIA-748 compliant EVMS. They can offer personalized guidance, which is often critical to ensuring a smooth and successful journey to compliance with EIA-748 Standard for EVMS. 

How to Choose the Right EVM Consultant 

When selecting an EVM consultant, consider the following criteria to ensure you make an informed decision: 

  • Experience and Credentials: Look for consultants with a proven record of accomplishment in EVMS implementations and a robust portfolio of successful client engagements. Certified consultants, particularly those with additional qualifications in project management, bring a wealth of knowledge. 
  • Industry Reputation: Investigate the consultant’s standing within the industry through testimonials, case studies, and peer recommendations. A reputable consultant will have positive feedback and be recognized as an authority in the field. 
  • Approach to Training and Consulting: Evaluate the consultant’s methodology. The right consultant should offer a tailored approach, adapting their expertise to your organization’s specific needs and challenges. 
  • Compatibility with Organizational Culture: Ensure the consultant’s style and communication align with your organization’s culture. A collaborative and adaptable consultant can integrate more seamlessly into your team. 
  • Maintenance and Support: It is not just about successfully completing a Cognizant Federal Agency (CFA) EVMS Compliance Review, it is also about sustaining the EVMS and how project personnel implement it on their project. Check whether the consultant offers support and guidance to ensure ongoing compliance and effectiveness. 

The Role of Consultants in Ensuring Compliance and Efficient System Implementation 

An EVM consultant’s role extends beyond just advice on CFA compliance reviews—it involves hands-on assistance in setting up an EVMS that complies with industry standards, training staff to understand and use the system effectively, and preparing the organization for the rigorous CFA compliance review process. Furthermore, consultants can help identify any gaps in current practices and tailor the EVMS to best fit the organization’s unique environment. 

By providing insights into best practices, drawing from a wide range of experiences with different clients, and offering objective assessments of current systems, consultants can ensure that an organization’s EVMS is both compliant and optimized for performance. 

Earned Value Consulting provides valuable expertise that can streamline the CFA compliance process, facilitate the successful adoption of EVM, and ensure long-term compliance. By leveraging the knowledge and experience of a seasoned EVM consultant, organizations can overcome obstacles more efficiently and optimize their project management practices for greater success. Thus, engaging the right consultant is a strategic investment that can lead to significant dividends in project execution and management. 

Section 4: EVM Training Course List 

To enhance your skills in this area, H&A offers a comprehensive list of EVM Training Courses tailored to meet the needs of various stakeholders, from project managers to government contractors. Whether you’re preparing for a customer Integrated Baseline Review (IBR), seeking to improve your EVM proficiency, or aiming to pass professional certification exams, these courses offer valuable insights and practical experience. Delivered in an online format, these courses provide the flexibility to learn at your own pace while ensuring a deep understanding of EVM principles and their application in real-world scenarios. 

CAM Discussion: The CAM Discussion serves as an essential component of the preparation process for a customer Integrated Baseline Review (IBR), compliance review, or surveillance review. This simulation offers a practical experience of a CAM documentation review and interview session, illustrating how a proficient CAM conducts an interview with a government customer. Additionally, it provides a useful recap emphasizing key technical points along with suggestions for follow-up action items. 

CAM Essentials_DOD: CAM Essentials provides comprehensive training to improve EVM proficiency and understanding of the basics. This online training bundle features the EVMS Virtual Learning Lab (DOD), Scheduling Virtual Learning Lab, and CAM Discussion courses, all available separately. 

CAM Essentials_DOE: CAM Essentials offers comprehensive tools for improving EVM skills and understanding the fundamentals. This online training bundle includes the EVMS Virtual Learning Lab (DOE), Scheduling Virtual Learning Lab, and CAM Discussion courses, each available separately. 

CAM Essentials_NASA: CAM Essentials provides comprehensive training to improve EVM proficiency and understanding of the basics. The online training bundle includes the EVMS Virtual Learning Lab (NASA), Scheduling Virtual Learning Lab, and CAM Discussion courses, which are also available individually. 

CPR/IPMR/CFSR Completion and Reconciliation: The Integrated Program Management Report (IPMR) and Contract Funds Status Report (CFSR) are crucial communication tools between contractors and their customers. This online course provides valuable insights into the proper completion of these reports and their reconciliation. 

EVMS Certification and Preparation Quiz: This online course comprises 120 questions in four separate quizzes, covering the nine EVMS process groups, the Integrated Program Manager Report (IPMR), earned value data analysis, Integrated Baseline Review (IBR), and compliance reviews. It serves as an excellent study and preparation resource for the AACE International Earned Value Professional (EVP) or the PMI Project Management Professional (PMP) certification exams. 

EVMS DOD Virtual Learning Lab: The EVMS Virtual Learning Lab offers a comprehensive 21-hour instruction program. This online training delivers Humphreys & Associates’ acclaimed three-day EVMS workshop in an interactive, multimedia format. The video content includes all workshop coursework, quizzes, and case studies, allowing students to assess their understanding and receive prompt feedback through scored quizzes and exams. 

EVMS DOE Virtual Learning Lab: The EVMS Virtual Learning Lab offers a comprehensive 21-hour online training program. This interactive multimedia format is based on Humphreys & Associates’ acclaimed three-day EVMS workshop, delivering all course content, quizzes, and case studies in a video format. Students can assess their understanding through scored quizzes and exams. 

The course can be used for project personnel to enhance their EVM proficiency or for someone who wants to learn the basics of earned value management at their own pace.  

EVMS NASA Virtual Learning Lab: An intensive 21-hour online training program that offers a complete presentation of Humphreys & Associates’ three-day EVMS workshop. The course has been adapted into an interactive multimedia format, including all quizzes and case studies from the original workshop. Students can test their knowledge and receive immediate feedback through scored quizzes and exams. 

The course can be used for project personnel to enhance their EVM proficiency or for someone who wants to learn the basics of earned value management at their own pace.  

IBR – Online Video: The Integrated Baseline Review (IBR) course is designed to provide a comprehensive understanding of the IBR process. It is a fast-paced presentation that is essential for ensuring a clear grasp of the technical requirements of a project and establishing accurate schedule and cost goals. This course offers a detailed explanation of the review process and can be tailored to provide training for specific needs and timings. The approximate duration of the course is 2 hours. 

OTB/OTS Implementation – Online Video: Learn about Over Target Baseline (OTB) and Over Target Schedule (OTS) Implementations in this approximately 1 hour and 30-minute video. 

A formal re-programming action, known as an OTB and/or an OTS, may occur during risky major acquisitions. Understanding the rationale for and the various methods used to implement an OTB/OTS, as well as correctly completing the IPMR formats in accordance with the Data Item Description (DID) instructions, is not a simple process. Our video provides clarity on this complex process. 

The video includes completed IPMR Formats 1, 2, and 3, showcasing four OTB methods, along with before and after Baseline graphs for each method. It also contains examples and Baseline graphs for Over Target Schedule, Format 3. 

Scheduling Virtual Learning Lab: The Scheduling Virtual Learning Lab offers an intensive 21 hours of instruction covering critical path fundamentals, schedule baseline, float, network logic development, risk assessment, changes, and scheduling in an EVMS environment. The content is based on the well-regarded three-day Project Scheduling Workshop by Humphreys & Associates, adapted to a video format and featuring quizzes and case studies for immediate knowledge testing and feedback. 

The course is designed for project personnel looking to enhance their project scheduling skills and for individuals who want to learn the fundamentals of project scheduling at their own pace. 

A student who completes the Scheduling course will earn 21 Professional Development Units (PDUs) or 2.1 Continuing Education Units (CEUs). 

Evaluating the Effectiveness of Your EVM Training 

To ensure that the EVM training investment yields the expected results, it is important to monitor and evaluate its effectiveness. This can be done through various means, such as feedback surveys, performance assessments, and observing improvements in project management practices post-training. Metrics like increased efficiency, reduced project variances, and improved forecasting accuracy can indicate the success of the training program. 

Additionally, incorporating a continuous improvement process for training—where feedback is used to refine and enhance the training offerings—can help ensure that the organization continues to improve on your EVMS over time. 

Properly tailored EVM training programs are not the only key to successful professional certifications and EVMS implementation—they empower organizations to achieve strategic objectives and enhance overall project management proficiency. With the right training program, professionals and teams can develop the expertise needed to leverage EVM capabilities fully, leading to improved project outcomes and sustained success. 

The journey through the complexities of building an Earned Value Management System (EVMS) underscores its pivotal role in effective project management. By committing to understanding the basic principles of an EVMS and striving for formal certification, professionals elevate their ability to forecast, monitor, and steer complex projects toward success. 

EVM training equips project teams with the tools and strategies necessary to implement and manage robust project control systems. This, in turn, fosters informed decision-making, enhanced accountability, and improved alignment between project objectives and outcomes. Professional certification recognizes proficiency that benefits the individual and the organization by establishing credibility and assurance in project management capabilities. 

Having traversed this guide, the next steps involve consolidating your newfound knowledge and venturing into tailored training programs that suit your or your organization’s specific requirements. From here, it is essential to consistently apply, adapt, and refine the skills gained through training to real-world scenarios. 

Encourage yourself and your peers to persist in your journey towards EVM mastery. Continued learning, networking with other EVM professionals, and staying abreast of evolving practices will ensure that your expertise remains current and beneficial. May this guide serve as both a foundation and steppingstone on your path to excelling in the discipline of Earned Value Management. 

For information on Corporate or Quantity Discount pricing, please contact us at products@humphreys-assoc.com or call us at (714) 685-1730. 

Comprehensive Guide to EVMS Training  Read Post »

Handling Authorized Unpriced Work (AUW) and Fee in Performance Reporting

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Handling Authorized Unpriced Work (AUW) and Fee in Performance Reporting

A recent topic for the NDIA Integrated Program Management Division (IPMD) Clearinghouse was how to handle reporting fee for undefinitized work effort in the Integrated Program Management Report (IPMR) or Integrated Program Management Data and Analysis Report (IPMDAR). Undefinitized work is formally referred to as Authorized Unpriced Work (AUW) or Undefinitized Contract Actions (UCAs).

As a reminder, AUW/UCA is a contract scope change the customer’s contracting officer has directed to be performed. However, the scope, schedule and budget have yet to be fully defined and negotiated. A contractor typically creates a rough order of magnitude schedule and cost estimate which is their basis to develop a schedule and budget for the AUW/UCA scope of work.

As a reminder, the Contract Budget Base (CBB) is equal to the Negotiated Contract Cost (NCC) for definitized work plus an estimated cost for all AUW or UCAs. When all AUW/UCA work has been negotiated, the CBB equals the NCC. The CBB and PMB exclude any fee or profit.

DoD Policy and Reporting References for Guidance

For this discussion, the following DoD EVMS or Data Item Description (DID) references provide general guidance on how to report AUW/UCA, Target Profit/Fee, Target Price, and Estimated Price values for performance reporting. These references do not use the term “undefinitized contract actions.” They do use terms such as “undefinitized work” or “undefinitized change orders (known as AUW).”

  1. DoD Earned Value Management System Interpretation Guide (EVMSIG) (March 2019) includes this definition for Authorized Unpriced Work (AUW), emphasis added.

“A contract scope change which has been directed by the Government contracting officer but has not yet been fully negotiated/definitized. It includes a value, excluding fee or profit, typically associated with the authorized, unpriced change order.”

  1. IPMR DID DI-MGMT-81861A (September 2015). See Section 3.0. IPMR Format Content Requirements, 3.2.1. Contract Data, emphasis added.

“3.2.1.3. Estimated Cost of Authorized, Unpriced Work (AUW). Authorized, Unpriced Work is approved work scope that has not been definitized. The total dollar value (excluding fee or profit) of AUW shall be entered in Block 5.c.

3.2.1.3.1. The value of AUW is the value of the scope that was coordinated between the contractor and the Program Office, and authorized by the Procuring Contracting Officer (PCO).”

“3.2.1.4. Target Profit/Fee. Enter in Block 5.d the applicable fee that applies to the negotiated cost of the contract.

3.2.1.5. Target Price. Enter in Block 5.e the target price (negotiated contract cost plus profit/fee) applicable to the definitized contract effort.

3.2.1.6. Estimated Price. Based on the contractor’s most likely estimate of cost at completion for all authorized work, including the appropriate profit/fee, incentive, and cost sharing provisions, enter in Block 5.f the estimated final contract price (total estimated cost to the Government). This number shall be based on the contractor’s most likely management EAC in Block 6.c.1 and normally will change when the EAC is updated and/or when the contract is revised.”

  1. IPMDAR DID DI-MGMT-81861C (August 2021) has similar language. See Section 2. Document Requirements. 2.3 Contract Performance Dataset (CPD). 2.3.1 Heading Information, emphasis added.

“2.3.1.2 Estimated Cost of AUW. Provide the total dollar value (excluding fee or profit) of the approved work scope associated with AUW. AUW is a contract scope change that is directed by the Government contracting officer, but has not yet been fully negotiated/definitized.

2.3.1.3 Target Fee. Provide the applicable fee that applies to the NCC.

2.3.1.4 Target Price. Provide the target price (NCC plus target fee) applicable to the definitized contract effort.

2.3.1.5 Estimated Price. Provide the estimated final contract price. The estimated price shall be based on the contractor’s Most Likely Estimate at Completion (EAC) for all authorized work, including: the appropriate fee, incentive, and cost sharing provisions.”

What is the issue?

This came up as a Clearinghouse topic because contractors wanted to make sure they are accurately interpreting their government customer’s guidance and they are consistent with industry best practices. The EVMSIG, IPMR DID, and IPMDAR DID all state that AUW “excludes fee or profit.”

There are also implications for reporting the Best Case, Worst Case, and Most Likely Management EAC in the IPMR or IPMDAR. You may have noticed in the DID text above that the Estimated Price is based on the contractor’s Most Likely EAC for all authorized work plus the appropriate fee. While the DID says “all authorized work,” because the final cost has yet to be negotiated for the AUW/UCA, this creates questions. What value should be entered for the Estimated Price? Should it include fee or not for AUW/UCA?

H&A earned value consultants have seen contractors take two different approaches. To simplify and illustrate the two approaches, the following discussion uses the IPMR Format 1. The IPMDAR has similar heading information. The following examples assume a cost plus fixed fee (CPFF) contract.

Option One

The most typical approach for projects is to enter the AUW/UCA amount in the IPMR Format 1 Block 5.c (Est. Cost of Auth. Unpriced Work) and include the same AUW/UCA amount in the Block 5.f (Estimated Price). The assumption is that when the AUW/UCA work effort is definitized, the contractor will negotiate the applicable fee with the customer during this process. A contractor should clearly state they intend to negotiate a fee for their AUW/UCA in their IPMR Format 5 or the IPMDAR Performance Narrative Report as well as in the transmittal letter accompanying the AUW/UCA estimate.

To illustrate how the heading data is entered in the IPMR Format 1 (Block 5.c and 5.f are equal), see Figure 1 below. This example assumes the entire contract is AUW/UCA to clearly illustrate the proper approach. Negotiated Cost (Block 5.b) is zero because the entire scope of work has not been negotiated. Target Profit/Fee (Block 5.d) is zero because AUW does not have profit/fee. Target Price (Block 5.e) is zero because the Negotiated Cost and Target Profit/Fee are zero. The Estimated Price, Most Likely Estimated Cost at Completion (Block 6.c (1)), and Contract Budget Base (Block 6.c (2)) are equal. 

Figure 1: Example IPMR Format 1 where the AUW (5.c.) and Estimated Price (5.f.) are equal.
Figure 1: Example IPMR Format 1 where the AUW (5.c.) and Estimated Price (5.f.) are equal.

Example of a Format 5 narrative for this approach follows.

Funding Status: Undefinitized Contract Action (UCA) contract value: $30,563,565. Current funding: $9,647,000.

Significant Events:
  1. UCA contract award: September 2022.
    1. In the IPMR Format 1 Block 5.c the estimated cost of Authorized Unpriced Work (AUW) and Block 5.f Estimated Price, the amount of $30,563,565 reflects the proposed cost. The Most Likely Estimated Cost at Completion and Contract Budget Base (Block 6.c.(1) and (2)) reflect the same amount.
    2. Note: Once the work scope is definitized, the fee amount for the scope of work will be determined and displayed in the appropriate Blocks (5.d, 5.e, and 5.f). The proposed fixed fee amount for the UCA was documented in our proposal.
  2. Expected award date of the definitized contract has changed to December 2023.
  3. We performed a comprehensive EAC (CEAC) in June 2023.

Option Two

Another approach is to include the fee for the AUW/UCA value based on a long standing relationship with the customer. An example is a four year CPFF contract where a contractor can expect the same calculated fee when they negotiate the AUW/UCA. For a contractor with a proven history with the customer, they could reference a known historical fee percentage for similar work effort to document the assumed fee percentage in their transmittal letter with the accompanying the AUW/UCA estimate.

See Figure 2 as an example of including fee. The AUW/UCA amount would be included in the IPMR Format 1 Block 5.c. However, the Estimated Price in Block 5.f would include the profit/fee amount for the AUW/UCA. Also, the Most Likely Estimated Cost at Completion (Block 6.c (1)), and Contract Budget Base (Block 6.c (2)) are equal to the Block 5.c since they do not include fee.

Figure 2: Example IPMR Format 1 where the AUW (5.c.) excludes fee and the Estimated Price (5.f) includes fee.

Note: including the profit/fee amount in the Estimated Price is clearly in violation of the EVMSIG and IPMR/IPMDAR DIDs. Why this approach was taken must be addressed with the customer prior to report submittals. This action of including the fee in Block 5.f must be fully disclosed in the IPMR Format 5 or the IPMDAR Performance Narrative Report. This is required to reconcile the heading numbers. Example of a Format 5 narrative for this option two approach follows.

Funding Status: Undefinitized Contract Action (UCA) contract value: $32,609,629. Current funding: $9,647,000.

Significant Events:
  1. UCA contract award: September 2022.
    1. In the IPMR Format 1 Block 5.c the estimated cost of Authorized Unpriced Work (AUW) in the amount of $30,563,565 reflects our proposed cost of $32,609,629 less our anticipated fee of $2,046,064 as documented in our proposal. Per the DID, Block 5.c. does not include fee or profit. The Most Likely Estimated Cost at Completion and Contract Budget Base (Block 6.c.(1) and (2)) is equal to Block 5.c. (AUW).
    2. In the IPMR Format 1 Block 5.f, the Estimated Price includes an anticipated fee amount documented in our proposal which is consistent with our long term relationship. It is equal to our proposed cost ($30,563,565) plus fee ($2,046,064) for a total of $32,609,629.
  2. Expected award date of the definitized contract has changed to December 2023.
  3. We performed a comprehensive EAC (CEAC) in June 2023.

Best Practice Tips

You are likely to encounter a more complex situation than the one illustrated in Figures 1 and 2 where some work scope has been defined and fully negotiated and other work scope is AUW/UCAs. Regardless of which option was used to report AUW/UCA and fee amounts, clearly explain the basis for the numbers in the heading information to ensure the customer is able to reconcile the numbers (Block 5 heading values highlighted in the red boxes in Figures 1 and 2).

Based on our decades of experience with all types of contractors and a variety of government agencies, here are few recommendations for you.

  • Be sure your EVM System Description or related procedures explain how to handle AUW/UCA including how to report contract total values in the IPMR or IPMDAR for specific contract types.
  • Verify your EVM training courses include a section on handling AUW/UCA and the rules that apply. It often helps to remind project personnel of the basic budget flowdown reconciliation math and which budget components include or exclude fee.
  • Document how you intend to handle fee for the AUW/UCA in your proposal to ensure your customer clearly understands your intentions. Using the example of the option one approach discussed above, be sure to state your intentions to determine a fee amount once the work has been fully definitized and negotiated so the customer knows what to expect. Using the example of the option two approach above, reporting a fee for AUW/UCA amount before the work is fully negotiated is in violation of the EVMSIG and DIDs. Verify this approach is acceptable with your customer before you submit your reporting deliverables. 

H&A earned value consultants often assist clients with EVMS and contracting situations where the government customer’s policy or other guidance can be subject to interpretation. Call us today at (714) 685-1730 if you need help determining the best course of action for your situation. 

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