ACWP - Humphreys & Associates

Planning and Managing EVM by Elements of Cost (EOC) – Use a New EOC – Part 3

By Humphreys & Associates / May 1, 2019 / ACWP, BCWP, CAM, earned value training, Elements of Cost, EOC, EVM Training

ACWP, BCWP, CAM, earned value training, Elements of Cost, EOC, EVM Training

<< Review Part 2

In Part 2 we talked about the over-application of EOCs at or below the Work Package level and how a CAR assuming that a charge against an Element Of Cost (EOC) equals a charge against a “zero-budgeted WP” was inaccurate.

Use a New EOC

Both of the examples from part 2 were over-applications of the EOC requirement. The point here was that the work (it was to design a circuit card), was planned as labor and was also accomplished (earned) in the month it was planned; so the value would be “earned” as planned. In that period, however, it happened that the planned resource was not available, so the work was actually accomplished using a different EOC such as a subcontractor engineer. The contractor’s system properly showed that the design had been completed and the value earned and that the ACWP for that completion was also in the system (i.e. consistent with the BCWP). However, it just happened to be the Subcontract EOC instead of the Labor EOC originally planned, and the CAM addressed the cost difference in the VAR for the Control Account. The team’s comments on the CARs were that the CAM should have replanned the effort using the new EOC instead of the original one. The problem with this is that in many cases the CAM does not know the original resource is not going to be available until the day it happens. There would (1) be no time to process the change and (2) the change would occur in the “freeze period” (actually in the current month), and (3) this could result in unnecessarily large numbers of Change Requests since these types of events commonly occur in the industry.

Noted instances:

Work planned and earned as internal labor (Labor EOC) had to be performed by contract support (subcontract EOC) in that period because of the non-availability of the planned resource.
[Some Contractors consider each labor grade a separate EOC within labor] Work planned and earned for an Engineer 2. However, the period the work was performed used an Engineer 3 (higher cost).
The plan was to build sub-assemblies in-house (Labor EOC), but a machine breakdown necessitated having a vendor provide substitute off-the-shelf assemblies (Material EOC) that month.

In each of these cases, the “EOC ACWP substitution” was temporary, and the work resumed the next period as planned, using the originally planned Element of Cost. The key here is that in each case, the work was performed, and so it was earned; as it should have been. The only difference was that a different EOC was used to accomplish the work – a simple Cost Variance. While it is certainly true that each WP (and PP) should be planned and WPs earned using a single EOC, the misinterpretation here was that every EOC then is a Work package and they are not. In other words, temporarily using a different Engineer category than planned, or using contract support instead of internal labor, or substituting a purchased material item instead of fabricating internally, etc. simply represents a Cost Variances, and should not be cited as a violation of the EVMS Guidelines.

The “consistency” required by the Guideline and the sub-question is that the EOC actually used was expended in the same period in which the work was completed and the Earned Value claimed (i.e. consistent with the BCWP). The variance analysis would show BCWS, BCWP, and ACWP at the CA level with the EOC details at lower levels.

Now for the big “HOWEVER”!

If the switch in use of the alternate EOC is short term, then the differences should be addressed as a Cost Variance (which could be higher or lower than with the planned EOC); HOWEVER, if the change is expected to be permanent or long term, then the CAM should replan the remainder of the work package using the new EOC, and the EAC should be updated, as well, to reflect the new anticipated total cost using that revised EOC.

Note: Some contractors have what is called a “gray badge” environment, whereby a subcontractor charges their labor directly into the Prime contractor’s labor system. Under this arrangement, for this subcontractor, there would be no difference in EOC if the subcontractor performed the work instead of the prime contractor.

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

Planning and Managing EVM by Elements of Cost (EOC) – Use a New EOC – Part 3 Read Post »

EVMS compliance: Material Transfers and Loan/Paybacks

By Humphreys & Associates / March 25, 2015 / ACO, ACWP, BCWP, DCAA, EVMS, Loan, Material, MMAS, payback, TBLP

ACO, ACWP, BCWP, DCAA, EVMS, Loan, Material, MMAS, payback, TBLP

Earned Value Management System (EVMS) Compliance | Material Transfers and Loans/Paybacks

Last Updated May 22, 2025

In a high rate production environment, it is not unusual for different Contract Lot Buys to have demands for the same required parts. Circumstances driven by delivery schedules, fee incentives, national priorities, or quality issues will prioritize the demand for these common parts. Companies must ensure they are able to respond to these dynamics while satisfying contractual requirements and continuing to remain compliant with the EIA-748 Standard for Earned Value Management System (EVMS) guidelines. A documented Material Transfer and Borrow and Payback (e.g., TBLP) policy/procedure describing a disciplined, auditable approach is a mandatory prerequisite for project managers in an EVMS contract environment.

Material Management and Accounting System (MMAS)

There are a number of applicable Government documents that come into play but none more important than the Material Management and Accounting System (MMAS). It is a DoD Policy (DFARS 242.7202) that contractors have a MMAS that:

(1) Reasonably forecasts material requirements.
(2) Ensures the cost of purchased and fabricated material charged or allocated to a contract are based on valid time-phased requirements.
(3) Maintains a consistent, equitable, and unbiased logic for costing of material transactions.

DFARS.242-7004 Material Management and Accounting System Subpart, paragraph (d) System criteria includes a list of requirements. Selected subparagraphs discuss material transfers and loan/paybacks as follows:

Subparagraph 6 (Material Transfers) requires the contractor’s policies and procedures provide detailed descriptions of circumstances that will result in manual or system generated transfers of parts.
Subparagraph 7 (Material Costing) requires that the contractor’s system transfer parts and associated costs within the same billing period or use an Administrative Contracting Officer (ACO) approved “Loan/Payback” technique.
Subparagraph 8 (Inventory Allocations) requires that the contractor’s system handle allocations of common inventory in such a manner as to preclude improper allocation and costing of allocations.

Material Transfer versus Loan/Payback

For a number of reasons, a material transfer involves the most problematic issues for accommodating changing demands and priorities for common parts:

Transfer costs are based on labor, material and applicable burdens when originally incurred and not based on the year when they are physically transferred (i.e. 2024 costs vs. 2025 costs). Related funding issues may also surface (requesting 2014 funding to ‘build’ a 2024 requirement in 2025).
Replacement costs will, in most cases, be at a higher value and there may be a potential schedule impact; both represent negative impacts to the customer.
Previously reported Budgeted Cost for Work Performed (BCWP) and Actual Cost of Work Performed (ACWP) for work already accomplished will be impacted.
Potential for inadvertently gaining a cost benefit when transfers are made between a Cost Plus and Fixed Price contract.

A transfer approach should only be considered when there is no replenishment currently in the procurement system. If there is a replenishment currently in the ‘pipeline’ then a loan/payback approach should be used as this will result in no cost transfer.

Under a loan/payback scenario, a part is moved temporarily from the contract, but the cost of the part remains on the contract. As noted earlier, contractor procedures for the loan/pay-back technique must be approved by the ACO. When the technique is used, the contractor must have controls to ensure that:

Parts are paid back expeditiously.
Procedures and controls are in place to correct any over-billing that might occur.
Monthly, at a minimum, identify the borrowing contract and the date the part was borrowed.
The cost of the replacement part is charged to the borrowing contract.

Material management and planning within an EVMS environment is quite challenging. Thankfully, there are a number of Earned Value Management Systems software programs available to assist contractors in meeting and managing this challenge.

A number of Humphreys & Associates earned value consultants have extensive experience in production environments that can assist in guiding your efforts in this complex endeavor to ensure a firm foundation is established that meets or exceeds your material management and EVMS needs. Call us today at (714) 685-1730.

EVMS compliance: Material Transfers and Loan/Paybacks Read Post »

Aligning ACWP with BCWP for Proper EVM | Earned Value Management

By Humphreys & Associates / May 1, 2013 / ACWP, BCWP, EVM, EVMS, Material

ACWP, BCWP, EVM, EVMS, Material

Last Updated May 22, 2025

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

Estimated ACWP is an adjustment to the actual cost data imported into the EVM cost tool as the Actual Cost of Work Performed (ACWP) to align ACWP with Budgeted Cost for Work Performed (BCWP). Estimated ACWP is synonymous with “estimated actuals.”

Why is Estimated ACWP necessary?

Without Estimated ACWP, timing mismatches between ACWP and (BCWP) cause false cost variances to be calculated in the EVM cost tool as well as from the data in the Integrated Program Management Data Analysis Report (IPMDAR) Contract Performance Dataset (CPD). Typically these variances are favorable and can mask other unfavorable variances. Additionally, if these variances exceed reporting thresholds, the explanations clutter the IPMDAR Narrative Report with variance explanations that discuss timing problems of the accounting system rather than actual performance issues.

When should Estimated ACWP be used?

Estimated ACWP is most typically required for material costs. For example, when BCWP is claimed upon receipt of the material, the payment for accrued costs in the accounting system typically occurs one or more months following material receipt, which creates the timing mismatch between BCWP and ACWP in the EVM cost tool. Other cost element types that may require Estimated ACWP include subcontracts and Other Direct Costs (ODC). Examples of ODCs that may require Estimated ACWP include staff augmentation, purchased labor, and travel.

How does Estimated ACWP function?

Receipt-type material:

First, a determination must be made whether Estimated ACWP is necessary. For some categories of material, when a material item is received, the BCWP is claimed in the EVM cost tool. If actual costs for the materials do not enter the accounting system in the same period that the BCWP was claimed, Estimated ACWP is necessary to ensure ACWP occurs when BCWP occurs.
Second, the Estimated ACWP adjustment is entered into the EVM cost tool as a current period transaction. The amount of the Estimated ACWP is based on the best information available for the material item (often accrued costs in the accounting system) using the invoice, purchase order, or receiving report.
Third, the Estimated ACWP adjustment transaction is reversed in the EVM cost tool when the actual costs are recorded in the accounting system; this could be the following reporting period or later. If actual costs were to come in that month and the transactions were not reversed, the ACWP would be double-counted when the actual cost data from the accounting system is imported into the EVM cost tool. Also, the Estimated ACWP transaction should be recorded in a log to maintain traceability.

Production-type (inventory) material:

For production type materials, or materials that are common to many control accounts or even contracts, that go into inventory, earned value is claimed upon issuance from inventory, sometimes several months after receipt of the material and after the incurrence of actual costs in the accounting system. In this case, the opposite condition would exist. The accounting actuals occur before earned value is claimed for material. The EVM rules in the EIA-748 Standard for EVMS Revision D Guideline 21 or Revision E Guideline 14 (and common sense) state that ACWP is not to occur until BCWP takes place. Therefore, the accounting actual costs have to be “suppressed” from entering the EVM cost tool until material earned value is claimed. Since some companies say they cannot suppress actual costs, they let the actual costs enter the system, but make an off-setting “Negative Estimated ACWP” entry in the EVM cost tool until the material is issued and BCWP can be claimed for the material.

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

Aligning ACWP with BCWP for Proper EVM | Earned Value Management Read Post »

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

By Humphreys & Associates / September 12, 2012 / ACWP

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 »