I have read several Earned Value Management(EVM) reports, papers, and articles that debate what company organization should “own” EVM and the company’s Earned Value Management System (EVMS). These debates most often mention the programs’ organization and the finance department as common EVM “owners.” The majority opinion seems to be that because EVM is a program management best practice it belongs in programs. A minority opinion is that because EVM is denominated in dollars, schedule included, and because EVM reports are financial in nature, EVM belongs in the finance department. Before we dive into this debate, a summary of the responsibilities of a Chief Financial Officer (CFO) and of the head of programs is useful. In our company A and company B examples to follow, both the CFO and the head of programs report to the company president.
WHAT ARE THE DUTIES OF A CHIEF FINANCIAL OFFICER ( CFO)?
A CFO has three duties, each measured in the time domain. The first duty of the CFO is as the company’s controller and is responsible to accurately and honestly report past company financial performance. The CFO is also responsible for the current financial health of the company – to insure that today’s decisions create rather than destroy value. And lastly, the CFO must protect the company’s future financial health and that all expenditures of capital maximize future financial health. Every business decision, especially those of the CFO, are either good decisions (are accretive – increase shareowner value) or are bad decisions (are dilutive – destroys shareowner value).
WHAT ARE THE DUTIES OF THE HEAD OF PROGRAMS?
The head of programs is typically a Vice President or higher and all program and project managers report to him or her. The head of all programs has profit and loss responsibility for his or her portfolio of programs and projects. In addition, each program is responsible for achieving the technical, cost and schedule requirements of the contracts it is executing on behalf of its customers.
A TALE OF TWO COMPANIES:
I will now describe first-hand experiences with two companies and how each company decided who should “own” EVM.
Company “A” had EVM assigned to the finance department. All EVM employees were overhead, even those assigned to a program. A new CFO arrived and quickly decided to reduce indirect costs, declaring that he was “coin-operated.” The new CFO terminated the employment of all EVM employees. Each program attempted to create an EVM branch office but failed. A level 3 CAR enumerating EVM deficiencies was issued and the CFO was fired. A second “new” CFO arrived and agreed to transfer EVM to the head of programs. The head of programs was instrumental in changing the disclosure statement making EVM personnel assigned to a program a direct charge to that program / contract. The head of programs created a Program Planning and Control (PP&C) organization and demanded all PMs and their program members to quickly learn, use and master EVM. A program control room was built with five screens. Daily 2:00 pm EVM data-driven reviews were held on short notice. These daily reviews became known as “CAM Bakes.” The EVM and program management culture changed quickly and dramatically at Company “A.”
Company “B” had EVM assigned to the CFO who was as “coin-operated” and unaware of EVM as the first “new” CFO of Company “A.” The culture of company “B” was very hostile to EVM, so it probably did not matter who “owned” EVM. The company failed 16 of 32 guidelines and was decertified. Significant withholdings were imposed and the company’s reputation was damaged. Several top managers hostile to EVM “sought employment elsewhere.” A new CFO arrived who was also “coin-operated” but expert in EVM. The new CFO formed a partnership with the head of programs. The new CFO was as much a PM as he was a CFO. The new CFO told his direct reports assigned to each program to “make the program managers successful.” And they did exactly that.
The new CFO understood that the company was the sum of all its contracts and that every dollar flowed from its customers. The EVM and program management culture at Company “B” changed rapidly.
Who Should “Own” EVM? Programs or Finance?
Returning to our original question of who should “own” EVM, the majority theory is that the Programs’ organization should “own” EVM. All else equal, I tend to agree with this theory.
However, while theory is suggestive, experience is conclusive. My experience at Company “A” proved that a strong programs’ leader could change the EVM and program management culture of a company rapidly. My experience at Company “B” proved that a CFO could “own” EVM and be successful at changing the company’s EVM and program management culture. The CFO and the head of programs must form an EVM partnership no matter who “owns” EVM.
One of the Earned Value Management (EVM) topics that always initiates lively debate is the planning of Scrap, Rework, and Repair (SRR). These debates often become very emotional. So, what makes the topic of planning SRR so emotional? There are two primary factors. First, you are planning for something that is not in alignment with a success oriented plan. In an ideal project there would be no Scrap, Rework, or Repair. Second, we do not know what parts will require SRR or when it will occur. Let’s start with baselining some definitions:
Scrap – Manufactured articles or parts that are rejected or discarded. Waste that either has no economic value or only the value of its basic material content. Examples include a part that was made too small or a part that was damaged and could not be repaired.
Rework – The process of bringing a non-conforming part back into conformance by re-performing a previous process step. An example would be a part with a hole that was drilled undersize that could be re-drilled to the correct size.
Repair – The process of bringing a non-conforming part back into conformance by using a process outside the original process. An example would be a part that was painted and the undersized hole was not discovered until after it was painted. The repair now requires additional process steps, of stripping and re-preparing the material, that were not part of the original process. (Note: for this discussion we will focus on inline repairs. Repairs that arise post acceptance are not included in this discussion.)
Along with these basic definitions, we need to understand how your company defines and handles these costs. Some companies treat these costs as indirect and some treat them as direct costs. When these costs are classified as indirect costs, the company establishes material overhead pool(s) that collect the costs for allocation across the direct material dollars. These pools might be segregated by material type and have different allocation bases. A company’s CASB Disclosure Statement will define the pools and bases. Some companies treat these as direct charge items and will have procedures for the treatment of SRR and non-conforming material costs. RULE 1 – The budgeting of SRR must be consistent with the way costs are collected and charged. Because of the vagueness of knowing what parts will require SRR and when it will occur, the indirect costing approach is the most straight forward method within an Earned Value Management System (EVMS).
Next we need to understand how your company’s shop floor works and how non-conforming material is handled. Most shop floors work with shop orders that are issued to direct how parts are processed and routed through the process. As a part is processed into a higher level part or subassembly the costs are usually collected at that next level part/subassembly. In this way each part’s cost can be established by summarizing all the lower level parts and routing steps. In an EVMS, these shop orders are usually grouped into work packages. Usually the shop floor has procedures in place to identify the cause and corrective action associated with an issue when a part is identified as non-conforming. The corrective action approach will define what will have to be done to resolve the issue. The corrective action can be anything: scrapping and starting over from an earlier process step with an updated procedure, re-procuring, repairing, or reworking. In any corrective action approach, new procurement request(s) and/or shop order(s) will be issued with new direction. The costs are then collected and handled based on how your company has defined the process. Most companies have an additional requirement to segregate these costs to support their Cost of Quality program/system. (We could dive deeper into the processes for each scenario, but that is not the focus of this blog.)
Now that we have some basic understanding of what SRR is, how it is handled on the shop floor, and how it is costed, we can look at how to budget it in an EVM environment. Remember, we do not know what parts will need SRR, and for those that will need SRR, we do not know when it will be needed.
Let’s take the indirect costing approach first. The budget for SRR is established by the overhead factor being applied to the base cost. The value of the overhead rate is determined based on the annual planning process. As a dollar of the base material pool is planned, the SRR rate is applied. An owner is established for each pool that will also be the source for future variance analyses and forecasts.
For the direct costing approach there are several options. The following are the most common planning and budgeting options used:
Control Accounts with Planning Packages
Summary Level Planning Packages
Management Reserve
Unplanned SRR
The first 3 options have an amount of SRR that has been identified either as a factor based on historic data or as part of the Risk Management process. This SRR is usually identified to an assembly, sub-assembly, or part. The fourth option addresses an SRR event that was not planned in the baseline.
The first option is to include SRR in the Scope of Work for the production Control Account(s). The CAM then establishes one or more planning packages for SRR. The planning package(s) are associated with a grouping of parts and/or timing for effort in the future beyond the detailed planning horizon. As SRR is identified, the planning package is detailed planned (partially or in its entirety) into a work package. The procurement directions and/or shop orders that make up the non-conforming corrective action are grouped to make up the work package. In this approach it is possible that the conversion from planning packages to work packages will occur in the current accounting period; note that this approach might be in violation of a company’s defined freeze period procedure. When there is enough insight into the items identified as possible SRR candidates, including the timing of the SRR, a budget will be pulled from the planning package into a work package as part of the normal rolling wave planning cycle. The goal always should be to plan the effort into work packages as early as enough information is available. In this scenario the CAM will assess performance, perform variance analyses, and provide forecasts.
The second option is to budget a Summary Level Planning Package (SLPP) at a WBS level higher than the Control Accounts. This approach is used when SRR is planned for a WBS element but the specific Control Account cannot be identified. This budgeting approach works similar to converting from planning packages to work packages, but there are additional steps to authorize and issue scope and budget from the SLPP to the CA. The Program Manager, Integrated Product Team Lead, or WBS Element Manager will provide forecasts for the SLPP as part of the EAC process.
The third option is for the Program Manager to hold the budget for SRR in Management Reserve (MR). As SRR is identified, the CAM will request MR using the normal change control process. The PM will address the MR when analyzing the program’s overall performance.
The fourth option addresses how to handle unplanned SRR. Often these approaches of creating new Work Packages and making Earned Value adjustments may “violate one or more EVMS rules” but pass the cost/benefit common sense rule. In this option the new procurement direction and/or shop orders are added to the existing work package grouping. There is no new budget allocated and the additional actual costs that are collected are explained as a variance. If that work package had been closed it will need to be re-opened. If cumulative BCWP is now overstated, it may need to be adjusted (de-earned) to reflect that work is still remaining. The ETC/EAC is also updated to reflect the estimated timing and cost for the SRR. If you select this approach, make sure your system description and procedures allow for these exceptions to generally accepted rules. This approach may drive numerous anomalies in the EVM data, which will need to be explained in Format 5 of the Contract Performance Report or Integrated Program Management Report.
If the SRR is a large amount of work and will take a significant amount of time, it might warrant establishing an Over Target Baseline/Schedule (OTB/OTS). If this is the case, be sure to discuss the approach with your customer.
Additional Cautionary Tales and Lessons Learned:
Cost versus Benefit – Make sure that your manufacturing system can support what is described in your EVM System Description. Also, understand the cost impact for the process benefits that you are designing. Sometimes the benefit does not justify the cost.
Understand how your manufacturing and accounting systems handle scrap, rework, and repair. These are the source systems that will drive how you handle SRR for Earned Value Management.
Material and Labor Cost in the Same Work Packages – If the part that requires repair or rework was a buy item, it was budgeted as material. The repair or rework may appear as labor. Some systems restrict the comingling of production material and labor in the same work packages. In the case of SRR that restriction should not apply.
Purchasing Clauses – Ensure that SRR and the associated costs are adequately addressed in purchasing clauses for buy parts. Also, make sure you understand how major subcontractors with an EVMS flowdown requirement handle SRR in their systems.
Fast Tracking increases the risk of SRR – Starting Low Rate Initial Production prior to completing the design and development effort will lead to starting production with a dynamic technical data package. This increase in risk will also increase the amount of SRR that can be expected on a project.
SRR outside the shop floor – There are similar issues that need to be addressed when performing Software, Integration, Spares, Tooling, and Testing efforts.
Make sure your system description reflects how you handle the budgeting, earning, estimating, and costing of SRR.
We only addressed the topic of BUDGETING Scrap, Rework, and Repair at a summary level in this blog. The devil is always in the details. We recommend that you test your approach in your systems prior to implementing to ensure your tools operate as you expect. If your EVMS is validated through the DCMA, or other validating/certifying agencies, you should seek their approval of your procedures prior to implementation. Also, the Integrated Master Schedule (IMS) process and Risk/Opportunity Management System need to address SRR.
This article provides an introduction to the differences between an Earned Value Management System (EVMS) and Agile approaches on projects, and isolates the challenges of implementing an EVMS on a project where the project management has chosen to follow an Agile approach to the development work. The article explores the principles of EVMS and of Agile, and contrasts them to show where there are inherent conflicts. The article then discusses how the conflicts can be mitigated so that the benefits of both the EVMS and Agile can be obtained from a joint implementation.
Earned Value Management is a 50 +/- year old methodology based on widely accepted principles that applies documented, systematized practices to support the processes of organizing, planning, directing, and controlling large complex projects, of any nature, which contain a high degree of uncertainty.
An EVMS is structured compliant to 32 guidelines that define what a project management information system should be capable of doing to support the program management team. Within the 32 guidelines there is a subset of generally recognized core principles. The core principles are:
Organize the entire scope of the project using a Work Breakdown Structure (WBS).
Organize the project team using an Organization Breakdown Structure (OBS).
Integrate the project work with the project team to create management control points (Control Accounts).
Schedule the project work in the Control Accounts across the entire project duration at the appropriate level of detail.
Establish time-phased budgets for the scheduled work in the Control Accounts.
Establish the scope/schedule/budget baseline as the Performance Measurement Baseline (PMB).
Authorize the scope/schedule/budget and control the start/stop of work.
Periodically measure the schedule and the value of completed work and determine the Earned Value.
Record direct costs (actual costs) and summarize into the Control Accounts.
Compare planned, accomplished, and spent to analyze the performance and associated variances.
Develop realistic time and cost estimates for the remaining effort in the Control Accounts.
Rigorously control changes to the Performance Measurement Baseline.
The EVM concept presented in these guidelines is a sound management approach, that once incorporated on any type of program, whether research and development, construction, production, etc. provides all levels of management with early visibility into cost and schedule problems. Earned Value Management now appears as a contractual requirement on programs world-wide. Primary EVM users include the United States, Europe, England, Canada, Australia, China, and Japan. It is a requirement of many U.S. Government agencies, including the Department of Defense (DoD), the National Aeronautics and Space Administration (NASA), the Department of Energy (DOE), the Intelligence Community, the Department of Homeland Security (DHS), the Federal Aviation Administration (FAA), the Department of Transportation (DOT), Health and Human Services (HHS), and others.
EVMS has been adopted by companies in situations where it is not a contractual requirement so that they can gain the discipline and benefits of the structural management approach discussed in the guidelines.
Flexible Planning with Agile
Agile Background
Agile is a 20 +/- year old approach to applying a mindset that values the use of small, empowered, self-organizing, multi-functional teams, mainly in software development, to establish a test driven product development effort. This uses a series of short, rapid incremental builds within projects with a high degree of uncertainty to achieve shorter development times, lower costs, and products more closely aligned with customer requirements.
Agile does not usually appear as a contractual requirement. The concept is adopted by companies and organizations with the belief that a better product will be produced faster, and with less expense, using this approach than if traditional approaches were followed.
There are a core set of principles for Agile that were initially established in the copyrighted Agile Manifesto. These delineated core principles are:
Early and continuous product delivery.
Deliver working software (product) frequently.
Expect change and respond positively to change.
Developers and project business organization (PMO) work together.
Product-focused build teams are at the core.
Support self-organizing teams – trust among peers.
Encourage face-to-face discussions (involve the user/customer).
Working software is the measure of progress.
Maintain a constant sustainable pace of development.
Simplify the process and the product.
Put the highest value on technical excellence.
Improve team effectivity.
So How Does Agile Work?
The Agile mindset or approach is implemented through a process of defining the product backlog into smaller and smaller subsets of work that are structured in a top down fashion. At the lowest level of product backlog, the work elements or requirements can be prioritized and assigned to teams. The self-organizing teams pull work from the backlog and work the tasks to completion in a series of short, time-fixed Sprints or iterations. Sprints are often from 2 to 4 weeks long.
Because the teams are self-organizing, there is no team manager or team lead. The teams work as a group and only pull from the backlog at the last possible minute, and do minimal planning for each Sprint. If the product backlog is properly deconstructed and defined into user stories, then the planning meeting for an entire 4 week Sprint can be accomplished in a few hours.
The teams design, code, test, integrate, and deliver functionality in every Sprint. Since tested product is output every few weeks, all on the project can see the product being created and can contribute along the timeline, as needed, to provide a complete finished product.
The product owner embodies the customer’s perspective and either accepts or rejects the team’s work. At the latter point of each Sprint, the tested product is demonstrated to the product owner.
High Level Side-by-Side
The two approaches are contrasted in the chart shown below. The EVMS is a methodology that is highly documented and highly systematized, while Agile is just the opposite. It is more of a mindset than a methodology with the preference not to have significant process documentation.
The EVMS is applied to entire projects and contracts, while generally Agile is applied to software portions of projects. However, it could also be used on other development work.
The EVMS is usually a contractual requirement with significant implementation and operation constraints while Agile has none of these. As a contractual requirement, the EVMS carries with it the option for customer reviews and the threat of non-compliance, which entails penalties.
EVM
Agile
Methodology
Mindset
Documented
Self-defined
Systematized
Self-defined
Any type of project
Software development (mainly)
High degree of uncertainty
High degree of uncertainty
Applied to the entire project
Applied to portions of the project
Often a contractual requirement
Adopted not required
Lower Level Side-by-Side
In addition to the high level side-by-side, there are significant differences within the details of the two approaches. These are shown in the side-by-side table below.
Agile
EVMS
Minimal documentation
More documentation
Plan at last moment
Plan ahead to end of project
Scope is flexible
Scope is baselined and controlled
Expect and embrace change
Avoid and/or control change
Schedule (Sprint) is fixed. Timebox ends the Sprint.
End the package when the work is done.
Budget is secondary
Budget is baselined and controlled
Cost collection is not mentioned.
Cost collection at the right level is critical
Accommodate and Capitalize on Differences
It is possible to implement Agile along with an EVMS if the EVMS application is set up to accommodate the differences and capitalize on them.
For example, the main reason that Agile’s embrace of change is a potential problem within an EVMS is because often the EVMS is used to plan too far in advance, and then reacting to change is difficult and expensive. If short term planning in the EVMS can be coordinated with the Agile planning, then the two can coexist.
The Agile free acceptance of scope changes within the backlog runs counter to the EVMS imposition of baseline change control. But if the EVMS baseline can be carefully set at a work level above the busy lowest level ups and downs, the impact to baseline change control is manageable.
A surprising chance to capitalize on Agile, within the EVMS, is found in the Scrum team approach in Agile where the team breaks work down into tasks far below what would normally be done in an EVMS, and then meets daily to update progress and provide corrective action. This low level constant attention means that the EVMS benefits from a better look at real progress as assessed by the real performers.
Not all the compromise needs be on the EVMS side of the equation. The Scrum team operations will often be defined to have the least possible recording of what happens during the Sprint. Since the product is king, then only the product really matters. But that misses the opportunities to capture the actions of the team for analysis, and use in upgrading their skills later. Necessary compromises would include some additional recording of the daily actions of the team and capturing the progress and problems. These would then be used in the EVMS functions of performance measurement, variance analysis, and corrective action planning.
One other compromise in the Agile realm that would be needed is the adoption of some minimum documentation of processes so that team operations can be repeatable and stable. Even a self-organizing team cannot change the way they work every time it wishes. That would raise the risk of a chaotic work environment.
These topics are recapped in the table below.
Agile
EVMS Accommodation
Scope is flexible
Select a higher level package for the baseline
Change is expected and embraced
Have the shortest possible planning horizon
Plan at the last possible minute
Have the shortest possible planning horizon
Daily Scrum Stand-up Meeting
Collect the data and use it for performance measurement
Sprint Review Meeting
Use for periodic measurement and analysis
Sprint Retrospective Meeting
Use in Corrective Action Plans
Lack of documentation
Add minimum documentation to stabilize team operations
Bottom Line
Implementing an EVMS is a challenge itself. Implementing Agile is a challenge too; perhaps a more difficult challenge. Implementing the two approaches side-by-side can seem impossible. But it is possible and even beneficial if done in a way the makes needed accommodations in both arenas for the project’s benefit.
I took the scenic route to selecting the theme of this blog. First, it was suggested that I write a blog on the benefits and costs of the earned value process as it applies to program management. Next it was suggested that I describe the harm of not using any of the elements of the earned value process.
In the case of the benefits and costs of the earned value management process, it would be difficult to improve upon Dr. Christensen’s 1998 paper on this heading or to attempt to improve other papers and studies done by Wayne Abba, Gary Humphreys, Gary Christle, Coopers & Lybrand and others. So I will not make citations to these past studies. Rather I will leave them undisturbed, as the monuments they have become.
This blog will summarize my observations of how companies have chosen “how much EVM is enough” for them and share my observations of the results of these decisions. Each company has selected an EVM implementation strategy and each company’s strategy falls along a bounded continuum.
I will describe this continuum of company EVM strategies with a left hand and a right hand goal post, and the space between as a cross bar. The “left hand goal post” represents companies that elect to be very poor at EVM or to not use EVM at all. The “right hand goal post” represents companies that have committed to being “best-in-class” practitioners of the EVM process and are the polar opposite of the companies at the left hand goal post. There are few companies at either the left or right hand goal posts. The “cross bar” represents the vast majority of companies that have selected an EVM strategy somewhere between the left and right goal posts.
Two Goal Posts And A Cross Bar; Recalcitrant, Merely Compliant, Efficiently Expert
There are as many strategies to earned value management as there are companies using EVM to manage their programs and projects.
Left Goal Post; The Recalcitrant
I have firsthand experience with a company, that at the time I initially joined them and had decided to ignore earned value management even though it was a requirement in several of its contracts. After many painful years of attempting to maintain this recalcitrant EVM strategy, this company decided that a better strategy would be to become “efficiently expert” at EVM.
Cross Bar; Merely Compliant at EVM
It has been my experience that most companies desire to “become EVM compliant,” which generally means being compliant to the 32 guidelines and not failing those guidelines so as to be de-certified. This is the vast middle ground between the two goal posts. I will now share five observations regarding companies in the “cross bar” majority.
Observation #1: Compliance As A Goal; Golf and EVM
Compliance should be a “given,” or a “pre-condition,” not a “goal.” Remaining merely compliant implies a status quo or static posture.
I will use the game of golf as an analogy. Golf is a game of honor and compliance to well established rules. All PGA professional tour golfers “comply” with the rules that govern golf. Although all PGA tour pro golfers comply with these rules, their performance on tour differs dramatically.
Fifty-three percent of all PGA golf pros, past and present, have no tour wins. That means only 47% of all PGA tour golf pros have won at least a single PGA tour. There are seven players in the history of the PGA that have fifty or more tour wins. If the bar is lowered to forty or more wins, only three players are added to the list. If the bar is lowered yet again to thirty or more tour wins, only eight more players are added to the list. Only 18 golfers have won 30 or more PGA tournaments.
Professional golfers do not confuse compliance with performance, nor do these professionals assume that “being compliant” will improve their performance.
Observation #2: “The Tyranny of The Status Quo”
With apologies to Milton Friedman and his book of the same name, companies that attempt to maintain mere guideline compliance will do no better than the status quo, and more often than not, regress toward non-compliance. Maintaining status quo is a myth – you either improve or regress.
All professionals, companies included, must compete in their markets and selected fields. To succeed in this competition requires constant improvement in areas critical to success. A company, organization, or individual without the means or the desire to improve will eventually fail and perhaps perish.
Observation #3: Blaming The Scoreboard
As a program manager, I considered EVM as my scoreboard. I reacted to the EVM data – the scoreboard – and made decisions based on that data (GL #26).
I recall the 2014 Super Bowl’s final score: Patriots 28, Seahawks 24. Did the scoreboard cause the Seahawks to lose the game or did a poor decision by their coach cause the loss? Imagine a coach that cannot see the scoreboard. That coach does not know the score or how much time remains. That coach cannot react to the realities of the game.
Observation #4: EVM Causes Poor Program Performance
I have witnessed several company leaders assert that the use of EVM on a poorly performing program is the cause of that program’s poor cost and schedule performance. A correlation between two variables, or a sequence of two variables (use of EVM and poor performance), does not imply that one caused the other. This is the logical fallacy known as “X happened, then Y happened, therefore X caused Y.” Night follows day, but day does not cause night. Use of EVM does not cause poor program performance. Not reacting to EVM data and promptly taking corrective action with your program’s cost and schedule performance often leads to poor outcomes.
Observation #5: It Takes More Energy To Be Poor At EVM Than To Be Expert
Returning to the earlier golf analogy, professional golfers make very difficult shots appear easy. I played in one pro/am tournament years ago. The pro I was teamed with took me to the range hours before our tee time. He asked me how many balls I hit before each round. I told him sometimes none and sometimes 50. He hit 1,000 balls before our round. When we finished our round, he was ready for another 18 holes. I was not. Both of us “complied” with the rules of golf. His score was significantly lower than mine. His game was effortless and produced a below par score. My game was labored and produced a poor result.
And so it is with EVM or any other process. The better you are at a skill, the easier it becomes. Experts consume far fewer calories at their craft than ambivalent amateurs.
Right Goal Post; Efficiently Expert At EVM
The polar opposite of a recalcitrant strategy to EVM is a strategy to become “efficiently expert.” As I mentioned earlier, I joined a company that attempted to sustain a recalcitrant EVM strategy. Their recalcitrant EVM strategy led to de-certification, large dollar withholdings, and significant damage to their corporate reputation.
After the most ardent EVM recalcitrants in this company “sought employment elsewhere,” a new strategy was adopted. This company embraced a strategy to become “best-in-class” as expert practitioners of EVM. This company’s goal was EVM perfection. EVM perfection is an impossible ambition, but wiser than “mere compliance.” And as with the PGA tour golf pro, EVM became nearly effortless.
If someone were to ask you: “Can you please give me a detailed explanation of what you will be doing on this date three years from now?” you would probably look at that person as though he or she were crazy. It would probably be difficult to provide a detailed schedule of events for a date one week from now – although that might be more likely since you know a lot more about what might be taking place next week than what might be happening three years out.
In the early days of earned value management, contractors were expected to detail plan the entire length of a program to establish a “good performance measurement baseline.” For a year-long development program this expectation might be okay, but for a 10 to 12 year shipbuilding program it might be unreasonable and probably a monumental waste of time. The program will no doubt change several times before its completion – maybe several times in the first year alone. With industry’s “help” the government soon realized requiring detail plans on lengthy programs was not always possible – or even meaningful – especially when program requirements are often fluid.
The government and industry agreed that contractors could provide an overall (general, straight-line, “average”, etc.) plan for accomplishing a program very much like what is already done in preparing a proposal, and then provide more details on an incremental basis as more became known about the work to be performed. The government is not keen on having contractors do detail planning whenever they felt the urge, so they sought to put reasonable rigor into the incremental planning process. All the work that existed beyond the detail planned work was considered by the government to be general “planning packages”, although contractors were still permitted to detail plan as much of the future work as they wanted.
The government also expected the contractors to identify the planning increments and frequency of planning to ensure there was not a time when the detail planned work was completed and there was no more future work detail planned. The expectation soon became that contractors were to expand a detail plan from those planning packages into detail planned work packages with enough frequency to ensure there was always a minimum number of months of detail plans in place when the next detail planning event took place. It also became evident that more months of detail (often called a “planning horizon”) could be provided on production or manufacturing type work vs. for development type effort.
As this “straight-line” plan was converted into detailed work package plans, the straight line became more curved (such as bell curve or skewed bell curves), with more “waves” rolling in as it became time to detail plan. This type of planning became known as “rolling wave planning”. Some companies call their process “incremental”, “accordion”, or “inchworm” planning process – the name does not matter, so long as the application of the process results in a minimum amount of detail planned work packages always being in place on a program.
A production program might have, for example, a 9 month planning horizon with a quarterly frequency. In this scenario, the program starts with 9 months of detail planning in place. Three months later, the Control Account Manager (CAM) is to look at the next 9 months (6 already detail planned and 3 new months) to make sure the existing detail planning is still good and to plan out in detail those new tasks that should be starting in the new three months of the planning horizon.
A development program however, is likely to use a different planning horizon. Because of program volatility, it often has a shorter horizon and a higher frequency, such as 4 months of detail planning in place, with a one or two month frequency.
An example for a production program is illustrated below. The program manager determines production can do detail planning for nine months and then every quarter review the next nine months for:
New work scheduled to commence in the next three months of the planning horizon and
Five of the six months already detail planned in the prior incremental assessment (depending on the company’s “freeze period”) – WP No. 3 and beyond can be re-planned
Rolling Wave Planning for long term projects is a common area where control account project managers need help. Humphreys & Associates earned value management experts can provide the guidance you need for your unique production or development project. Contact us for more information.
Recall from the previous blog about earning value for material, in which Guideline 21 in the EIA-748-D Standard1 for Earned Value Management Systems (EVMS) states that earned value is measured “…at the point in time most suitable for the category of material involved, but no earlier than the time of actual receipt of material…”
In that previous blog, two high-level types of material categories were discussed for illustration purposes. A common follow on question is “When Guideline 21 mentions category of material, are there pre-set categories of material that companies should use?”
The answer: Material categories are unique to each company, though companies may have general similarities to others in the same line of business. It is also dependent on whether a company has non-production or production type contracts (or both). In the previous blog topic, Engineering Material and Production Material were used as generic examples for material categories assuming a company has some level of production activity.
Even if a company is not a production (or manufacturing) facility, if they have material that sits in inventory for an extended length of time (generally longer than two months), the earned value point should be different from that of engineering (or receipt) type material. Some companies describe their material categories as “receipt type material” and “inventory type material.”
A company’s Earned Value Management (EVM) System Description should describe the various categories of materials that are typical in their line of business.
The easiest type of material category to describe is “tangible” material – objects you can physically touch. This includes items used to build the final product, such as ribs, spars, and bulkheads, wiring harnesses, tubing, pumps, switches, actuators, brakes, hinges, and the like. It can also include major assemblies and subcomponents outsourced to suppliers, like wings, control surfaces, canopies, and doors. Engines are material if purchased under the contract; if they are provided as government-furnished equipment (GFE), they are not part of the material element of cost.
Ancillary materials used during the manufacturing process also fall under the material category. These include items such as paint, caulk, glue, nuts, bolts, rivets and similar components.
All the items listed above fall into a category called “recurring” material. These are materials that are purchased repeatedly and are essential to building the final product.
Another important material category – separate from the components used in the final product – is the tools and fixtures used in the factory to build up the product (excluding capital assets). If purchased under the contract, they are considered part of the material element of cost. Unlike recurring materials, these items are typically purchased once and are used to build many finished products. This type of material is referred to as “non-recurring.”
Some contracts include the acquisition of spares to support the finished product after delivery. If spares are purchased, they count as material. If the spares are manufactured in the contractor’s factory alongside the finished product, the constituent materials that go into the spares also fall under material element of cost.
What about major suppliers? If a major supplier provides a tangible product such as a radar or landing gear, the cost of that subcontract is a material cost. However, the cost of a supplier providing non-tangible products (such as engineering services) is usually classified as a labor expense rather than material.
When dealing strictly with materials used for engineering and/or production related effort, a number of approaches to claim earned value may be needed. This is based on the products a company typically builds for their government customer. Various materials could also have different handling requirements, including bonded stores, with different rules for use, issue, transfer, borrow/payback and so forth. As a result, the various types of materials may have different methods for planning and use and could all use different earned value techniques.
Another consideration when determining the appropriate earned value techniques for production environments is the approach used to determine what is classified as high value material, critical material, and low value material.
High value material and critical material should be planned and earned using discrete earned value techniques
Low value material may be planned and earned as apportioned effort or as level of effort (LOE), as well as being discretely measured
Low value material may be planned as items in aggregate, or in homogeneous groupings (e.g., lubricants, fastening hardware, bar stock, coatings, etc.).
H&A recommends ensuring your EVM System Description provides the appropriate guidance to project teams on how to properly plan for the various material categories and acceptable earned value techniques that should be used as well as the appropriate earned value points (such as receipt or issue) for the category of material involved.
Do you need an independent review your EVM System Description to ensure you are providing the necessary guidance to your project teams? Humphreys & Associates has the earned value management experts to assess your EVM System Description and provide recommendations to improve the content. Contact us today.
EIA-748-D Guideline 21 content maps to the EIA-748-E Guidelines 14 and 16 which streamlined the content in D Guideline 21. EIA-748-E Guideline 14 states in part: “Earned value for material items may not be credited earlier than the actual receipt of the material nor later than the consumption of the item.” ↩︎
I have read several Earned Value Management (EVM) reports, papers, and articles that debate what company organization should “own” EVM and the company’s Earned Value Management System (EVMS). These debates most often mention the programs’ organization and the finance department as common EVM “owners.” The majority opinion seems to be that because EVM is a program management best practice it belongs in programs. A minority opinion is that because EVM is denominated in dollars, schedule included, and because EVM reports are financial in nature, EVM belongs in the finance department. Before we dive into this debate, a summary of the responsibilities of a Chief Financial Officer (CFO) and of the head of programs is useful. In our company A and company B examples to follow, both the CFO and the head of programs report to the company president.
