earned value training

Earned Value Training is a project management methodology that helps organizations track and manage the performance of their projects. It involves the measurement of project progress in terms of both cost and schedule, allowing project managers to assess whether they are on track, behind, or ahead of schedule and budget. Through Earned Value Training, project teams learn how to use key metrics and calculations like Earned Value (EV), Planned Value (PV), and Actual Cost (AC) to gain insights into project health and make informed decisions for successful project execution. This training equips professionals with the skills to monitor and control projects effectively, ensuring that they deliver value while staying within budget and on schedule.

Implementing an Earned Value Management System (EVMS) Training Program

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A previous blog titled “Retaining EVMS Talent” provided a list of essential components of a successful training and retention program. This blog elaborates on establishing a defined training program as part of a mentoring process. The intent is to guide employees in the technical, schedule, cost estimating, cost analysis, or risk disciplines to become skilled control account managers (CAMs) as a stepping stone to become a project manager or high level manager. This reinforces a commitment to excellence in project management and helps to ensure a high level of EVMS proficiency. 

As noted in the Retaining EVMS Talent blog, a good approach is to chart a path for someone starting with a planning and scheduling role on a smaller project and then advancing them through various project types, different project control roles, and then on to larger more complex projects. The objective is to help employees broaden their experience and knowledge base, mature their skill sets, and build an internal professional network. This is illustrated in the following image from the Retaining EVMS Talent blog.

The goal for establishing a training program is to support this process of guiding and mentoring personnel as well as maturing their expertise to maintain a level of excellence in EVMS. Like any other training or education program, there should be a foundation of basic training courses that progress to more advanced and targeted training.

What is the Challenge?

A common situation H&A earned value consultants encounter is that companies often lack the internal resources to produce and maintain a library of training courses, especially for clients that are new to earned value management. Creating a training program appears to be a daunting task; they need help figuring out a training program. They also need help producing their training materials.

For other clients, as noted in another blog titled “Earned Value Management (EVM): How Much is Enough?”, DCMA may have pointed out that their EVMS project control practices have atrophied. DCMA is questioning whether their EVMS is providing timely, accurate, reliable, and auditable data. Maintaining the EVMS status quo often regresses toward non-compliance. These clients often request H&A earned value consultants to review their training materials and provide recommendations. A frequent finding is that the training content is limited to a few days of training, woefully out of date, or ineffective.

Begin with Defining the Training Program

Whether for a company that is new to EVM or needs to revamp their current approach, a good place to start is to develop and implement a formal training program. This training should focus not only on excellence in planning, scheduling, and EVM practices, but also how to effectively implement the EVMS on a project. Project personnel should have a good understanding of how to use the applicable schedule, cost, analysis, and risk tools to manage a project in alignment with their EVM System Description requirements.

Companies with an EVMS self-governance process in place are also better informed about areas where targeted training may be needed. The training program should be routinely updated to quickly address recent internal findings. For example, perhaps the internal team is finding that project control teams are having difficulty producing their Variance Analysis Reports (VARs). They could add a hands-on training workshop on how to perform in-depth analysis and produce useful narrative content for these reports using the project control tools of choice. Project personnel should know how to concisely describe the issue, the root cause, the potential scope and impact of the problem, and best options for corrective actions to mitigate the issue. They should have the knowledge base to substantiate their analysis and corrective action.

We also recommend including a path for project personnel to become certified to demonstrate they have the experience and expertise to successfully handle various project control issues.

The following table provides a basic training program framework. 

Basic Advanced Example Training Workshops
EVMS Concepts Advanced Earned Value Techniques*
  • Performing EVM Data Quality Assessments*
  • Completing VARs*
  • Developing an Estimate to Complete (ETC) and Estimate at Completion (EAC)*
Scheduling* Advanced Scheduling Techniques*
  • Performing Schedule Data Quality Assessments*
  • Performing Schedule Risk Assessments (SRA)*
  Additional workshops tailored to environment or event preparation
  • Agile and EVM Integration*
  • CAM Mentoring with Data Traces*
  • IBR Preparation*
  • Surveillance or Compliance Review Preparation*
  Discipline Certifications
  • Control Account Manager (CAM)
  • Project Controls/Analyst (PC/A)

* Where possible, the training should incorporate the schedule, cost, analysis, data quality assessment, or risk tools and artifacts (inputs or outputs) as part of the hands-on workshop case studies or exercises. Project personnel should know how to use the tools to view, sort, filter, and analyze data. 

Quick Start Options for Producing and Maintaining Training Content

A quick start option we offer companies setting up or updating their training content is to license the H&A training materials for use as part of their EVMS training curriculum. The license includes all files associated with the workshop including PowerPoint files with speaker notes, case study files in various formats, Desired Learning Objectives, Agenda, Table of Contents, and a hard copy of the workshop. Commonly licensed workshops include the H&A Three-Day EVMS and Three-Day Project Scheduling for Primavera P6 or Microsoft Project courses as a foundation. Companies typically tailor these source materials to include artifacts used in their business environment. 

Licensing H&A training materials reduces the time needed to produce and maintain quality training materials. H&A earned value consultants actively maintain our training materials to reflect current industry best practices, DCMA Business Practices or DOE EVMS Compliance Review Standard Operating Procedures as well as DoD or DOE EVM policy, guides, and requirements. The annual license fee includes updates to the H&A training materials.

To ensure companies licensing our materials are able to conduct the training on demand internally, we recommend completing at least one Train the Trainer session for each workshop with the company’s training team. These sessions provide insight into the intent and training objective of each slide. The H&A instructors work with the company’s training team to review the instructor notes as well as to provide feedback and mentoring as needed highlighting key concepts as the training team learns to present the material. Where applicable, this session also identifies where the standard H&A training material may need to be tailored to reflect the company’s EVMS.

Another option is to leverage the H&A online EVMS Virtual Learning Lab (VLL) or Scheduling VLL. These VLLs provide an intensive 21 hours of instruction. The VLLs cover the principles of earned value management or project scheduling along with case studies, exercises, and examples. The student’s knowledge is tested so they obtain immediate feedback with scored quizzes, case studies, and exams. The courses can be used as a refresher or for personnel who want to learn the basics at their own pace. The VLLs can also be part of an overall training initiative to track course progress with certificates for completion. A number of H&A clients use this feature of the H&A online training to track a student’s progress or level of knowledge. Other clients have incorporated the H&A VLLs into their standard internal training curriculum as the following A&D contractor did. 

“Several years ago, we made the strategic decision to invest in the H&A Scheduling and EVMS Virtual Learning Lab modules, which have since become the cornerstone of our in-house training program. These modules offer a comprehensive and exhaustive guide to Program Management, catering to a wide range of professions involved in the development and maintenance of Integrated Master Schedules (IMSs) and using Earned Value to plan, track, analyze, and report program performance. This audience includes Program Managers, Finance Analysts, Scheduling Analysts, Business Managers, and Control Account Managers (CAMs).”
— Director, Program Process & Services, A&D Contractor

Discipline Certifications

Another component of successful training programs is encouraging employees to pursue industry professional certifications. Common project control related professional certifications include the Project Management Institute (PMI) Project Management Professional (PMP) or the Association for the Advancement of Cost Engineering (AACE) International Certified Cost Professional (CCP) and Earned Value Professional (EVP). PMI and ACCE International encourage those who have earned their certifications to actively maintain them by completing additional training or attending conference sessions to earn Continuing Education Units (CEUs) or Professional Development Units (PDUs).

A number of our clients also incorporate the H&A CAM Certification or Project Controls/Analyst (PC/A) Certification into their advanced training curriculum to ensure they have highly proficient project personnel. Both certification workshops culminate with an in-person examination similar to PMI or AACE International. Either the client or H&A proctors and grades the exam. H&A is an Authorized Training Partner (ATP) for PMI and an approved education provider for AACE International.  H&A is also registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of Continuing Professional Education (CPE).

The H&A Five Day CAM Certification course is ideal for anyone already a part of a project management team. The course work spans the five EVMS guideline process areas in the EIA-748-D Standard for EVMS: 1) Organization, 2) Planning, Scheduling and Budgeting, 3) Accounting Considerations, 4) Analysis and Management Reports, and 5) Revisions and Data Maintenance. Risk and opportunity management topics are also incorporated with an emphasis on data quality, integrity, and traceability. EVM best practices and the use of EVMS data are highlighted along with insights, methods, and approaches that result in better management and decision making.

The H&A Five Day Project Controls/Analyst (PC/A) Certification course is an intensive workshop that focuses on analyzing problems and determining appropriate actions to resolve them. It is intended to build upon a student’s basic EVM skills with wide-ranging advanced EVM and project analysis coursework to develop insightful analytical skills in various areas of project controls.

Next Steps

Need help developing an EVMS training program or producing effective training content? As the preeminent leader in EVMS training, H&A actively maintains a vast library of materials and offers various course options that can help shorten the time to implement an EVMS training program. Our professional instructors have extensive experience in evaluating training requirements, designing comprehensive training plans, developing client-specific instructional material using our library of training materials, and presenting training workshops. Call us today at (714) 685-1730 to get started.

Implementing an Earned Value Management System (EVMS) Training Program Read Post »

Improving Integrated Master Schedule (IMS) Task Duration Estimates

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Improving Integrated Master Schedule (IMS) Task Duration Estimates

One of the top reasons projects fail is because of poor task duration estimating for an integrated master schedule (IMS). Without accurate and consistent estimates, project outcomes can become unpredictable, leading to missed deadlines, budget overruns, and overall project failure. A realistic schedule is required to place the necessary resources in the correct timeframe to adequately budget the work as well as to produce credible estimates to complete and to forecast completion dates. While missed deadlines and budget overruns are detrimental for any project, there can be additional business ramifications when producing schedules in an Earned Value Management System (EVMS) contractual environment.

While there are effective methods available to improve task duration estimates, they are often underutilized. A common reason for this oversight is the lack of time allocated to developing the project schedule and determining task durations.

During the proposal phase, initial durations are typically estimated at a more summary level than the detailed execution phase. The proposed work is often defined at a level one to two steps higher than where the actual tasks will be performed. After project initiation, the team’s initial effort is to break the work down into more manageable tasks. This decomposition is crucial for achieving more accurate estimates. It’s no surprise, then, that the initial breakdown efforts often result in duration estimates that don’t align with the proposed durations.

Parkinson’s Law tells us that work expands to fill the time available. If task durations are excessively long, costs will inevitably rise. To counter this, it’s important to require estimators to provide both the estimated effort and the duration needed to accomplish the task. This approach helps to gain a better understanding of the scope of the task and to avoid unrealistic estimates. If you see a task that requires 10,000 hours with a duration of 2 weeks, then you immediately would suspect something is wrong with the estimates.

Techniques for Developing More Accurate Task Duration Estimates

What are your options? H&A earned value consultants and senior master schedulers often employ the following techniques to help a client produce a more realistic IMS.

  1. Establish a Probability Goal. It is essential to set clear expectations for the estimating team. Without guidance, teams may default to estimates with a 50/50 probability of success, which is a recipe for failure. Instead, directing the team to aim for estimates within a 75% to 80% probability range can lead to better outcomes.
  2. Break Down Tasks. Decompose tasks into smaller, more manageable components. The further out the task’s horizon, the greater the variability in estimates. For example, asking someone to estimate the drive time from Washington, DC, to Boston without specifying the vehicle, route, limitations, or conditions introduces unnecessary uncertainty.
  3. Use Professional Judgment. Engage someone with experience in the specific type of work required for the task. A seasoned expert will provide more accurate duration estimates based on their knowledge and experience. Often, we ask the potential task manager to do the estimate, but that person may not be the one with the most related experience or knowledge about the work.
  4. Leverage Historical Data. If the task or a similar one has been done before, use that historical data to inform the estimate. This approach provides a realistic benchmark for future estimates.
  5. Use generative AI. If you have access to an AI capability along with access to historical data, that could be an option to leverage the source data using specific prompts to glean relevant information. As with all AI tools, always verify the generated results to ensure it is a useful basis to substantiate the estimate.
  6. Apply Parametric Estimating. When possible, use parametric analysis to estimate the durations. For example, if it took a specific number of days to clean up a certain amount of toxic waste under similar conditions, this data can be used to estimate the duration of a new but comparable task.
  7. Engage Multiple Estimators. Gathering estimates from more than one person helps to reduce individual biases and provides a more rounded estimate.
  8. Apply the Delphi Method. This technique involves three knowledgeable individuals providing estimates or three-point estimates. The initial estimates are analyzed, and the results are shared with the estimators without attributing specific values to any individual. After discussing the findings, the estimators revise their estimates based on the collective insights, leading to a more refined and accurate duration estimate.
  9. Use Three-Point Estimates. Ask estimators to provide best-case (BC), most likely (ML), and worst-case (WC) durations, along with their reasoning. Applying a formula like the Program Evaluation and Review Technique (PERT) duration formula (1BC+4ML+1WC)/6 can yield an adjusted and realistic estimate. You can vary the best and worst case estimate for risk if you have information on that.

    To see how this simple approach can work, walk through this exercise. Ask yourself how long it takes you to drive to work most of the time. Let’s say the answer is 45 minutes. Then ask yourself how long it would take on a Sunday morning in the summer when the roads were dry (the best case). Let’s say your answer is 25 minutes. Then ask yourself how long it would take on a Monday morning in the winter during a moderate snow event (the worst case). You tell yourself 90 minutes. Now you have enough information to calculate the PERT duration.

    Best Case = 25 minutes
    Most likely = 45 minutes
    Worst Case = 90 minutes
    PERT Duration = (25 + 180 + 90)/6 = 49 minutes

    Finally, let’s say you ask yourself how likely it is that you end up on the high side instead of the low side. If your answer is it is much more likely to encounter conditions that slow you down, you would modify the formula to use one and a half times the worst case (25 + 180 + 135)/6 = 57 minutes. That longer duration shows the impact of your impromptu risk analysis and provides a duration that has a much higher probability of being achievable.

    Now think about the same scenario but conducted by you interviewing three people who drive the same route to work. That would approximate the Delphi method.
  1. All or something less. It may not be necessary to analyze every task to the degree suggested. Even if you could do the analysis along the top several critical paths that would be an improvement. If you were to apply numerical factors to the tasks in related portions of the project that would be impactful. For example, all mechanical design tasks or all software development tasks.

What is the best approach?

You will need to analyze your project and determine which approach or approaches would yield useful information at a reasonable cost. If you apply your own thinking on how to improve your duration estimates, you will undoubtedly find a method most suitable for your situation. Depending on a project’s complexity and risk factors, you may also find it useful to take a more formal approach. Conducting a schedule risk assessment (SRA), a probabilistic assessment of a project’s outcome, can help you gain a better understanding of where the duration risk exists in the schedule.

H&A earned value consultants and scheduling subject matter experts often assist clients to establish basic guidance to help scheduling personnel to get into the habit of adequately defining tasks and using techniques to improve duration estimates. This is critical to be able to produce well-constructed and executable schedules to improve the likelihood of achieving project technical, schedule, and cost objectives.

H&A offers a range of project scheduling training workshops that can help schedulers to implement industry best practices. These workshops also cover how to take the next step to implement advanced scheduling techniques such as schedule risk assessments to ensure the schedule is realistic and achievable. H&A earned value consultants and master schedulers often provide one-on-one mentoring using the scheduling tool of choice to help scheduling personnel work through the learning curve of using advanced network scheduling techniques to produce executable schedules.  

Call us today at (714) 685-1730 to get started.

Improving Integrated Master Schedule (IMS) Task Duration Estimates Read Post »

Merging Earned Value Management System Descriptions

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Are there best practices that apply when a company with an approved/certified Earned Value Management System (EVMS) acquires another company that also has an approved/certified EVMS in place? What happens with the EVM System Descriptions as well as related processes and procedures? What about the various project control tools being used? How do you level set the project control proficiency levels of personnel using the EVMS? Schedule and cost level of detail and data architecture also come into play. For example, project performance data is often used at the corporate level for financial analysis, portfolio analysis, and external reporting and may require data to be organized in a specific manner. Is the EVMS providing reliable status, forecast completion date (FCD), and estimate at completion (EAC) information to management? 

What are your options?

H&A earned value consultants have observed different approaches and often assist companies with determining their strategy. Assuming you are the acquiring company, you could:

  1. Require the acquired company to use your EVMS. 
  2. Let them continue using their EVMS for an agreed upon timeframe or indefinitely.
  3. Take the best of both and establish a new and improved EVMS.  

Each option has its pros and cons. There are also other implications for at least the acquired company. DCMA will need to conduct an Integrated Baseline Review (IBR) and/or a compliance review if the acquired company’s EVMS assessment is no longer applicable. If you make significant modifications to your EVM System Description, DCMA will need to review the revised System Description to determine whether it still complies with the EIA-748 Standard for EVMS guideline requirements.

Things to Consider

  • What do you want to achieve?

    If the goal is to establish a common EVM System Description across the corporation, the strategy will need to reflect that. Define the business objectives that clearly articulate the benefits of using a standardized approach that can help to create and implement the plan to achieve your goal. In this example, that could narrow your path forward to either option 1 or 3 depending on the state of your EVMS.

  • What is the state of your current EVM design and System Description?

    Do you already have a best in class corporate level system in place? If yes, option 1 is a good fit. The strategy would be to create a plan to transition the acquired company to your EVMS. A single EVMS is easier to maintain and to train people on how to use it effectively. Commonality makes it easier to move personnel between projects.

    Perhaps your company is fine with different EVM Systems at a business unit level. For example, perhaps the business units have a different customer base (DoD versus DOE), and the requirements are different. In this case, it may make sense to go with option 2. We recommend being prepared to do an in-depth assessment of the acquired company’s EVMS to become familiar with it, gain an understanding of how project personnel use it, and evaluate the quality of the schedule and cost data. It is imperative that you have a good understanding of the strengths and weaknesses of the acquired company’s EVMS. You may find best in class practices that you could incorporate into your EVMS. On the other hand, you may discover issues you need to address with a corrective action plan. Some of them may be as simple as providing desktop instructions for the schedulers or control account managers (CAMs). The more difficult are actions taken to change the culture such as resistance to providing visibility into the data.

    Option 3 may be good path in situations where you know there are components in your EVMS that need to be streamlined or enhanced. It provides an opportunity to fix known issues with your EVM design or System Description. It could also be an opportunity to replace a mix of software tools or home-grown tools with a standard set of commercial off the shelf (COTS) schedule, cost, and analysis as well as risk tools. Integration with a standard Agile tool may also come into play. In this case, your strategy may be to create a working group from both companies to create a best in class corporate EVMS. 

  • Structure of the EVM System Description.

    There may be “layers” to it that makes it easier to accommodate unique business unit environments. For example, perhaps you have established a corporate level System Description that states what the company does to comply with the EIA-748 guidelines when an EVMS is contractually required or what is required to satisfy internal management needs for project/portfolio analysis (no external customer management system or reporting requirements). The corporate level system should define specific rules all business units are expected to follow. The business units define how they comply with the corporate requirements (their specific process). A good approach is to also allow project managers to define project directives to specify project unique requirements as long as they comply with the corporate and business unit requirements.

    In this example, option 1 is a good fit. The strategy would be to help the acquired company to establish revised EVM processes that align with the corporate requirements similar to other business units in the corporation.

Other Considerations

Your strategy and tactical plan must address identified risks and opportunities. A common challenge is resistance to change. A potential risk mitigation approach could be to bring in the acquired company’s personnel as part of a joint corporate management team with the goal to create a single best in class EVMS. It is essential to establish ownership in the new or revised process. An example from one H&A client illustrates the importance of taking ownership in the EVMS as part of a successful transition.

“We didn’t force what we had on them, nor did we give in. We have a corporate EVM System Description. When we acquired the company, we brought them in to do a revision of the System Description, as the decision was made that we will operate as one company. They are now using that System Description and are using the same EVM cost tool. We are working other initiatives to harmonize other systems. It was surprisingly not contentious. We incorporated their leads into the organization with minimal disruption. We also have corporate training, which they supported and some of their legacy folks are leading that. The company as a whole changed, rather than forcing our way on them. Not many major differences between us, but inclusion of the folks from the acquired company as well as business groups was key. Frankly, one of our legacy divisions was harder to work with than anyone from the company we acquired.” – EVMS Director, A&D Contractor

While this is an example of where things went well, your risk mitigation approach should be prepared for situations where the teams do not agree upon the documented process, tools, or training that could result in an impasse. Knowledge of the current internal environment and personnel mix can help to determine the best mitigation strategy. A strong leadership team must be in place to ensure teams are working to achieve common objectives and to amicably resolve differences with a target completion date.

The tactical plan must also include a robust training plan that covers the revised EVMS process, procedures, and any new tools. This is critical to ensure project personnel gain a good understanding of what changed, who is responsible for what, workflow, requirements such as data coding or level of data detail, and how to use the tools effectively. Role based training is often useful to ensure project control personnel, schedulers, CAMs, and others are following the documented procedures specific to their day-to-day tasks. Desktop instructions are also useful to ensure project personnel are using the software tools effectively in alignment with the documented process and procedures.

What to do if you find yourself in this situation?

It often helps to start with a gap analysis of your or the acquired company’s EVM design and System Description as well as assess how project personnel implement the system and the quality of the data. H&A earned value consultants often conduct an EVMS gap analysis to provide a fact-based and independent analysis of the EVMS, project personnel proficiency levels, and quality of the schedule and cost data. Once you are able to identify and quantify the strengths and weaknesses of the system, you are in a better position to determine your best strategy that aligns with your corporate business objectives and goals.

Over the years, H&A earned value consultants have observed first-hand what strategies and tactics for designing and implementing a best in class EVMS ensures success in a variety of business environments. We can also help you avoid common pitfalls that can derail the best laid plans – it is often the case a client didn’t realize there were hidden risks, or they had made incorrect assumptions.

We can help you determine the right strategy for your situation. Call us today at (714) 685-1730 to get started.

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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.

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Contract Performance Example – Cost Variance Trend

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Monitoring the cost of a project is crucial in order to ensure that it stays within budget and is completed on time. One way to track this is by analyzing the cost variance, or the difference between the actual cost of the project and the budgeted cost. In this video, we will examine a specific example of a cost variance trend that has raised red flags and is causing concern. As the project nears its estimated completion date, the cost variance has dipped into negative territory and appears to be worsening. The chart in this video also provides a visual comparison of variances at completion to the current cost variance.

The cost variance in this video is a significant trend that has crossed into negative territory and appears to be decreasing even further past year 4, which is the estimated completion date. With so little time remaining, the negative cost variance trend is obviously a cause for concern. The chart in the video also shows visually the comparison of variances at completion to the current cost variance that we mentioned in the previous chart in the vidoe.

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EVMS Document Matrix

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