EVM

Keeping the EVM Love Alive In Your Organization

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Keeping the EVM loveAdmittedly, operating an Earned Value Management System (EVMS) in an organization can sometimes be like getting your kids to the dentist.  They know they have to do it, and they will even concede that it may be good for them, but it does not mean they have to like it.

Earned Value provides a framework for integrating the cost, schedule, and technical scope of your project, and is an exceptionally valuable tool for management and project status.  There are, however, a few strategies that can be employed in order to maintain a healthy system by motivating those who operate within the system to do so with a sense of ownership.

Keeping the EVM love alive can follow the simple formula of Push, Pull and Inform.

1)   Push:  Senior Management Must Use the Data and Demand Quality

Having those up the food chain demanding accurate and timely information can be a powerful “push” that maintains interest and focuses efforts on system health and quality.  Organizations where EVM is nothing more than a reporting requirement and is not used for decision making or conveyance of project status, will have a difficult time maintaining a healthy system.  Sometimes negative attitudes towards Earned Value can even start with the customer and flow down to the contractor.

The alternative is in companies in which it is apparent that EVM is deeply embedded in the projects’ culture.  In a multitude of forums, the language of Earned Value is used to describe the status and issues of the project.  In these companies you probably will not see only the obligatory EVM charts in project reviews, but instead see the concepts and outputs of the system used throughout project management.  If poor variance analyses, inaccurate Estimates at Completions (EAC), incomplete baselines, or lack of corrective actions are challenged by the entire chain of management, then chances are those problems will stop being problems and the organizations can begin relying on the information to manage effectively.

2)    Pull:  Keep the System Useful to the Users

A great deal of resources may be invested in an EVMS, and in organizations with a healthy and useful system the return on this investment can be substantial.   Organizations that employ toolsets with timely and accessible reporting of project information help combat the belief that EVM is just a one-way reporting process.  A common interface for data is an “EVM Cockpit”, or some other tool set or reports that make the information easy to access for day-to-day management purposes.  The flip side of this are systems that make data accessibility difficult, or the problems of the system cause the data to be unreliable for prompt decision making purposes.  For example, one of the more important processes in an EVMS is variance analysis; however, when a great deal of time and effort is spent explaining variances that are not related to project performance, it becomes a significant drain on the attitude towards the system.

It is also important that the critical processes of the system are easy to use and understand.  These processes include project baselining, updates to the Estimate to Complete (ETC), statusing the Integrated Master Schedule (IMS), incorporation of changes, preparing variance analyses, and tracking of corrective actions.  Decisions regarding the architecture of the toolsets supporting these processes can significantly impact the attitudes of system users.  In addition, developing tool sets that eliminate the redundancy of data inputs between the cost and scheduling systems can dramatically improve the quality of the Earned Value data.

3)   Inform:  Regular Communication and Continuous Education to the Project Teams are Critical

Like any important management system in an organization, it is important to continually inform and support those who operate within the EVM system.  There is an endless source of special topics and project notifications that can provide useful information to project teams, which will help maintain EVM knowledge and a healthy system.  Some topics, such as preparing quality variance analysis, thorough corrective actions, and valid ETCs, need routine refreshment.

Below are a few suggestions on ways to communicate within the organization:

  • Monthly Internal Newsletter: An excellent mechanism to convey important updates to EV processes or changes that pertain to the business and the industry. This gives employees a chance to keep up with the latest news and developments.
  • EV Blog:  By blogging regularly, an organization can develop themes that are specific to business issues the organization is experiencing. If there are many of the same questions repeated again and again, the blog can be used to answer those questions. This way, people can just refer to the blog if they have questions that are common.
  • Lunch & Learn Sessions: These sessions are an excellent way for all participants to gain further knowledge on a specific topic and ask questions in real time.  This becomes more advantageous as all participants benefit from the group discussion.
  • Quarterly Webinar: This is particularly beneficial for organizations that may have multiple facilities located throughout the country. Specific subjects would be applicable to all sites. All participants, regardless of location, can attend and benefit.
  • Annual Quiz: This is a great way to gauge how well employees are grasping and using EVM. Questions would be centered on topics relating to events that occurred during the year. The quiz could be recurring and mandatory in the same manner as ethics and sexual harassment training.

For more information about keeping the EVM love alive in your organization give us a call at Humphreys & Associates, Inc. We are happy to answer questions.

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Aligning ACWP with BCWP for Proper EVM | Earned Value Management

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ACWP and BCWP by DAU

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

Estimated ACWP is an adjustment to the Actual Cost of Work Performed (ACWP) in the earned value “engine” 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 Budgeted Cost for Work Performed (BCWP) cause false cost variances to appear in the Integrated Program Management Data Analysis Report (IPMDAR) information reported to the customer.  Typically these variances are favorable and can mask other unfavorable variances.  Additionally, if these variances exceed reporting thresholds, the explanations clutter Format 5 of the IPMDAR with variance explanations that discuss timing problems of the accounting system rather than actual performance issues.

To what types of cost does Estimated ACWP apply?

Estimated ACWP is most typically required for material costs.  When BCWP is claimed upon receipt of the material, the actual cost accrual typically occurs one or more months following material receipt, which creates the timing mismatch between BCWP and ACWP.  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 consultants, purchased labor, and travel.

How does Estimated ACWP function?

Receipt-type material:

  1. 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.  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.
  2. Second, the Estimated ACWP adjustment is entered into the Earned Value engine as a current period transaction.  The amount of the Estimated ACWP is based on the best information available for the material item using the invoice, purchase order, or receiving report.
  3. Third, the Estimated ACWP adjustment transaction is reversed in the EV engine prior to the next month’s update.  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 gets transferred to the EV engine.
  4. Finally, remember that if the actual data does not occur as expected in the month following material receipt, the Estimated ACWP is re-entered and the reversal process must continue every month until the accounting system receives the cost of the material item.  Also, Estimated ACWP transactions should be recorded in a log to maintain traceability.

Production-type (inventory) material:

The transactions described above were for material categories for which Earned Value is claimed at receipt of the material item.  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, but EVM rules in Guideline 21 (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 engine until material Earned Value occurs. 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 system 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 training experts to assess your material management processes and implement the appropriate procedures. Contact us today.

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Authorized Unpriced Work (AUW) and Earned Value Management Systems

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Authorized Unpriced Work (AUW)

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

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

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

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

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

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

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

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

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