faster decisions. better decisions. price s ystems llc earned value concepts course

FASTER DECISIONS. BETTER DECISIONS.

PRICE SYSTEMS LLC

Earned Value Concepts Course


INTRODUCTION

• WHO ARE WE?

• WHY ARE WE HERE?

• WHAT ARE WE GOING TO DO?

• CONTENTS OF COURSE BOOK AND REFERENCE GUIDE

MODULE OVERVIEW


WHO ARE WE?

BILL MATHISWork (703) 351-5258 Cell (202) 997-3128

PRICE Systems L.L.C. Washington, D.C. OfficePhone (703) 351-5255Fax (703) 351-5265

PRICE Systems L.L.C. 1655 Ft. Myer Drive, Suite 700Arlington, VA 22209


WHY ARE WE HERE?

• TO TEACH YOU THE BASIC CONCEPTS OF COST/SCHEDULE MANAGEMENT USING EARNED VALUE (EV) TECHNIQUES.

- WE WILL REFER THROUGHOUT THE COURSE TO THIS AS EARNED VALUE MANAGEMENT (EVM).

• TO PREPARE YOU TO USE EVM INFORMATION ON WORK CONTENT WITHIN YOUR PROJECT.


WHAT ARE WE GOING TO DO?

FIRST

• PROVIDE A TWO-DAY TRAINING CLASS ON EARNED VALUE MANAGEMENT AND ITS VALUE TO PROGRAMS


COURSE CONTENTDAY 1

INTRODUCTION

Section I – EVM Overview: 3 Modules

Exercise – Program Management and EVM

Section II – EVM Program Structures: 3 Modules

Exercise – Planning Structures and Control Accounts

Section III – Performance Measurement Baseline: 2 Modules

Day 1 Adjourn

Informal Q&A


COURSE CONTENTDAY 2

DAY 1 Revision / Questions / Quiz?

Section III cont – Managing Execution and Change: 2 Modules

Exercise – Earned Value Planning and Collection Mechanics

Section IV – Performance Reporting and Analysis: 4 Modules

Exercise – Performance Reports and Variance Analysis

Section V – Current Trends and Wrap-up

Evaluation Collection & Course Adjourn


Getting to Earned Value

• CHANGING ENVIRONMENT

• DOD AND OMB POLICY

• EVM IMPLEMENTATION

• PROGRAM MANAGEMENT

MODULE OVERVIEW


CHANGING ENVIRONMENT

EVERYTHING CHANGING AND ALL AT THE SAME TIME!

PROGRAM

ACQUISITION REFORM

WORKFORCECHANGES

DOD - ARMY RELATIONSHIPS

PROGRAM

CHANGES

EVMANAGEMENTBRAC

BUDGET

CHANGESPRIVITIZATION


EARNED VALUE MANAGEMENT USE

• PROVIDES:

- Common Framework for the Communication of Cost, Schedule, and Technical Issues.

- Emphasis on Accurate Cost to Complete.

- Efficiency in Managing Cost and Schedule Performance.

• PROVIDES PRODUCT-FOCUSED LIFE-CYCLE MANAGEMENT AND INFORMATION TO MANAGE TOTAL PROGRAM COST.

• PROVIDES BOTH IPT LEADER AND ON-SITE PROJECT LEADERS’ INCREASED VISIBILITY INTO PROGRAM PLANNING AND EXECUTION TO BETTER MANAGE RESOURCES.


DEFINE THE WORK

EXTERNALCHANGES

PLAN WORK (SCHEDULE AND RESOURCES)

EXECUTE THE WORK PLAN

MEASURE PERFORMANCE

ANALYZE DEVIATIONS

TAKE MANAGEMENT ACTION

CHANGECONTROL

THE EARNED VALUE MANAGEMENT PROCESS


PERFORMANCE TRACKING ABILITY (AT ALL LEVELS)

IP T -0 01 IP T -0 02

P ro je c t A

C o n tra ct

In te rn a l T a sk

E x te rna l T a sk

P ro je c t B P ro je c t C

IP T -0 03 IP T -0 04 IP T -0 05

P R O G R A M

Data Items PlannedAccomplishedActual CostsBudget at CompletionEstimate at Completion


EVM MUST ADDRESS“THE ABIDING CULTURAL PROBLEM”

FROM THE A-12 REPORT

• BEACH REPORT: “EXISTING CONTROL MECHANISMS, PROPERLY OPERATED WOULD HAVE BEEN SUFFICIENT TO IDENTIFY THE NATURE AND EXTENT OF THE PROBLEMS.”

• TOO OFTEN, EARNED VALUE REMAINS THE SOLE PROVINCE OF THE SUPPORTING PROGRAM CONTROL STAFF OF BOTH CONTRACTORS AND THE GOVERNMENT

- EARNED VALUE MUST BE AN INTEGRAL PART OF PERFORMING DESIGN AND MANUFACTURING ORGANIZATIONS

- ONLY WHEN PROGRAM TECHNICAL STAFFS ARE HELD ACCOUNTABLE FOR EARNED VALUE ANALYSIS, WILL THEY BEGIN TO UNDERSTAND ITS IMPLICATIONS


GETTING TO EVM

• INTERNAL FACTORS

–Program may need reorganization

–EVM Process within Program can affected:

» Organization

» Work Assignment Process

» Resource Allocation

» Use of Performance Measurement Techniques

» Use of Integrated Baseline Reviews

» Relationships with Field Activities


CONCEPT OFCOST MANAGEMENT

• TRADITIONAL CONCEPT

• DoD HISTORY/EXPERIENCES

• DoD COST RISKS

• EARNED VALUE MANAGEMENT (EVM) CONCEPT/ADVANTAGE

MODULE OVERVIEW


DoD PROGRAM MANAGER’STASKS

• PRODUCE/MODIFY A SUCCESSFULLY PERFORMING WEAPON SYSTEM OR COMPONENT

• OBTAIN IT AT REASONABLE COST

• DELIVER IT IN TIME TO MEET THE THREAT


PROGRAM MANAGER/IPT TEAM LEADER*

• LEADS A MULTI-DISCIPLINED TEAM THAT ATTEMPTS TO BALANCE AND INTEGRATE:

- Technical Performance (Quality)

- Schedule (Time)

- Cost (Resources)

- Risk (Acceptable Level)

• The term “PROGRAM MANAGER” is used throughout the course and is equivalent to “IPT LEADER”.

TRADITIONAL COSTMANAGEMENT

0

20

40

60

80

100

120

J F M A M J J A S O N D J F M A M J J A S O N D

TIME

DO

LL

AR

S

Planned Cost (38)versus

Actual Cost (34)

Time Now


THE PROGRAM MANAGER/IPT LEADERMUST DETERMINE

• HOW MUCH WAS PLANNED?

• HOW MUCH WAS SPENT AND FOR WHAT?

• HOW MUCH WAS ACCOMPLISHED?

• HOW WELL WAS IT ACCOMPLISHED?

• WILL THE PROGRAM BE COMPLETE ON TIME AND AT TARGET COST?

EARNED VALUE MANAGEMENT CONCEPT

0

20

40

60

80

100

120

J F M A M J J A S O N D J F M A M J J A S O N D

TIME

DO

LL

AR

S

Planned (38)Actual (34)

We added "Performance"or Earned Value (29)

Time Now


DoD HISTORY/EXPERIENCES

PAST PROBLEMS WITH PERFORMANCE MEASUREMENT:

• COST AND WORK ACCOMPLISHMENT DID NOT CORRELATE- Costs Budgeted Compared with Costs Expended- No Indicator of Performance Progress

• RESULTS OF GOVERNMENT IMPOSED SYSTEMS ON CONTRACTORS

- Turmoil- Multitude of Systems- Excessive Data Requirements- Contractor Maintained Two or More Systems



• PERT/COST- USAF F-111- Integrated Cost and Schedule

• COST/SCHEDULE PLANNING AND CONTROL SPECIFICATIONS (C/SPCS)

- USAF Implemented Performance Measurement

• DoDI 7000.2- C/SCSC Policy- Similar to (C/SPCS) Approach- Air Force Lead for Implementation Guide

1962

CHRONOLOGY:

1967

1963-67



• FIRST VALIDATION BY USAF OF GENERAL ELECTRIC

• VALIDATIONS, MAINLY ON USAF CONTRACTS

• TRI-SERVICE (DoD) VALIDATIONS IMPLEMENTED

• OSD OVERSIGHT MOVED FROM COMPTROLLER TO ACQUISITION COMMUNITY

• DoDI 5000.2 ISSUED, DoDI 7000.2 CANCELED

• DoD 5000.2-R ISSUED

• INDUSTRY EVMS GUIDELINES ADOPTED BY DoD

1969

1969-72

1972

1991

CHRONOLOGY (Continued):

1989

1996

1996


DoD HISTORY/EXPERIENCESWITH C/SCSC

PROBLEMS DoD POLICY RESPONSE

PROLIFERATION OF SYSTEMS AND REPORTS

INADEQUATE COST/SCHEDULE CONTROL SYSTEM

INADEQUATE CONTRACT STATUS INFORMATION

CONTROL OF FUNDS INEFFECTIVE IN CONTROLLING COST

• REDUCE STANDARDIZED REQUIREMENTS

• AVOID IMPOSING METHODS AND TECHNIQUES

• MAXIMUM USE OF CONTRACTOR SYSTEMS

• REVIEW CONTRACTOR SYSTEMS FOR ADEQUACY

• TAILOR REPORTING REQUIREMENTS

• OBTAIN SUMMARY LEVEL DATA

• DETERMINE PROGRESS ON VALUE OF WORK ACCOMPLISHED


EVM CONCEPT/ADVANTAGE

• EVM OBJECTIVES

• EVM CONCEPTS

• DoD 5000.2-R

• DoD POLICY - THRESHOLDS FOR EVM GUIDELINES APPLICATION

• EVM GUIDELINES

• SUMMARY


DoD COST RISKS

• HIGH TECHNOLOGY/PERFORMANCE SPECS

• CRITICAL SCHEDULE

• HIGH COST PROGRAMS

• HIGH RISK PROGRAMS

• VERY LARGE CUSTOMER

• ACQUISITION WITH PUBLIC FUNDS REQUIRES “STEWARDSHIP”

DoD IS A UNIQUE CUSTOMER:


CONTRACT TYPES

• DELIVER PRODUCTS AND SERVICES- On Time- To Specifications

• PROVIDE A BEST EFFORT TO TRY TO DELIVER PRODUCTS AND SERVICES

- Government Promises to Pay All Costs (Allowable, Allocable and Reasonable)

FIXED PRICE

COST REIMBURSEMENT

CONTRACTUAL PROMISETYPE


WHAT KIND OF “CONTRACTS”ARE USED BY THE IPT?

• FIXED PRICE CONTRACTS

• COST PLUS

- CONTRACTS

- TASK ORDERS

- PROJECT ORDERS

- MILITARY INTERSERVICE PURCHASE REQUESTS


EVM GUIDELINES OBJECTIVES

• ALLOWS BOTH GOVERNMENT AND CONTRACT PROGRAM MANAGERS TO HAVE VISIBILITY INTO TECHNICAL, COST, AND SCHEDULE PROGRESS ON THEIR CONTRACTS.

• ENSURES THAT COST, SCHEDULE AND TECHNICAL ASPECTS OF THE CONTRACT ARE TRULY INTEGRATED.


EVM CONCEPTS

• PLAN THE ENTIRE CONTRACTUAL EFFORT

• DETERMINE ACCOMPLISHMENT AT LEVEL WHERE WORK IS DONE

• MEASURE ACCOMPLISHMENT OBJECTIVELY

• SUMMARIZE DATA FOR HIGHER LEVELS

• ANALYZE VARIANCES AND IMPACTS

• DEVELOP ESTIMATES OF FINAL COSTS


DoD POLICY THRESHOLDS FOR EVM GUIDELINES APPLICATION

• CONTRACT DOLLAR VALUE

- RDT&E > $70m*

- Procurement > $300M*

• CONTRACT TYPE

- Only Required for Flexibility Priced (Cost and Incentive Type) Contracts

• NATURE OF CONTRACT WORK

- Not required on Firm Fixed Price (FFP), Time-and-Materials (T&M) and Level of Effort (LOE) Contracts

* In FY 1996 Constant Dollars


DoD 5000.2-R, PART 3 REQUIREMENTS

• INDICATES WORK PROGRESS

• PROPERLY RELATES COST, SCHEDULE, AND TECHNICAL ACCOMPLISHMENT

• ARE VALID, TIMELY, AND AUDITABLE

• SUPPLY MANAGERS WITH INFORMATION AT A PRACTICAL LEVEL OF SUMMARIZATION

ENSURES THE PROGRAM MANAGER WILL RECEIVE DATA WHICH PROVIDES AN ADEQUATE BASIS FOR RESPONSIBLE DECISION MAKING, BY REQUIRING THAT CONTRACTOR’S INTERNAL MANAGEMENT CONTROL SYSTEMS PRODUCE DATA THAT:


EVM GUIDELINES AREAS

• ORGANIZATION

• PLANNING, BUDGETING AND SCHEDULING

• ACCOUNTING CONSIDERATIONS

• ANALYSIS AND MANAGEMENT REPORTING

• REVISIONS AND DATA MAINTENANCE


SUMMARY

• THE EVM GUIDELINES ARE A PROGRAM MANAGEMENT

TOOL THAT HELPS ACHIEVE BALANCE AMONG THE TRIPLE

PROGRAMMATIC CONSTRAINTS OF TECHNICAL

PERFORMANCE, COST, AND SCHEDULE

• THE ASSOCIATED PERFORMANCE REPORT PROVIDES A

METHOD THAT COMMUNICATES TIMELY, RELIABLE, AND

AUDITABLE PERFORMANCE INFORMATION FOR BOTH

CONTRACTOR AND GOVERNMENT PROGRAM MANAGERS


EARNED VALUE MANAGEMENTGUIDELINES

• EVM GUIDELINE AREAS

1. Organization

2. Planning, Budgeting and Scheduling

3. Accounting Considerations

4. Analysis and Management Reporting

5. Revisions and Data Maintenance

MODULE OVERVIEW


ORGANIZATION

• DEFINE ALL WORK AND RESOURCES REQUIRED

• IDENTIFY RESPONSIBLE ORGANIZATION

• IDENTIFY OVERHEAD CONTROL POINTS

• INTEGRATE MANAGEMENT SYSTEMS, CWBS, AND ORGANIZATION

• PERMIT PERFORMANCE MEASUREMENT BY CWBS AND ORGANIZATION


ORGANIZATIONIDENTIFY RESPONSIBILITIES AND

INTEGRATE FUNCTIONAL OBS WITH WBS

WBS

CONTRACT

ENGINE TRAINING

FAN COMPRESSOR

FAN ASSEMBLY FUL SCALE RIG

ROTOR ASSY STATOR ASSYCASE ASSY

MECHANICALDESIGN

ANALYTICALDESIGN

DRAFTINGCHECKING

COST ACCOUNT

COST ACCOUNT

COST ACCOUNT

COST ACCOUNT

LEVEL 1

LEVEL 2

LEVEL 3

LEVEL 4

COMPANY

TEST

ENG

MFG

DESIGN

FUNCTIONAL OBS


PLANNING, BUDGETING AND SCHEDULING

• TIME-PHASE ALL WORK AND BUDGET

• SELECT A WORK MEASUREMENT TECHNIQUE

• MAINTAIN A TIME-PHASED BUDGET BASELINE AT THE CONTROL ACCOUNT AND WORK PACKAGE LEVEL

• MINIMIZE LEVEL OF EFFORT

• ESTABLISH OVERHEAD BUDGETS FOR EACH SIGNIFICANT ORGANIZATIONAL ELEMENT

• IDENTIFY AND CONTROL MANAGEMENT RESERVE AND UNDISTRIBUTED BUDGET



ESTABLISH THE BASELINE - AN ITERATIVE 3-STEP PROCESS


PERFORMANCE MEASUREMENTBASELINE

CONTRACT PRICE

COST FEE / PROFIT

PERFORMANCEMEASUREMENTBASELINE (PMB)

MANAGEMENTRESERVE (MR)

DISTRIBUTED(CONTROL ACCOUNTS)

UNDISTRIBUTEDBUDGET (UB)

DISCRETEBCWS

APPORTIONEDBCWS

LOEBCWS

WITHHELD FORUNKNOWNS

WITHIN SCOPE

WITHHELD FORKNOWN EFFORT

TO BE DISTRIBUTEDAS SOON AS

POSSIBLE

WORKPACKAGES

PLANNINGPACKAGES



MASTER SCHEDULE

INTERMEDIATE LEVELS

ORGANIZATION SCHEDULES

WORK PACKAGE SCHEDULES


THE CONTROL ACCOUNT

• CONTROL ACCOUNT HAS RESPONSIBILITY FOR:

- Specific Functional Activity and WBS Product

- Work Planning and Assignment (BCWS)

- Performance Measurement (BCWP)

- Cost Collection (ACWP)

- Variance Analysis (schedule and cost)

- Estimate at Completion (EAC) Forecast

- Corrective Action

• CONTROL ACCOUNT IS THE BASIS OF OBS/WBS SUMMARIZATION OF PERFORMANCE DATA


ACCOUNTING CONSIDERATIONS

• RECORD ALL COSTS IAW DCAA AND CAS

• SUM DIRECT COSTS FROM COST ACCOUNTS INTO THE WBS OR OBS WITHOUT ALLOCATION TO TWO OR MORE ELEMENTS

• PROVIDE FOR ACCURATE MEASUREMENT OF MATERIAL ACCOUNTING AND PERFORMANCE

• PROVIDE VISIBILITY OF MATERIAL COST AND USAGE VARIANCES, AND INVENTORY


ACCOUNTING CONSIDERATIONS (CONTINUED)

MATERIAL COSTS

• MILESTONE EVENTS

– MATERIAL ORDERED

– MATERIAL RECEIVED

– INVOICES PAID

– WITHDRAWN FROM STORES

– MATERIAL CONSUMED

• SELECTED METHODS MUST FACILITATE PERFORMANCE MEASUREMENT AND UNIT/LOT COST DETERMINATION BY PROVIDING:

– PRICE VARIANCES– USAGE VARIANCES– ACCURATE COST ACCUMULATION CONSISTENT WITH BUDGETS– MATERIAL ACCOUNTABILITY

Time


ESTIMATED ACTUAL COSTS FOR WORK PERFORMED

• WHO USES ESTIMATED ACTUALS?

- The Control Account Manager (CAM)

• WHAT ARE ESTIMATED ACTUALS?

- Substitute Costs Estimated by the CAM for Use in Performance Measurement in Circumstances If They Are Not Available From the Accounting System

• WHEN ARE ESTIMATED ACTUALS USED?

- Whenever ACWP Data Are Not Available From the Accounting System to Support Periodic (Monthly) Performance Measurement Analysis

• WHERE ARE ESTIMATED ACTUALS USED?

- At Cost Account or Work Package Levels As Appropriate

• HOW ARE ESTIMATED ACTUALS CALCULATED?

- Methods Vary by Resource Element of Cost


ANALYSIS AND MANAGEMENT REPORTING

• IDENTIFY BCWS, BCWP, ACWP, CV, AND SV AT CONTROL ACCOUNT LEVEL

• IDENTIFY INDIRECT COSTS AND VARIANCES IN SUFFICIENT DETAIL TO MANAGE

• EXPLAIN SIGNIFICANT VARIANCES AND IDENTIFY CORRECTIVE ACTIONS

• PROVIDE SUMMARY COSTS AND VARIANCES THROUGH OBS AND WBS FOR MANAGEMENT ACTION

• DEVELOP LATEST REVISED ESTIMATE (LRE) AT THE CONTROL ACCOUNT LEVEL


ANALYSISVARIANCE ANALYSIS


REVISIONS AND DATA MAINTENANCE

• INCORPORATE CONTRACT CHANGES INTO THE PMB IN A TIMELY MANNER

• CONTROL INTERNAL REPLANNING

• DOCUMENT AND REPORT ALL CHANGES

• REQUEST FORMAL REPROGRAMMING, IF NEEDED


REASONS FOR BASELINE CHANGES

• CONTRACT CHANGES

- Authorized and Definitized

- Authorized but not yet Definitized

• INTERNAL REPLANNING

- Original Schedule or Individual Tasks Changed

- Effort Has Been Time-Phased Differently

- Total Scope Remains Same

• FORMAL REPROGRAMMING

- Remaining Budget/Schedule Unrealistic

- PMB Will Exceed Contract Target Cost (CTC)

- Government Approval Required


REASONS/RULES FOR REPLANNING

• REPLAN REMAINING EFFORT WITHIN ALLOCATED BUDGET

• NORMALLY REPLAN WORK AND PLANNING PACKAGE BEYOND NEAR-TERM (2 PERIODS)

• COMPLETED PACKAGES SHOULD NOT BE REOPENED

• BUDGET FOR FUTURE WORK SHOULD NOT BE APPLIED TO NEAR-TEAM REQUIREMENTS

• OPEN OR NEAR-TERM PACKAGES MAY BE REPLANNED DUE TO CONTRACTUAL CHANGES


INTERNAL REPLANNING

CONTRACTOR MAY:

USE MANAGEMENT RESERVE TO CHANGE COST ACCOUNT BUDGETS

REPLAN UNOPENED WORK PACKAGES WITHIN COST ACCOUNT BUDGETS

TRANSFER WORK AND ASSOCIATED BUDGET BETWEEN COST ACCOUNTS

PERFORM OTHER REPLAN ACTIONS WITH COGNIZANCE OF PMO

REPLAN AND REBUILD IN-PROCESS AND NEAR-TERM WORK PACKAGES; MAINTAIN AUDIT TRAIL FOR GOVERNMENT

CONTRACTOR MAY NOT:

MAKE RETROACTIVE CHANGES TO BUDGET OR COST OF COMPLETED WORK

REOPEN CLOSED WORK PACKAGES

TRANSFER WORK OR BUDGETINDEPENDENTLY


…end Section 1

Next – Baseline Planning

faster decisions. better decisions. price s ystems llc earned value concepts course

Documents