PRICE S YSTEMS LLC

1. PRICE SYSTEMSLLC Earned Value Concepts Course

2. INTRODUCTION MODULE OVERVIEW • WHO ARE WE? • WHY ARE WE HERE? • WHAT ARE WE GOING TO DO? • CONTENTS OF COURSE BOOK AND REFERENCE GUIDE

3. WHO ARE WE? BILL MATHIS Work (703) 351-5258 Cell (202) 997-3128 PRICE Systems L.L.C. Washington, D.C. Office Phone (703) 351-5255 Fax (703) 351-5265 PRICE Systems L.L.C. 1655 Ft. Myer Drive, Suite 700Arlington, VA 22209

4. 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.

5. WHAT ARE WE GOING TO DO? FIRST • PROVIDE A TWO-DAY TRAINING CLASS ON EARNED VALUE MANAGEMENT AND ITS VALUE TO PROGRAMS

6. 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

7. 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

8. Getting to Earned Value MODULE OVERVIEW • CHANGING ENVIRONMENT • DOD AND OMB POLICY • EVM IMPLEMENTATION • PROGRAM MANAGEMENT

9. CHANGING ENVIRONMENT EVERYTHING CHANGING AND ALL AT THE SAME TIME! DOD - ARMY RELATIONSHIPS ACQUISITION REFORM PROGRAM CHANGES PROGRAM WORKFORCE CHANGES EV MANAGEMENT BRAC BUDGET CHANGES PRIVITIZATION

10. 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.

11. THE EARNED VALUE MANAGEMENT PROCESS DEFINE THE WORK PLAN WORK (SCHEDULE AND RESOURCES) EXECUTE THE WORK PLAN MEASURE PERFORMANCE CHANGE CONTROL ANALYZE DEVIATIONS TAKE MANAGEMENT ACTION EXTERNAL CHANGES

12. PERFORMANCE TRACKING ABILITY (AT ALL LEVELS) • Data Items • Planned • Accomplished • Actual Costs • Budget at Completion • Estimate at Completion

13. 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

14. 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

15. CONCEPT OFCOST MANAGEMENT MODULE OVERVIEW • TRADITIONAL CONCEPT • DoD HISTORY/EXPERIENCES • DoD COST RISKS • EARNED VALUE MANAGEMENT (EVM) CONCEPT/ADVANTAGE

16. 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

17. 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”.

18. TRADITIONAL COSTMANAGEMENT

19. 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?

20. EARNED VALUE MANAGEMENT CONCEPT 120 100 Time Now 80 Planned (38) 60 DOLLARS Actual (34) 40 We added "Performance" 20 or Earned Value (29) 0 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

21. 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

22. DoD HISTORY/EXPERIENCES CHRONOLOGY: • 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 1963-67 1967

23. DoD HISTORY/EXPERIENCES CHRONOLOGY (Continued): 1969 • 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 1969-72 1972 1989 1991 1996 1996

24. 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

25. EVM CONCEPT/ADVANTAGE • EVM OBJECTIVES • EVM CONCEPTS • DoD 5000.2-R • DoD POLICY - THRESHOLDS FOR EVM GUIDELINES APPLICATION • EVM GUIDELINES • SUMMARY

26. DoD COST RISKS DoD IS A UNIQUE CUSTOMER: • HIGH TECHNOLOGY/PERFORMANCE SPECS • CRITICAL SCHEDULE • HIGH COST PROGRAMS • HIGH RISK PROGRAMS • VERY LARGE CUSTOMER • ACQUISITION WITH PUBLIC FUNDS REQUIRES “STEWARDSHIP”

27. 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) TYPE CONTRACTUAL PROMISE FIXED PRICE COST REIMBURSEMENT

28. WHAT KIND OF “CONTRACTS”ARE USED BY THE IPT? • FIXED PRICE CONTRACTS • COST PLUS • CONTRACTS • TASK ORDERS • PROJECT ORDERS • MILITARY INTERSERVICE PURCHASE REQUESTS

29. 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.

30. 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

31. 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

32. DoD 5000.2-R, PART 3 REQUIREMENTS 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: • 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

33. EVM GUIDELINES AREAS • ORGANIZATION • PLANNING, BUDGETING AND SCHEDULING • ACCOUNTING CONSIDERATIONS • ANALYSIS AND MANAGEMENT REPORTING • REVISIONS AND DATA MAINTENANCE

34. 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

35. EARNED VALUE MANAGEMENTGUIDELINES MODULE OVERVIEW • EVM GUIDELINE AREAS 1. Organization 2. Planning, Budgeting and Scheduling 3. Accounting Considerations 4. Analysis and Management Reporting 5. Revisions and Data Maintenance

36. 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

37. ORGANIZATIONIDENTIFY RESPONSIBILITIES ANDINTEGRATE FUNCTIONAL OBS WITH WBS WBS LEVEL 1 CONTRACT LEVEL 2 ENGINE TRAINING LEVEL 3 FAN COMPRESSOR FUNCTIONAL OBS FAN ASSEMBLY FUL SCALE RIG LEVEL 4 TEST CASE ASSY ROTOR ASSY STATOR ASSY COMPANY MECHANICAL DESIGN COST ACCOUNT ENG ANALYTICAL DESIGN COST ACCOUNT DESIGN MFG DRAFTING CHECKING COST ACCOUNT COST ACCOUNT

38. 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

39. PLANNING, BUDGETING AND SCHEDULINGESTABLISH THE BASELINE - AN ITERATIVE 3-STEP PROCESS

40. PERFORMANCE MEASUREMENTBASELINE CONTRACT PRICE COST FEE / PROFIT PERFORMANCE MEASUREMENT BASELINE (PMB) MANAGEMENT RESERVE (MR) WITHHELD FOR UNKNOWNS WITHIN SCOPE WITHHELD FOR KNOWN EFFORT TO BE DISTRIBUTED AS SOON AS POSSIBLE DISTRIBUTED (CONTROL ACCOUNTS) UNDISTRIBUTED BUDGET (UB) WORK PACKAGES PLANNING PACKAGES DISCRETE BCWS APPORTIONED BCWS LOE BCWS

41. PLANNING, BUDGETING AND SCHEDULING MASTER SCHEDULE INTERMEDIATE LEVELS ORGANIZATION SCHEDULES WORK PACKAGE SCHEDULES

42. 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

43. 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

44. ACCOUNTING CONSIDERATIONS (CONTINUED)MATERIAL COSTS • MILESTONE EVENTS • MATERIAL ORDERED • MATERIAL RECEIVED • INVOICES PAID • WITHDRAWN FROM STORES • MATERIAL CONSUMED Time • 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

45. 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

46. 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

47. ANALYSISVARIANCE ANALYSIS

48. 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

49. 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

50. 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