Seminar: Earned Value Management System (EVMS) Metrics

1. Seminar: Earned Value Management System (EVMS) Metrics Program Management Office Course PMT 352B Version 2.3. 9-13-12

2. Earned Value Management (EVM) (DAG) • An integrating process in the management and oversight of acquisition programs, to include information technology projects. • A management approach to ensure the total integration of cost, schedule, and work scope aspects of the program. • The PM’s approach to satisfying EVM requirements should be documented in the program acquisition strategy Version 2.3, 9-13-12

3. Assistant USD(AT&L) Memo, 19 June 2012 SUBJECT: Integrated Program Management Report (IPMR) Data Item Description (DID) “Earned Value Management is one of the Department's most powerful program management tools since it integrates the cost, schedule, and technical performance of a program…… The …..IPMR DID takes a major step towards improving the integration of cost and schedule reporting by combining the Contract Performance Report (CPR) and Integrated Master Schedule (IMS) into a single integrated report to be consistent with good, disciplined program management…… The IPMR DID becomes effective for all applicable future contracts that are awarded based on solicitations or requests for proposal issued on or after July 1, 2012.” Version 2.3, 9-13-12

4. Integrated Program Management Tools Schedule Performance • Critical Path Schedules • Schedule Simulations • Program Reviews • EVM (BCWS) • Time Phased Budget • System Engineering • Simulation & Test • Design Reviews • TPMs • EVM (BCWP) PMs’ Mutual Understanding RISK RISK RISK Cost • CFSR, CCDR, WBS, Cost Estimates • EVM : BAC, ACWP, & EAC • Actuals & Forecast Cost Version 2.3, 9-13-12

5. “Some” Key EVM Terms Budgeted Cost of Work Scheduled (BCWS)= Represents the value of work planned to be accomplished. BCWS portrayed over the contract period equates to the Performance Measurement Baseline (PMB), the time-phased budget plan against which contract performance will be measured. Budgeted Cost of Work Performed (BCWP)= Earned Value – represents the value of the work accomplished in relation to the PMB Actual Cost of Work Performed (ACWP)= Actual cost of work accomplished Cost Variance= BCWP – ACWP Schedule Variance= BCWP – BCWS Cost Performance Index= BCWP/ACWP Schedule Performance Index= BCWP/BCWS Estimate at Completion (EAC) (General)= Actuals to Date + (Remaining Work/Efficiency Factor) NOTE: Use the Six Period Summary Ex 8 Job Aid to select an EAC Version 2.3, 9-13-12

6. Mathematical Approach to EAC Concept • EAC = Actuals to Date + Work Remaining • Efficiency Factor • Actuals to Date = ACWPCUM • Work Remaining = BAC – BCWPCUM Efficiency Factors Cumulative CPI (CPICUM ): tends to be the optimistic estimate Composite (CPICUM x SPICUM): tends to be the pessimistic estimate; weights cost and schedule equally Three period (month) CPI: shows most current cost performance Six period (month) CPI: shows longer timeframe for cost performance – may be more accurate (or less accurate) regarding true trends Weighted (.8 CPICUM + .2 SPICUM): weights cost more than schedule Version 2.3, 9-13-12

7. EAC = ACWPcum + EAC = ACWPcum + BAC - BCWPcum TAB - BCWPcum ------------------------ ------------------------ “Efficiency Factor” “Efficiency Factor” Cost Estimate at Completion (EAC) AlternativeApproach for Computing EAC If assuming that contractor will not use all available MR (Estimate of Total Cost Through any Given Level) If assumption is made that contractor will use all available MR…MAY use following “alternative” formula Total Allocated Budget (TAB) = BAC + Management Reserve Version 2.3, 9-13-12

8. Work Remaining Work Remaining TCPI = TCPI = Budget Required Budget Required BAC - BCWPcum TAB - BCWPcum = = EACtarget - ACWPcum EACtarget - ACWPcum Cost To Complete Performance Index (TCPI) Alternative Approach for Computing TCPI If assuming that contractor will not use all remaining MR (Cost Efficiency Needed from “Now” to Achieve a Specific Target Cost) If assuming that contractor will use available MR to complete contract, MAY use this “alternative” formula Total Allocated Budget (TAB) = BAC + Management Reserve Version 2.3, 9-13-12

9. Earned Value Data Interpretation Cost Worst Case EAC KTR EAC Best Case EAC BAC Which EAC to use? (that is, EAC based on which efficiency factor?) Should you use BAC or TAB to compute EAC? (Consider Management Reserve) Version 2.3, 9-13-12

10. Relationship of the Contract Price to the Earned Value Management System (EVMS) Contract Price Profit / Fee Negotiated Contract Cost PMB Management Reserve Control Accounts Undistributed Budget Summary Level Planning Packages Planning Packages Work Packages MR is Not part of the PMB…until it’s “used” Version 2.3, 9-13-12

11. EV Items of Interest / Metrics • Primary • - EVM System Certification • - IBR within 6 months of contract award • Cost, schedule, & technical risk identified and quantified at IBR • Secondary • - CPI and SPI – cum index < .95 • - Baseline Execution Index (BEI) = # baseline tasks actually completed/#baseline tasks • scheduled for completion; cum index < .95 (not used in Exercise 8) • - Critical Path Length Index (CPLI) of PMB = (critical path duration + float • duration)/critical path duration; cum index < .95 (not used in Exercise 8) • - TCPI = Work Remaining/Cost Remaining; CPI to TCPI delta of >10% • - PMB Revisions – compared to monthly PMB value; delta of >5% • - Contract Mods – compared to original base value; delta of >10% Reference: EVM Government-Industry Working Group brief, 21 Feb 2007 Version 2.3, 9-13-12

12. DAG (11.3) Integrated Program Management • The PM should obtain integrated cost and schedule performance data at an appropriate level of summarization to monitor program execution. • The program manager should require contractors and government activities to use internal management control systems that accomplish the following: • Relate time-phased budgets to specific tasks identified in the statement of work; • Produce data that indicate work progress; • Properly relate cost, schedule, and technical accomplishment; and • Produce data that is valid, timely, and auditable. Cost Schedule Performance Version 2.3, 9-13-12

13. CONTRACT WBS FIRE CONTROL RADAR TRAINING RECEIVER SYSTEM ANTENNA RECEIVER PHASE SHIFTER BCWSC RECEIVER CASE POWER SUPPLY APPLICATION S/W The PMB = BCWS c Schedule The PMB is the primary tool for measuring performance and identifying risk. PMB Completion Date Version 2.3, 9-13-12

14. Schedule SCHEDULE - What must be done to accomplish project objectives on time • Part of the total plan • Essential for project control • A key consideration at milestone decisions • Provides current status • Forecasts completion dates • Predicts future problems • Supports developing alternatives • Identifies key activities, and interdependencies • Establishes a baseline tool for progress measurement • Allows management by exception • EVM (BCWS) Version 2.3, 9-13-12

15. Schedule The Master Schedule Must provide vertical and horizontal traceability Task Name LRE ID '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 1 Design $4,000,060 2 $6,000,030 Manufacture Component Tst $4,000,000 3 Schedule Analysis Assemble $2,000,000 4 5 Integrated Test $4,000,000 Forward Pass - Determines earliest finish time (EFT) / dates for each activity Critical Path - The path with the longest total duration (minimum project duration) Backward Pass - Determines latest finish time (LFT) / dates for each activity Float - Amount of time an activity can be delayed or expanded before it impacts the project finish time - (LFT - EFT = Float) • EVM (BCWS) Version 2.3, 9-13-12

16. Performance (Technical) Analysis Performance • EVM (BCWP) • Technical Assessment activities measure technical progress and assess both program plans and requirements. • Activities include: • Technical Reviews • Technical Performance Measure (TPMs) • Track progress over time • Risk Management • Earned Value Management Objective MTBF Hrs Threshold TIME Technical Reviews - Detailed reviews conducted between the program management office and contractor personnel to assist the program manager and contractor in assessing technical progress of the program. Version 2.3, 9-13-12

17. IBR The object of the review is the PMB . . . not the Contractor • Confirm compliance with the following business rules : • Technical scope = consistent with authorizing documents • Key schedule milestones are identified • Supporting schedules reflect a logical flow to accomplish the technical work scope • Resources (budgets, facilities, personnel, skills, etc.) are adequate and available for the assigned tasks • Tasks are planned & can be measured objectively • Management processes The IBR is intended to provide both PMs with a mutual understanding of the project PMB and to attain agreement on a plan of action to handle the identified risks. Cost Schedule Performance RISK RISK RISK Version 2.3, 9-13-12

18. IBR – Baseline Maintenance Ongoing Baseline Validity and Realism • Validity • PMB still represents goals and objectives • PMB points to valid variances • Variances result in management action • Timely Incorporation of Contract Changes • Use of MR and UB • Realism • PMB changes made for management reasons not for reporting reasons PMs’ Mutual Understanding RISK RISK RISK Version 2.3, 9-13-12 18

19. Over Budget EAC P R O J E C T E D S L I P Schedule VarianceC Cost VarianceC BCWSC BCWPC ACWPC Schedule Slip?? Time Now Time-Phased PMB Management Reserve PMB To avoid Finding Your Program Here Integrated Program Management Completion Date Version 2.3. 9-13-12