This document is maintained by the Management Systems
Subcommittee of the National Security Industrial Association in
cooperation with the Aerospace Industries Association, Electronic
Industries Association, American Shipbuilding Association, Shipbuilders
Council of America, Performance Management Association, and the
Project Management Institute as standard guidance to industry
on implementation and usage of an Earned Value Management System
for program management. This document is dynamic and will be
reviewed regularly for updates to recognize process advances.
Earned value management is recommended for general usage on all
programs except small low-risk programs and level of effort or
time and material activities. The application of this standard
may vary depending on individual company needs.
Earned value management is a proven process that
provides strong benefits for program planning and control. It
provides for integration of program scope, schedule, and cost
objectives and establishment of a baseline plan for performance
management during the execution of a program. Further, it provides
a sound basis for problem identification, corrective actions,
and management replanning as may be required.
The guidelines in this document are purposely high
level and goal oriented as they are intended to state the qualities
and operational considerations of an integrated management system
using earned value analysis methods without mandating detail system
characteristics. Different companies must have the flexibility
to establish and apply a management system that suits their management
style and business environment. The program management system
must, first and foremost, meet company needs and good business
practices.
A certified earned value management system may be used to satisfy contractual requirements for compliance with Department of Defense Regulation DoD 5000.2-R including Cost Performance Report (CPR), Cost/Schedule Status Report (C/SSR), and similar requirements from the Federal Aviation Administration (FAA), National Aeronautic and Space Administration (NASA) and other agencies in accordance with standing government agreements.
SECTION SUBJECT
1.0. INTRODUCTION 2.0. EVMS GUIDELINES 2.1. Organization 2.2. Planning, Scheduling, and Budgeting 2.3. Accounting Considerations 2.4. Analysis and Management Reports 2.5. Revisions and Data Maintenance 2.6. Common Terminology 3.0. EVMS PROCESS DISCUSSION 3.1. Statement of Work 3.2. Work Breakdown Structure 3.2.1. WBS Dictionary 3.2.2. Cost Accounting/Work Orders 3.3. Program Organization 3.3.1. Control Accounts 3.3.2. Control Account Managers 3.3.3. Subcontract Management 3.3.4. Inter-Company Work Transfers 3.4. Program Schedule 3.4.1. Master Schedule 3.4.2. Supporting Schedules 3.4.3. Subcontract/Procurement Schedules 3.5. Budget Allocation and Resource Planning 3.5.1. Program Budget 3.5.2. Elements of Control 3.5.3. Budget Rates 3.5.4. Management Reserve 3.5.5. Undistributed Budget 3.5.6. Work Authorization 3.5.7. Resource Plan/Time-Phased Budget 3.5.8. Planning Packages 3.5.9. Summary Level Planning Packages 3.5.10. Work Packages 3.5.11. Planning Package Conversion 3.5.12. Performance Measurement Baseline 3.5.13. Funding Issues 3.6. Accounting Considerations 3.6.1. Material Costs 3.7. Earned Value Methodology 3.7.1. Discrete Effort 3.7.2. Apportioned Effort 3.7.3. Level Of Effort 3.8. Performance Measurement 3.8.1. Schedule Performance 3.8.2. Cost Performance 3.8.3. Apportioned Effort 3.8.4. LOE Effort 3.8.5. Price/Usage Analysis (Material) 3.8.6. Performance Analysis/Exception Reports 3.9. Estimates At Completion 3.9.1. Frequency 3.9.2. Content 3.10. Revisions and Data Maintenance 3.10.1. Retroactive Changes 3.10.2. Authorized Changes 3.10.3. Internal Replanning 3.10.4. Operating Schedules/Plans 3.10.5. Over Target Baseline 4.0. SYSTEM DOCUMENTATION 5.0. SYSTEM EVALUATION 5.1. Evaluation Process 5.2. Prior C/SCSC Acceptance 5.3. System Surveillance
1.0. INTRODUCTION
An Earned Value Management System (EVMS) for program
management will effectively integrate the work scope of a program
with the schedule and cost elements for optimum program planning
and control. The primary purpose of the system is to support
program management. The system belongs to the company and is
governed by company policies and procedures. The basic concepts
of an EVMS are:
The essence of earned value management is that at
some level of detail appropriate for the degree of technical,
schedule, and cost risk or uncertainty associated with the program,
a target value (i.e., budget) is established for each scheduled
element of work. As these elements of work are completed, their
target values are "earned". As such, work progress
is quantified and the earned value becomes a metric against which
to measure both what was spent to perform the work and what was
scheduled to have been accomplished.
Schedule variances, which cannot be seen in a stand-alone
budget versus actual cost tracking system, are isolated and quantified,
and the cost variances are true cost variances that are not distorted
by schedule performance. This provides for early identification
of performance trends and variances from the management plan,
and allows management decision making while there is adequate
time to implement effective corrective actions. Without earned
value, one can only compare planned expenditures with how much
has been spent, which does not provide an objective indication
of how much of the planned work was actually accomplished.
For the benefits of earned value to be fully realized, thorough planning, combined with the establishment and disciplined maintenance of a baseline for performance measurement are needed. The combination of advance planning, baseline maintenance, and earned value analysis yields earlier and better visibility into program performance than is provided by non-integrated methods of planning and control.
2.0. EVMS GUIDELINES
This section provides basic guidelines for companies
to use in establishing and applying an integrated Earned Value
Management System (EVMS). These guidelines are expressed in fundamental
terms and provide flexibility for each company to optimize its
system and be fully accountable for the effectiveness of its usage.
The process discussions in section 3.0. provide further information
on application of these guidelines. The guidelines are grouped
in five major categories as documented below. They are followed
by a glossary of common terminology.
2.1. Organization
a. Define the authorized work elements for the program.
A work breakdown structure (WBS), tailored for effective internal
management control, is commonly used in this process.
b. Identify the program organizational structure
including the major subcontractors responsible for accomplishing
the authorized work, and define the organizational elements in
which work will be planned and controlled.
c. Provide for the integration of the company's planning,
scheduling, budgeting, work authorization and cost accumulation
processes with each other, and as appropriate, the program work
breakdown structure and the program organizational structure.
d. Identify the company organization or function
responsible for controlling overhead (indirect costs).
e. Provide for integration of the program work breakdown
structure and the program organizational structure in a manner
that permits cost and schedule performance measurement by elements
of either or both structures as needed.
2.2. Planning, Scheduling, and Budgeting
a. Schedule the authorized work in a manner which
describes the sequence of work and identifies significant task
interdependencies required to meet the requirements of the program.
b. Identify physical products, milestones, technical
performance goals, or other indicators that will be used to measure
progress.
c. Establish and maintain a time-phased budget baseline,
at the control account level, against which program performance
can be measured. Initial budgets established for performance measurement
will be based on either internal management goals or the external
customer negotiated target cost including estimates for authorized
but undefinitized work. Budget for far-term efforts may be held
in higher level accounts until an appropriate time for allocation
at the control account level. On government contracts, if an over
target baseline is used for performance measurement reporting
purposes, prior notification must be provided to the customer.
d. Establish budgets for authorized work with identification
of significant cost elements (labor, material, etc.) as needed
for internal management and for control of subcontractors.
e. To the extent it is practical to identify the
authorized work in discrete work packages, establish budgets for
this work in terms of dollars, hours, or other measurable units.
Where the entire control account is not subdivided into work
packages, identify the far term effort in larger planning packages
for budget and scheduling purposes.
f. Provide that the sum of all work package budgets
plus planning package budgets within a control account equals
the control account budget.
g. Identify and control level of effort activity
by time-phased budgets established for this purpose. Only that
effort which is unmeasurable or for which measurement is impractical
may be classified as level of effort.
h. Establish overhead budgets for each significant
organizational component of the company for expenses which will
become indirect costs. Reflect in the program budgets, at the
appropriate level, the amounts in overhead pools that are planned
to be allocated to the program as indirect costs.
I. Identify management reserves and undistributed
budget.
j. Provide that the program target cost goal is reconciled
with the sum of all internal program budgets and management reserves.
2.3. Accounting Considerations
a. Record direct costs in a manner consistent with
the budgets in a formal system controlled by the general books
of account.
b. When a work breakdown structure is used, summarize
direct costs from control accounts into the work breakdown structure
without allocation of a single control account to two or more
work breakdown structure elements.
c. Summarize direct costs from the control accounts
into the contractor's organizational elements without allocation
of a single control account to two or more organizational elements.
d. Record all indirect costs which will be allocated
to the contract.
e. Identify unit costs, equivalent units costs, or
lot costs when needed.
f. For EVMS, the material accounting system will
provide for:
(1) Accurate cost accumulation and assignment of
costs to control accounts in a manner consistent with the budgets
using recognized, acceptable, costing techniques.
(2) Cost performance measurement at the point in
time most suitable for the category of material involved, but
no earlier than the time of progress payments or actual receipt
of material.
(3) Full accountability of all material purchased
for the program including the residual inventory.
2.4. Analysis and Management Reports
a. At least on a monthly basis, generate the following
information at the control account and other levels as necessary
for management control using actual cost data from, or reconcilable
with, the accounting system:
(1) Comparison of the amount of planned budget and
the amount of budget earned for work accomplished. This comparison
provides the schedule variance.
(2) Comparison of the amount of the budget earned
the actual (applied where appropriate) direct costs for the same
work. This comparison provides the cost variance.
b. Identify, at least monthly, the significant differences
between both planned and actual schedule performance and planned
and actual cost performance, and provide the reasons for the variances
in the detail needed by program management.
c. Identify budgeted and applied (or actual) indirect
costs at the level and frequency needed by management for effective
control, along with the reasons for any significant variances.
d. Summarize the data elements and associated variances
through the program organization and/or work breakdown structure
to support management needs and any customer reporting specified
in the contract.
e. Implement managerial actions taken as the result
of earned value information.
f. Develop revised estimates of cost at completion
based on performance to date, commitment values for material,
and estimates of future conditions. Compare this information with
the performance measurement baseline to identify variances at
completion important to company management and any applicable
customer reporting requirements including statements of funding
requirements.
2.5. Revisions and Data Maintenance
a. Incorporate authorized changes in a timely manner,
recording the effects of such changes in budgets and schedules.
In the directed effort prior to negotiation of a change, base
such revisions on the amount estimated and budgeted to the program
organizations.
b. Reconcile current budgets to prior budgets in
terms of changes to the authorized work and internal replanning
in the detail needed by management for effective control.
c. Control retroactive changes to records pertaining
to work performed that would change previously reported amounts
for actual costs, earned value, or budgets. Adjustments should
be made only for correction of errors, routine accounting adjustments,
effects of customer or management directed changes, or to improve
the baseline integrity and accuracy of performance measurement
data.
d. Prevent revisions to the program budget except
for authorized changes.
e. Document changes to the performance measurement
baseline.
2.6. Common Terminology
ACTUAL COST - The costs actually incurred and recorded
in accomplishing work performed.
ACTUAL DATE - The date on which a milestone or scheduled
work task is completed.
APPORTIONED EFFORT - Effort that by itself is not
readily measured or divisible into discrete work packages but
which is related in direct proportion to the planning and performance
on other measured effort.
BUDGET AT COMPLETION - The total authorized budget
for accomplishing the program scope of work. It is equal to the
sum of all allocated budgets plus any undistributed budget. (Management
Reserve is not included.) The Budget At Completion will form
the Performance Measurement Baseline when it is time-phased in
accordance with program schedule requirements.
CONTROL ACCOUNT - A management control point at which
budgets (resource plans) and actual costs are accumulated and
compared to earned value for management control purposes. A control
account is a natural management point for planning and control
since it represents the work assigned to one responsible organizational
element on one program work breakdown structure element.
COST VARIANCE - A metric for the cost performance
on a program. It is the algebraic difference between earned value
and actual cost (Cost Variance = Earned Value - Actual Cost.)
A positive value indicates a favorable position and a negative
value indicates an unfavorable condition.
CRITICAL PATH ANALYSIS - See NETWORK SCHEDULE.
DIRECT COSTS - The costs or resources expended in
the accomplishment of work which are directly charged to the affected
program.
DISCRETE EFFORT - Tasks which are related to the
completion of specific end products or services and can be directly
planned and measured. (Also may be known as work packaged effort.)
DUE DATE - The date by which a milestone or task
is scheduled to be completed.
EARNED VALUE - The value of completed work expressed
in terms of the budget assigned to that work.
ESTIMATE AT COMPLETION - The current estimated total
cost for program authorized work. It equals actual cost to a point
in time plus the estimated costs to completion (Estimate To Complete).
ESTIMATE TO COMPLETE - Estimate of costs to complete
all work from a point in time to the end of the program.
ESTIMATED COST - An anticipated cost for specified
work scope.
EXPECTED COMPLETION DATE - The date on which a scheduled
milestone or task is currently expected to be completed.
INDIRECT COSTS - The costs for common or joint objectives
which cannot be identified specifically with a particular program
or activity. Also referred to as overhead cost or burden.
INTERNAL REPLANNING - Replanning actions for remaining
work scope. A normal program control process accomplished within
the scope, schedule, and cost objectives of the program.
LEVEL OF EFFORT - Unmeasured effort of a general
or supportive nature usually without a deliverable end product.
Examples are supervision, program administration and contract
administration.
MANAGEMENT RESERVE - An amount of the total budget
withheld for management control purposes rather than designated
for the accomplishment of a specific task or set of tasks.
NETWORK SCHEDULE - A schedule format in which the
activities and milestones are represented along with the interdependencies
between activities. It expresses the logic of how the program
will be accomplished. Network schedules are the basis for critical
path analysis, a method for identification and assessment of schedule
priorities and impacts.
ORGANIZATION STRUCTURE - The hierarchical arrangement
for the management organization for a program, graphically depicting
the reporting relationships. The organizational structure will
be by work team, function, or whatever organization units are
used by the company.
OTHER DIRECT COSTS - Usually the remaining direct
costs, other than labor and materiel, like travel and computer
costs.
OVER TARGET BASELINE - Replanning actions involving
establishment of cost or schedule objectives that exceed the desired
or contractual objectives on the program. An over target baseline
is a recovery plan, a new baseline for management when the original
objectives cannot be met and new goals are needed for management
purposes.
PERFORMANCE MEASUREMENT BASELINE - The total time-phased
budget plan against which program performance is measured. It
is the schedule for expenditure of the resources allocated to
accomplish program scope and schedule objectives, and is formed
by the budgets assigned to control accounts and applicable indirect
budgets. The Performance Measurement Baseline also includes budget
for future effort assigned to higher Work Breakdown Structure
levels (summary level planning packages) plus any undistributed
budget. Management Reserve is not included in the baseline as
it is not yet designated for specific work scope.
PERFORMING ORGANIZATION - The organization unit that
applies resources to accomplish assigned work.
PLANNING PACKAGE - A logical aggregation of work,
usually future efforts that can be identified and budgeted, but
which is not yet planned in detail at the work package or task
level.
PROGRAM BUDGET - The total budget for the program
including all allocated budget, management reserve, and undistributed
budget.
PROGRAM TARGET COST - The program cost objective
based on the negotiated contract target cost, or the management
goal value of the authorized work, plus the estimated cost of
authorized unpriced work.
RESOURCE PLAN - The time-phased budget, which is
the schedule for the planned expenditure of program resources
for accomplishment of program work scope.
RESPONSIBLE ORGANIZATION - The organizational unit
responsible for accomplishment of assigned work scope.
SCHEDULE - A plan which defines when specified work
must be done to accomplish program objectives on time.
SCHEDULE TRACEABILITY - Compatibility between schedule
due dates, status and work scope requirements at all levels of
schedule detail (vertical traceability) and between schedules
at the same level of detail (horizontal traceability).
SCHEDULE VARIANCE - A metric for the schedule performance
on a program. It is the algebraic difference between earned value
and the budget (Schedule Variance = Earned Value - Budget). A
positive value is a favorable condition while a negative value
is unfavorable.
STATEMENT OF WORK - The document that defines the
work scope requirements for a program.
UNDISTRIBUTED BUDGET - Budget associated with specific
work scope or contract changes which has not been assigned to
a control account or summary level planning package.
WORK BREAKDOWN STRUCTURE - A product-oriented division
of program tasks depicting the breakdown of work scope for work
authorization, tracking, and reporting purposes.
WORK BREAKDOWN STRUCTURE DICTIONARY - A listing of
work breakdown structure elements with a description of the work
scope content in each element. The work descriptions are normally
summary level and provide for clear segregation of work for work
authorization and accounting purposes.
WORK PACKAGE - A task or set of tasks performed within a control account.
3.0. EVMS PROCESS DISCUSSIONS
This section provides additional information relative
to the EVMS guidelines in Section 2.0. This information is provided
as an aid in understanding and applying earned value management
methods.
3.1. Statement of Work (SOW)
The SOW communicates the work scope requirements
for a program, and should define the requirements to the fullest
extent practical. It is a basic element of control used in the
processes of work assignment and establishment of program schedules
and budgets. If the work scope can only be defined in general
terms, it will be necessary to maintain added flexibility in program
plans and controls to allow for future developments.
3.2. Work Breakdown Structure
A Work Breakdown Structure (WBS) may be used to
segregate the work scope requirements of the program into definable
product elements and related services and data. The WBS is a
direct representation of the work scope defined in the program
statement of work and breaks that work scope into appropriate
elements for cost accounting and work authorization. It is a
multi-level hierarchical breakdown that shows how program costs
are summarized from the lower elements to the total program level.
The extent of detail (breakout and levels) in the WBS will be
determined by program management needs, company policies, and
contractual agreements.
As a program progresses from one phase to another,
it is a normal process to reassess the WBS. As a case in point,
the product breakdown during a development phase may be different
from the product breakdown, the assembly sequence, used in the
production phase. If program requirements change, the WBS will
evolve with the program.
3.2.1. WBS Dictionary
A company may elect to prepare a WBS dictionary.
The dictionary defines the work scope represented in each element
of the WBS. This can be done by summary work scope descriptions
or by references to the applicable sections of the statement of
work. The WBS dictionary does not replace the statement of work,
but can provide a logical cross reference between it and the WBS.
Direct costs are clearly segregated by WBS element without further
allocation.
3.3. Program Organization
A company will organize programs as it needs to for
optimal management of its business. This includes decisions such
as the use of work teams or functional organizations and staffing
by direct (projectized) or matrix assignment. It is important
for the organization to be defined at the onset of the program
so that work assignments can be made and responsibilities are
clear. This process includes identification and coordination
of subcontracted work as well as internal efforts. A program
organization is dynamic and may change as a program evolves.
3.3.1. Control Accounts
The company involved will determine the organizational
level(s) at which to establish control accounts. The control
accounts are then defined by integration of the program organization
and the work breakdown structure. A control account thus represents
a defined work scope (with the associated charge number or numbers)
given to a single organizational unit (and single manager) for
work performance. When control accounts are assigned in this
manner, there may be multiple accounts within a WBS element depending
on the number of organizations authorized to do work within the
scope of that WBS element. If an organization is also assigned
work under another WBS element, that is another control account.
The control account is where program cost, schedule
and work scope requirements are integrated, planned and managed.
Resource planning through integration of schedule and budget
objectives, and performance measurement will be accomplished within
the control accounts. Control account data is then collected
and summarized for higher levels of visibility of program plans
and performance. Since the accounts were defined by integration
of the organization and the WBS, program data can be summarized
by either path.
The purpose of defining control accounts is to break
the program, the total job at hand, into manageable subdivisions.
The size and duration of a control account depends on what is
necessary and reasonable for program planning and control. The
one normal guideline is that a control account should not span
multiple WBS elements.
3.3.2. Control Account Managers
A control account must be assigned to a single manager
or team leader who has the responsibility for management of the
account. While a control account will have a single manager,
a manager may have responsibility for a number of accounts on
one or more programs depending on the organization within a company.
3.3.3. Subcontract Management
A company will apply its own established process
for management of subcontracts. Major or critical subcontractors,
normally excluding those with a FFP contract, should be required
to comply either with the full provisions of this standard or
other appropriate requirements such as DoD C/SCSC or C/SSR guidelines.
Reporting requirements should be consistent with program risk,
size, complexity, and other factors. Major or critical subcontractors
with a FFP agreement should have minimum cost reporting obligations,
but should be required to provide schedule and technical plans
and progress reports as needed by the prime contractor for overall
program management. Subcontractor data can be integrated with
prime contractor data for total program performance analysis and
reporting.
3.3.4. Inter-Company Work Transfers
Management of effort assigned to another component
within a corporation will be done in accordance with standard
company policy. The other component may be treated as an in-house
organization and the effort may be planned and tracked within
the earned value management system of the prime contractor. Alternatively,
the work can be managed like subcontracted effort (see paragraph
3.3.3.).
3.4. Program Schedule
The program schedule is the time-oriented plan for
accomplishment of work scope requirements on a program. Schedule
planning and control, along with work scope definition, are necessary
prerequisites for basic program management and effective cost
control. The scheduling process begins during original program
definition and overall schedule plans are typically established
during the preplanning for a program. Supporting plans and detail
schedules are subsequently developed, maintained and statused
as necessary during the performance phase of the program. The
scheduling process must support integration of the cost and schedule
objectives of the program to provide for resource planning, performance
measurement and other program management requirements.
Network schedules and critical path analysis are
proven scheduling techniques that are preferred for some purposes.
While these methods are quite capable, the application of basic
earned value management techniques does not require the use of
any particular scheduling methods. The selection of scheduling
techniques and the levels at which they are applied depend on
the affected company and its program management needs.
3.4.1. Master Schedule
A master schedule is the top level schedule for
accomplishment of program objectives. The master schedule should
include the key program and contractual requirements. Beyond
this, the level of detail in the master schedule depends on program
management needs and company policies.
3.4.2. Supporting Schedules
Master schedule requirements must be extended as
necessary for a company to effectively plan and manage. Lower
level schedules may be maintained as separate entities or integrated
with the master schedule in a single module. The basic principle
is that all lower level schedules must support the master schedule
requirements and provide for program interdependencies as necessary.
3.4.3. Subcontract/Procurement Schedules
Subcontract and critical procurement schedule requirements
should be fully integrated into the overall program schedule.
It is important to plan and track all critical schedule requirements
that constrain the successful conclusion of procurement actions.
3.5. Budget Allocation and Resource Planning
The process of budget allocation and resource planning
depends on having definition of program work scope, schedules,
and organization. These elements are integrated in the performance
measurement baseline.
Setting a budget for a program involves allocation
of company resources to performing organizations for accomplishment
of program objectives. A key attribute of an earned value management
system is that budget is provided for specific work scope and
is only allocated for authorized efforts.
3.5.1. Program Budget
The program budget is maintained as a working management
tool for the life of the program. The initial program budget
is normally tied directly to the negotiated contract cost or internal
management goals. Management reserve may be withheld before the
budget is distributed to lower accounts. The budget will change
as contract changes are authorized and incorporated or as internal
replanning actions are taken. Rate changes and economic price
adjustments may also be made as appropriate. The program budget,
at any level and for any organization or task, will only contain
budget for specific authorized work.
If a customer authorizes additional work and the
value of the added work is still to be negotiated, the company
may increase the program budget as needed for the newly authorized
work. The budget applied may be adjusted when the authorized
change is finalized.
For management reasons, a company may elect to establish
a program budget that exceeds the program target cost. If customer
performance reporting is required on the program, the customer
will be consulted prior to implementation of the changes.
3.5.2. Elements of Control
A company will use the elements of control it deems
most effective for internal management. Budgets may be expressed
in dollars, labor hours, or other measurable units. When units
other than dollars are used, the company will determine the appropriate
point of responsibility in their control system for rate application
for financial analysis and reporting.
3.5.3. Budget Rates
A company will apply the budget rates necessary
for establishment of a valid performance measurement baseline.
Usage of average rates for an extended period of time is not usually
recommended as budgets in the beginning of the period will be
overstated and later budgets will be understated. Rate changes
may be incorporated in the program budget as they occur. The
rates used for budgets will also be used for computation of earned
value data.
3.5.4. Management Reserve
A company may establish a management reserve to
be used in accordance with company policy. Management reserve
is held for work scope growth, rate changes, and other program
unknowns. Generally, reserve is held for current and future needs
and is not used to offset accumulated overruns or underruns.
Reserve may be held at the total program level or distributed
and controlled at lower management levels. In any case, a company
should be able to account for all reserve at the total contract
level.
Management reserve is not a contingency which can
be eliminated from contract prices during subsequent negotiations
or used to absorb the cost of contract changes. The budget being
held in reserve must not be viewed by a customer as a source of
funding for added work scope.
3.5.5. Undistributed Budget
This is budget that is not allocated either to working budgets or to management reserve. Undistributed budget should be appropriately allocated as quickly as practical.
3.5.6. Work Authorization
Within a program, formal work authorizations are
normally issued to communicate work assignments. This provides
a documented trail of work authorization from the program office
that clearly assigns program work requirements to the responsible
organizations.
The process of work authorization, the approvals
necessary, and the form will vary based on individual company
policies and procedures. Work authorizations do not need to duplicate
the statement of work and can refer to that document for work
scope definition. The company will decide on the flow of the
work authorizations and the approvals that are needed. The authorizations
may be communicated electronically or on paper. Authorized work
should be clearly identified and assigned to responsible organizations.
Work authorizations should be issued before work is due to begin
for improved control and advance planning.
Normal business practices provide for documentation
of job or task requirements at the performing organization level.
This documentation should suffice for management needs. The
work authorization process should make use of and avoid duplication
of working level job documentation.
3.5.7. Resource Plan/Time-Phased Budgets
A resource plan must be developed for every control
account and summary level planning package. The resource plan
is the time-phased budget which is developed in accordance with
assigned work scope and schedule requirements (due dates).
The resource plan for current requirements on discrete
(measured) efforts must be supported by appropriate work package
plans. Future resource requirements may be represented by a summary
time-phased budget (i.e., a planning package). The resource plan
for apportioned efforts will be in accordance with the plans of
the base accounts.
The resource plan for unmeasured or LOE efforts
may be a simple time-phased budget for all current and future
requirements.
3.5.8. Planning Packages
A planning package is a holding account (within a control account) for budget for future work that is not yet practical to be planned at the work package level. The planning package budget is time-phased in accordance with known schedule requirements (due dates) for resource planning, and the plans are refined as detail requirements become clearer and the time to begin work draws nearer. A company may elect to break the work assigned to a control account into smaller groupings of tasks, i.e., multiple planning packages, for internal planning and control reasons.
3.5.9. Summary Level Planning Packages
A summary level planning package may be used to
establish a high level holding account for budget that is identified
to some work scope; but which, for business reasons, is not yet
allocated to responsible control accounts. The summary level
planning package budget must be allocated to specific control
accounts before the work is scheduled to start or actually begins.
A basic difference compared to management reserve or undistributed
budget is that the summary level planning package budget is identified
to specific work scope elements and is time-phased for interim
resource planning.
3.5.10. Work Packages
Work packages are natural subdivisions of control
accounts. A work package is simply a task or grouping of work.
A work package is the point at which work is planned, progress
is measured, and earned value is computed.
"Work Package" is a generic term that
translates into different terms in different companies and functions.
It can be a design job, a tool design package, a build-to-package,
a shop order, a part number, a purchase order, or any other definable
task at whatever level of control is normal for program management
within the company. The concept of work packages does not impose
a new or unusual level of planning and control as the work packages
should represent working level jobs, tasks, or processes that
are natural to company operations.
Earned value management using standard hour methods
is commonly used in manufacturing organizations. Measured work
is effort that is scheduled and tracked on the basis of physical
accomplishment. The techniques applied include the usage of learning
curves and realization factors for planning and performance measurement.
Usage of planned and sold (or earned) standards is a proven earned
value methodology with natural work packages.
Work packages are an element of control within control accounts. The number, content, size, and duration of work packages needed in an account will vary subject to internal management needs and company policies along with the size and complexity of the program. In some cases, a control account may not need to break the assigned work into multiple work packages for effective planning and control.
3.5.11. Planning Package Conversion
There is no standard advance planning look-ahead
period (i.e., a planning "horizon" or "window")
for conversion of planning packages into work packages that is
appropriate for all programs or conditions. Each Company must
determine its own policies in this regard.
3.5.12. Performance Measurement Baseline
The performance measurement baseline is the total
time-phased budget for the program. It is the schedule for expenditure
of company resources as necessary to meet program scope and schedule
objectives. The program baseline is the summation of the time-phased
budgets for all of the control accounts and summary level planning
packages plus applicable indirect budgets and any undistributed
budget. Management reserve is not included in the baseline as
it has not been allocated for specific work scope.
The performance measurement baseline is a working
management tool. It is a representation of current program plans
which will and must change as program plans are refined and revised.
Proper maintenance of the baseline will prevent performance measurement
against an outdated or unauthorized plan.
3.5.13. Funding Issues
Changes in the funding projections for a program
may affect both the schedule and the cost for a program. The
movement of budget to meet a new funding profile requires a reassessment
of the schedule for the associated work. There may also be cost
impact due to rate differences in the affected time periods.
3.6. Accounting Considerations
The EVMS is not an accounting system and EVMS guidelines
do not suggest changes to accepted accounting practice. The EVMS
will use actual cost data from the company accounting system as
appropriate for accurate reporting of program costs and performance.
The establishment of work orders and other aspects of the accounting
process must be coordinated with the establishment of control
accounts and other aspects of the budgeting process so that direct
comparison and analysis can be done.
3.6.1. Material Costs
Material costs are usually recorded on an as applied
basis, but there may be exceptions. Earned value for material
will usually be credited in the same period that the costs are
applied, but in situations where earned value is credited and
the invoice has not been paid, the company may elect to use estimated
costs on management and customer reports for performance measurement.
3.7. Earned Value Methodology
The determination of earned value will depend on
the type of effort, whether it is discrete, apportioned, or LOE.
The most common methods are as follows:
3.7.1. Discrete Effort
There are three basic earned value methodologies
applicable to discrete/work packaged efforts (efforts with definable
scope and objectives that can be scheduled and on which progress
can be measured). The basic methodologies are valued milestones,
standard hours, and management assessment. There are many variations
and combinations of these techniques. Also, quantitative formulae
may be used to compute earned value for cases such as work in
process or productive inventory materials.
The valued milestone method involves the assignment
of budget to specific work objectives (schedule milestones).
That value is earned as the milestones are completed. It is important
for the milestones to be natural and meaningful points of accomplishment.
The use of standard hours methodology (equivalent
units is a similar process) is common in manufacturing accounts.
Budget is time-phased in relation to the standard hour plan.
Earned value is accrued in proportion to the standard hour status
as earned standards are sold in the shops.
Management assessment may be used to determine the
percentage of work completed for a task or group of tasks. Earned
value is then calculated by applying that percentage to the total
budget for the work. Management assessment may include the use
of metrics for work measurement.
Generally, the objective earned value methods (valued
milestone or standard hours) are preferred, but each method has
its own merits and a company should use the methods that best
suit its management needs. A note of caution is to avoid artificial
constraints on earnings such as a percentage limit on earnings
in a work package pending closure of the ending milestone.
3.7.2. Apportioned Effort
Apportioned effort is work for which the planning
and progress is tied to other efforts. The budget for the apportioned
account will be time-phased in relation with the resource plans
for the base account(s). Status and the taking of earned value
are driven by the status on the base account(s). If the base
account(s) are on schedule, the apportioned account will be on
schedule and an appropriate amount of value will be earned.
3.7.3. Level of Effort
LOE is work scope of a general or supportive nature
for which performance cannot be measured or is impractical to
measure. Resource requirements are represented by a time-phased
budget scheduled in accordance with the time the support will
likely be needed. The earned value is earned by the passage of
time and is equal to the budget scheduled in each time period.
The performance data provided is simply a comparison of budget
to actual cost.
3.8. Performance Measurement
Earned value is a direct measurement of the quantity
of work accomplished. The quality and technical content of work
performed is controlled by other processes. Earned value is a
value added metric that is computed on the basis of the resources
assigned to the completed work scope as budget.
3.8.1. Schedule Performance
The time-phased budget is the schedule (plan) for
expenditure of the resources necessary to accomplish program
work scope requirements. The budget for a period is compared
to the earned value for the same period to determine and quantify
the schedule performance for the program. The resultant metric
is the schedule variance. It represents the quantity, i.e., the
value, of the work that is ahead of or behind schedule. The specific
activities and events that are contributing to the variance can
be identified in program schedules.
Program schedules will involve time-oriented listings
or graphic representations of the work to be done on the program.
The schedule activities and events are monitored for management
information. Each process provides useful and valuable information
that aids in comprehending program conditions. The schedule variance
metric provides early insight into detail schedule conditions
and overall schedule performance and should be used in conjunction
with milestone status reports, critical path data, and other schedule
status information used by the company. The schedule variance
metric considers both ahead-of-schedule and behind-schedule data
in the computation of an overall schedule position. Other techniques,
such as critical path analysis, are preferred indicators of long
range projections; but, a trend analysis of the changes in the
schedule variance metric can provide a valid and useful indication
of current performance and near term projections.
3.8.2. Cost Performance
Cost performance is determined by comparison of
the actual costs and the earned value for the same work scope.
The resultant metric is the cost variance. The cost variance
is a true measure of cost performance as it compares the actual
costs incurred to the value of work accomplished and eliminates
the effects of schedule status variations which are inherently
present in a simple comparison of actual costs to a budget. (Rate
analysis and analysis of prime costs, i.e., labor hours, may
be segregated to isolate rate changes and efficiency factors.)
A comparison of actual costs to budgets or prior
forecasts may still be useful for evaluation of actual vs. planned
program staffing levels. An analysis of actual costs and time-phased
EAC data may be more relevant for evaluation of current and future
staffing requirements.
3.8.3. Apportioned Effort
The schedule status on an apportioned account will
mirror the status of the base accounts and the schedule variance
analysis for the base accounts will apply to the apportioned accounts
as well. The cost variance is not driven by the base accounts
and reflects the cost of resources spent for the value earned
in the affected apportioned account.
3.8.4. LOE Effort
Since the earned value for LOE is equal to the budget
for the same time period, performance analysis reverts to a simple
budget to actual cost comparison for LOE.
3.8.5. Price/Usage Analysis (Material)
A company may elect to conduct price/usage analyses
on program materials. Price variance is determined by comparison
of the planned unit prices with the actual costs. Usage variance
is generally based on comparison of the planned quantities with
the quantities used. This analysis may be meaningful on programs
with on-going production requirements. It is not generally useful
on development programs or limited run or low rate production
efforts.
3.8.6. Performance Analysis/Exception Reports
Earned value analysis will evaluate program performance
and identify problems for more effective management actions.
Earned value analysis segregates schedule and cost problems for
early and improved visibility of program performance. Analysis
and control begins at the lowest practical level; however, for
most program management purposes, the control accounts will be
the natural focal points for analysis and exception reporting.
While performance analysis necessarily involves examination of
what has occurred, the focus should be on the control of current
actions and assessment of future plans. The control account data
is summarized for higher level analysis. The frequency and style
of reports for internal management is a company option. Standardized
reports and formats may be used for customer reports on subcontracts
or government contracts per mutual agreements.
3.9. Estimates at Completion
A company should periodically reassess the remaining
requirements on a program and maintain a most likely estimate
of the cost to complete the program objectives. This estimate
is added to the costs incurred to date to determine the total
estimate at completion. The process of reassessment should focus
on the control accounts, but a company will apply its own methodology
to ensure that all resource requirements are considered.
3.9.1. Frequency
The schedule for establishment and maintenance of
EAC data depends on program management needs and overall company
or corporate financial review requirements. A company may elect
to conduct periodic (at least annual) EAC reassessments. Alternatively,
a company may prefer to establish an on-going process of EAC review
and maintenance. In either case, significant EAC changes should
be incorporated whenever they are identified.
3.9.2. Content
The EAC should be the most likely estimate of the
total costs for all authorized program efforts and should be time-phased
in accordance with the expected completion dates on program schedules.
The basis for the EAC and the reasons for changes from the last
estimate should be identified.
3.10. Revisions and Data Maintenance
Revisions to program plans must be carefully controlled.
The performance measurement baseline should reflect the current
program management plan for accomplishment of program objectives.
It must be up to date and should include all authorized changes.
It is equally important that unauthorized changes are not introduced.
If the maintenance of baseline plans is compromised, the information
on management reports will be degraded.
3.10.1. Retroactive Changes
A company must be able to make routine accounting
adjustments and correct data errors, but it should also control
changes to prior and current period data to prevent inappropriate
changes from being made in the performance measurement baseline.
Corrections should always be made if wrong data is affecting
the management value of the system but management reports will
also be compromised if current plans or program history (performance
to date information) is constantly changing. A company will determine
the process it deems necessary for control of retroactive changes.
3.10.2. Authorized Changes
Authorized changes should be incorporated in the
performance measurement baseline as soon as practical. This includes
revisions to schedules, budgets, work authorizing documents, and
any other appropriate changes (including retroactive changes)
necessary to properly reflect authorized revisions. Unless there
are compelling reasons otherwise, changes may be incorporated
into the affected basic control account structure that was established
for optimum administrative and management utility.
3.10.3. Internal Replanning
Internal adjustments to plans for future actions
is a normal management process as things happen and situations
changes. It is important to ensure that overall program scope,
cost, and schedule objectives are supported and retroactive changes
are properly controlled to maintain the integrity of program performance
data.
3.10.4. Operating Schedules/Plans
Normally, a performing organization should not have
an internal operating plan that is different from the baseline
plan for that work. On occasion, an organization may find it
advantageous to have an internal recovery plan when there are
problems. A recovery plan will not replace the baseline as a
basis for performance measurement.
3.10.5. Over Target Baseline
Over target baseline is a term used, normally on
a government contract, to describe a situation where the budget
or schedule in the performance measurement baseline exceeds the
program targets. An OTB may be applied by a company when it is
determined that current program conditions do not permit the performing
organizations to have realistic plans for completion of the program.
The need for an OTB could result from a major event or program
review. If multiple OTBs are necessary on a program, the frequency
of implementation will normally be more than a year apart. The
customer must be consulted in advance whenever an OTB is implemented
on a government contract.
4.0. SYSTEM DOCUMENTATION
EVMS documentation should be established in the standard
form or forms used by the affected company for systems documentation
and communication of policies and procedures. This EVMS standard
does not require or suggest a company should create a descriptive
document that is outside of normal company requirements or restricts
a company's ability to effectively implement desired system changes.
At the same time, it is duly noted that it is good business practice
to provide adequate policies and procedures where the subject
processes are expected to be implemented and applied effectively
enterprise wide. A company is hereby authorized to use materials
from this standard, in whole or part including the guidance, definitions
and discussions, in their system documentation.
Government contracts may include a requirement for
the contractor to provide a system description document. If a
company does not maintain this type of document, a brief general
description with a road map to the internal documents that are
used is acceptable.
5.0. SYSTEM EVALUATION
A company will normally evaluate the utility of
internal management systems in accordance with standing policies
and good business practice. For some purposes a visible and documented
process of system evaluation may be needed when a company must
attest to the capabilities and usage of its program management
system. Assurance of conformity with EVMS guidelines may be contractually
required on selected contracts for certain customers such as U.S.
or other military customers, NASA, or other government agencies.
This requirement may be applied in conjunction with performance
measurement reporting on programs of significant size and nature
as determined by contractual agreement with the customer.
5.1. Evaluation Process
The evaluation process for customer requirements
provides for documented corporate assurance that the company program
management system meets the full intentions of the guidelines
presented in this EVMS industry standard. The company is responsible
for the evaluation of its system. The process includes self evaluation
of the system, documentation of conformity with this standard,
and notification of any significant system changes. Once done,
the self evaluation may be cited on additional contracts as appropriate.
The self evaluation may take one of several forms
at the option of the affected company. The following are examples
of possible approaches to meet the needs of different companies
with different levels of earned valued management experience:
For its own reasons, a company may enlist outside
assistance as noted, but the company still retains system ownership
and responsibility. However the evaluation is done, the company
should document the process and the results, and any necessary
notification of EVMS compliance should be signed by the chief
executive officer of the company component involved. If the notice
is corporation wide, it should be signed by an appropriate corporate
officer.
5.2. Prior C/SCSC Acceptance
For government contracts, if a company has an appropriate
prior system acceptance, the company may elect to cite that acceptance
in lieu of providing a statement of EVMS compliance.
5.3. System Surveillance
Surveillance of the management system will be accomplished in accordance with company policies to ensure continued compliance with EVMS guidelines.