Fundamentals of Earne d Value Management lesson 6 .3 - Co ... › bbcswebdav › institution...Welcome to lesson 6 . 3 Contractor Internal Replanning This lesso n prov id e s an over

EVMlOl Fundamentals of Earned Value Management

lesson 6.3 - Contractor Internal Replanning RESOURCES I PRINT 1 HELP

Welcome to lesson 6.3

Contractor Internal Replanning

This lesson provides an overview of contrac tor internal replanning processes as a category of change s 65M

to the performance measurement baseline (PMB) .

The terminal learning objective for this lesson is to recognize contractor internal replanning processes as a category of change to the PMB.

This lesson includes three topics:

• Topic 1 : Internal Replanning Processes

• Topic 2: Uses of t he Management Reserve (MR)

• Topic 3: Rubber Baselines

Sin M

Management R•N~ (S2M}

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Co<ttract Start June 2011

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nme Now

Co<ttract End: April 2014


Lesson 6.3 - Contractor Internal Replanning RESOURCES I PRINT I HELP

Welcome to Lesson 6.3


This lesson provides an overview of contractor internal replanning processes as a cate o of chan e s 65M to the performance me

Long Description

Management Rewtvt1 ($2M)

The terminal learning o recognize contractor i a category of change

This lesson includes th

• Topic 1: Internal

Graph representing the ini tial performance measurement baseline and a replanned performance measurement baseline plotted over time from contrac t start in June 2011, through contract end in April 2014, measured in millions of dollars. Time Now is halfway between contract start and contract end. The initial PMB and replanned PMB both end at $6SM; management reserve is $2M. • Topic 2: Uses of --------------....,.--.,.... __ ..., ____ ...

• Topic 3: Rubber Baselines so .i-.:::::.1--_,_~_,_~>----~----~---1

Contract Start June 2011

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Time Now

Contract End: April2014

In this topic, you will:

• Recognize typical prac tices for contractor in ternal replanning o f the performance measurement baseline {PMB)

• Given Integrated Program Management Report {IPMR) Format 3, iden tify the in formation on this format that analysts can use to determine internal replanning changes the contrac tor has made to the PMB

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EVMlOl Fundam entals of Earned Value Managem ent



The contractor maintains the PMB throughout the contract, ensuring that the PMB consistently reflects the latest plan for performing the remaining work .

What W hy How

Replanning is the contrac tor's realignment of the schedule or reallocation o f the budget for the remaining effort, within the existing constraints of the contract. Examples include moving work packages to a different point in time to improve work 1-;:::==:;;:;;:;;:;::;::~=:=--:::;:==-1 efficiencies and allocating MR to create new work packages. ..,,. ...,,,."";" .. _"'

This ac tiv ity is impor tant and necessary, and happens on a regular basis. Internal replanning does not change the final scope, cost, or end date of the contract.

In ternal replanning should occur using procedures that ensure budget is not transferred independent of work scope, that budget and schedule changes are incorporated simultaneously, and that retroac tive changes are strictly controlled. These types o f controls are necessary to ensure control account managers (CAMs) are not moving budget

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so, .i--=:::.=--..-~-J.-..-~....;=--~ Cortract Start

June 2011 r .... - Conlrld End:

Apri 2014

without scope from one work package to supplement budget '-----------------' in another work package to cover up cost performance problems. Without these types o f controls, the in tegrity o f

Select to enlarae the graphic.

the PMB can become questionable.

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EVMlOl Fundamentals of Earned Value Management Lesson 6.3 - Contractor Internal Replanning RESOURCES I PRINT I HELP

Contractor Internal Replanning TOC View CR Submit CR

The contractor maintains the PMB throughout the contract, ensuring that the PMB consistently reflects the latest plan for performing the remaining work.

What Why How

Replannin Management ReMrve (S2M) reallocati S 65M S 65M= LAR

existing c Negotiated

work pac Contract Cost

efficiencie

This activi regu lar ba $in M

scope, co

I nternal r budget is budget an simultane controlled so control ac

Contrld End:

Time Apri 2014

withouts Contract Start: Contract End: June 2011 Now April 2014

in anothe hie. problems. PMB can

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0

Cindy.Philpot

Placed Image





W hat How

Replanning can take place to mitigate risks, or to take advantage of efficiencies gained during contract execution.

Replanning may be appropriate when:

• It becomes necessary to reorganize work or people to increase efficiency

• A decision is made to use a different engineering or manufacturing approach

• Existing budgets for remaining work are sufficient, but need to be shifted t o a different work plan or schedule

• The time for converting planning packages to more detailed work packages has arrived

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W hat W hy

The contractor's Earned Value Management System {EVMS) specifies the management procedures it uses to conduc t and approve internal replanning. Contrac tors typically perform replanning in one o f two ways:

• Rolling w av e planning-The contrac tor creates de tailed work packages {WPs) for near-term ac tivities, and holds fu ture budget in higher level planning packages, which are incrementally replanned into detailed WPs.

• Replanning t he remaining baseline-The contractor replans some or all of the remaining work by reallocating budget, realigning the schedule, or both.

The Government does not direct how the contractor should perform replanning. However, the contrac tor must document and communicate back to the Government what changes were made to the baseline, where ( in time and location), and why.

Contractors primarily report changes to the PMB using Integrated Program Management Report { IPMR) Formats 3 and 5.

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CONTRACTOR






W hat W hy How

Long Description

Graph representing the ini tial per formance measurement baseline and a replanned per formance measurement baseline plotted over time from contrac t start in June 2011, through contract end in April 2014, measured in millions of dollars. Time Now is halfway between contract start and contract end. At Time Now, the replanned PMB deviates from the original PMB, but both end at the $65M LAR Negotiated Contract Cost. Management reserve is $2M. Internal replanning applies to future work.

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Rolling Wave Planning

In "rolling wave" planning, the contractor plans the PMB in greater levels of detail for near-term activities, and holds the future budget in planning packages. As the start dates for planning packages approach, the $ contractor plans the next increment of work into detailed work packages.

Rolling wave planning is useful on programs because often the method or approach to accomplish the work may change based on what is learned in the early stages of the program. The rolling wave approach provides needed flexibili ty to accommodate these realities . Thus, this common planning approach can make the PMB a more useful management tool.

The contractor will establish procedures and a timetable for conducting and approving rolling wave planning, which is documented in their EVMS description document. Depending on the program and the type of work, one "wave" period may be three months or more. While replanning is a contractor activity, the Government can ask for insight, and should also be aware of the contractor's schedule for rolling wave planning.

$

/:::,. Design Review

I

PMB

Detailed Wor~ Package 1 Window

Completed Work

I

1 First Rolling Wave 1

1 replan scheduled after 1

1 n1ajor Design Review 1

I

l Design Review

Detailed Work Package Window

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Pla1viing Package Window

Pla1uiing Package Window



Rolling Wave Planning

ing, the contractor plans els of detail for near- term e future budget in the start dates for

In 'rolling wave' plann the PMB in greater lev activities, and holds th planning packages. As planning packages app contractor plans the n detailed work package

roach, the s b. PMB

ext increment o f work into Design Review

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Rolling wave planning because often the me accomplish the work m is learned in the early The rolling wave appr flexibility t o accommo this common planning PMB a more useful ma

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Long Description

Two graphs representing the PMB and rolling wave planning. The first graph shows detailed work packages planned for near-term ac tivi ties before and at the beginning of the Design Review, and planning packages applied to far- t erm activities in the Design Review and for the rest of the PMB. The second graph shows work completed before the Design Review, detailed work packages planned throughout the Design Review, and planning packages applied for the rest of the PMB. The first rolling wave replan is scheduled after a major Design Review.

........... ..,._ .............. ' ':1 ..............

The contractor will es timetable for conducb wave planning, which EVMS description doc program and the type may be three months is a contractor activit for insight, and should contractor's schedule

of work, one •wave" period -----=---......,. ~ .~

......,. ......,. ......,.

or more. While replanning ......,. . . .

y, the Government can ask I II . also be aware of the Completed Detailed Work for rolling wave planning. Work Package

Window

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Plannina Packa&e Window

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Planning Paclulge Window

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Replanning Discipline

As time progresses, CAMs typically encounter many reasons for changing their future plans. Problems arise in the performance of work: materials may arrive late or early, labor may not be available at the planned time, technological improvements may not occur as planned, in addition to many other management challenges. If a rolling wave replanning process is in place, the CAMs replan in accordance with that process. In order to manage effectively, CAMs have flexibili ty to replan work, but they must follow a disciplined process.

wgn1111.e1s.1.1rmp.taa.111.1w1 External to a Control Account

CAMs have flexibili ty to replan tasks within the control account work authorization scope, schedule, and budget constraints. They must, however, follow their company's baseline change processes which are documented in their EVMS descriptions. Contractor processes typically identi fy a " freeze" period during which changes to plans cannot be made, such as during the current month.

Proper change documentation must be processed and approved, and change logs must be maintained. A general rule is that CAMs must maintain the integrity of planned scope, schedule, and budget connections during any replanning . These rules are necessary to maintain the integrity of the PMB by reducing the chance that CAMs employ poor baseline change practices such as eliminating or reducing past cost variances to hide problems.

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Replanning Discipline

As time progresses, CAMs typically encounter many reasons for changing their future plans. Problems arise in the performance of work: materials may arrive late or early, labor may not be available at the planned time, technological improvements may not occur as planned, in addition to many other management challenges. If a rolling wave replanning process is in place, the CAMs replan in accordance with that process. In order to manage effectively, CAMs have flexibili ty to replan work, but they must follow a disciplined process.

Within a c.ontrol Account l•D'§i•fiiii.fl3,J,iftiif·i33,Jllri·~--------------

CAMs may need to transfer tasks from their control account to another control account in the process of replanning work. They may also decide additional task are needed to complete the scope of their assigned work and will request MR from the program manager (PM) in order to accommodate this unplanned effort.

All of these sorts of changes must observe the company EVMS change process rules . Proper change documentation must be processed and approved, and change logs must be maintained. The integrity of the planned authorized scope, schedule, and budgets must be considered.

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Best Practices for Replanning Open Work Packages

The contractor's EVMS will describe its specific methods for replanning . Common practice is to close down unfinished open work packages, so that the remaining work can be replanned . It is not good practice to modify an open work package because Earned Value Management (EVM) metrics and budgeted cost for work performed (BCWP) will change if the budget changes.

Each open task in the portion of the PMB being replanned is divided into two (or more) tasks . The first task represents completed work, and is marked 100% complete. The second task represents the remaining work to be completed. That task will be opened once work begins.

These replanning practices for closing open work packages assist with traceability and clari ty when reporting changes to the PMB.

Task Name Duration Start Finish n~&tl~Vlt017Mlt7~21ns121gu2 !I u 2l 30 1 14 21 22

1 Functional Allocation 25 Days Mon 8/18/14 Fri 9/19/ 14

2 Timing Analysts 25 Days Mon 9/ 22/14 Fri 10/24/14

3 Test Methods, Matrix & Plan 65 Days Mon 9/ 22/14 Fri 12/19/14

Task Name Duration Start Finish 1 Functional Allocation 25 Days Mon 8/18/14 Fri 9/19/ 14

2 Timing Analysts 7 Days Mon 9/ 22/14 Tue9/30/14

3 Timing Analysts # 2 30 Days \\led 10/1/ 14 Tue 1 1/11/14

4 Test Methods, Matrix & Plan 7 Days Mon 9/ 22/14 Tue9/30/14

5 Matrix & Planning #2 70 Days \\led 10/1/ 14 Tue 1/6/15

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Best Practices for Replanning Open Work Packages

The contractor's EVMS will describe its specific methods for replanning . Common practice is to close down unfinished open work packages, so that the remaining work can be replanned . It is not good practice to modify an open work package because Earned Value Management (EVM) metrics and budgeted cost for work performed (BCWP) will change if the budget changes.

Each open task in the portion of the PMB being replanned is divided into two (or more) tasks . The first task represents completed nts the remaining work to be completed. That Long Descript ion

d clari ty when These replanning prac Replanning for Task 2 Timing Analysis and Task 3 Test reporting changes to t Methods, Matrix, & Plan. Before replanning, Task 2 begins

Task Name in September and finishes in October and Task 3 begins in l:;:;ii!i'~:i:::;:~· i;;;i:i:;i:::~i,Y 1--+-------...., September and finishes in mid December. After replanning, s 12

ig 2

& 2

1.1 u 23 3°

1 14 21 22

1 Functional Allocation 1==~~~~~~~~ each task is split into two tasks . Task 2 Timing Analysis is t-:2:--t=Ti_m.,.in:-'.g'-A::-n_a-;ly'-s-,is:--:--:--:t closed at the end of September; Task 3 Timing Analysis

3 Test Methods, Matrix #2 begins at the start of October and finishes mid November. Task 4 Test Methods, Matrix, & Plan ( formerly Task 3 ) is closed at the end of September; Task 5 Matrix

.--.1'- a_s_k_N_a_m_e ___ -ll & Planning #2 begins at the start of October and finishes 1-

1-+F-u_n_ct-io_n_a_I A- 1-10-c.- t-io_n__,, at the end of December.

2 Timing Analysts 7 Days Mon 9/ 22/14 Tue9/30/14

3 Timing Analysts # 2 30 Days \\led 10/1/ 14 Tue 1 1/11/14

4 Test Methods, Matrix & Plan 7 Days Mon 9/ 22/14 Tue9/30/14

5 Matrix & Planning #2 70 Days \\led 10/1/ 14 Tue 1/6/15

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Example: Closing an Open Work Package

Now, let's look at an example.

Assume a CAM opens a work package to assemble a certain pipe assembly, and determines that a planned valve does not work as expected and a replacement valve will be on backorder for many months. Another CAM is awaiting this assembly to integrate it into a larger piece. To avoid major schedule delays and associated costs, the first CAM talks with the second CAM who agrees to install the valve when it is received. The first CAM closes the work package out and passes the assembly on as planned but without the required valve. The first CAM claims a BCWP of $900 on a $1,000 work package, and closes the work package at that level of budget with $100 of budget remaining to be completed. In order to maintain scope, schedule, and budget integrity, the first CAM cannot claim credit (BCWP) for the valve effort since it was not completed and is being transferred to another CAM.

The remaining $100 of budgeted cost for work scheduled (BCWS) is for the valve effort. The first CAM processes a baseline change request to transfer that budget to the second CAM, who will now complete the valve installation. The actual cost of work performed (ACWP) for the effort completed remains in the work package since it is associated with the completed effort. This sort of integrity between scope, schedule, and budget is an important part of effective PMB change control.

Before Replan Open Control Account 1.1.3.1 Work Package E'JM Technique:% Complete

After Replan C losecl Control Account 1.1.3.1 With Valw Effort EVM Technique:% Complete ($100) Removed

/\ /\ BCWS 1000

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Example: Closing an Open Work Package

Now, let's look at an example.

Assume a CAM opens a work package to assemble a certain pipe assembly, and determines that a planned valve does not work as expected and a replacement valve will be on backorder for many months. Another CAM is awaiting this assembly to integrate it into a larger piece. To avoid major schedule delays and associated costs, the first CAM talks with the second CAM who agrees to install the valve when it is received. The first CA" planned but without the required valve. ThE Long Descript ion and closes the work package at that level < Jrder to maintain scope, schedule, and t Before and after illustrations of the same work package. the valve effort since it was not completed c Before Replan shows an open control account for work

package 1.1.3.1, with an EVM technique of percent The remaining $100 of complete, and a BCWS of 1000. After Replan shows a processes a baseline c closed control account for 1.1.3.1 With Valve Effort; an the valve installation. EVM technique of percent complete; $100 removed; and work package since it i a BCWS of 900, BCWP of 900, and ACWP of 1000. $100 schedule, and budget i budget was removed from the work package for the valve

Before Replan effort and transferred in new control account where work Open Control Ac< will be performed. 1.1.3.1 Work Pac!l!I!' E'JM Technique:% Complete

After Replan C losecl Control Account 1.1.3.1 With Valw Effort EVM Technique:% Complete ($100) Removed

BCWS 1000

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ort. The first CAM 10 will now complete Jleted remains in the between scope,


Identifying PMB Changes Using I PMR Format 3

IPMR Format 3 de tails the budgeted time-phased baseline ( the PMB) through program comple tion. It shows significant baseline changes authorized during the reporting period.

i#.ij.ifilEllifi.l§l•Mijl Format 3: Performance Data I Recall that in internal replanning, the budget for the contrac t does no t change. There will be no changes to the header information in Format 3 as a result of internal replanning.

INTEGRATED PROGRAM MANAGEMENT REPORT FORMAT 3-BASELINE

l. CONTRACTOR 2. CONTRACT 3. PROGRAM 4. REPORT PERIOD

r •=·-"N"AM"':.E "'loc"red=a -=C=o "-----+•=·-"N"AM"':.E =-LA"-'R-=EM"'D,_20= 13=---------+-'a"-. N,_,,AM=E,.,LA,_,R"-\<"'e"'hid" e'--------1 a. FROM (YYYYMMDD) b. LOCATION (Add,,.ss and ZIP Code) b. NUMBER Dl>J>JiDl .()3C<l076 b. PHASE RDT&E 20141)929 1100 IV. HOLLMOllY ST. c. TYPE CPIF d. SHARE RATIO c. EVMS ACCEPTANCE NO (YYYYMMDD) b. TO (YYYYMMDD) LOS />J,l;ELES, CA 90293 50/'!IJ 70/30 20141031

5. CONTRACT DATA a. ORIGINAL b. NEGOTIATED c. CURRENT NEGOTIATE d. ESTIMATED COST OF e. CONTRACT BUDGET f . TOTAL ALLOCATED g. DIFFERENCE NEGOTIATED COST CONTRACT CHANGES COST (a. • b.) AUTHORIZED UNPRICED WOR BASE (c. H .) BUDGET (e. - t.) $64,711.5 $65.4 64,776.9 $50.5 h. CONTRACT START DATE (YYYYMMDD) 20130901

L CONTRACT DEFINIZATION DATE (YYYYMMDD) 20130910

j. PLANNED COMPLETION DATE (YYYYMMDD) 20160930

$64,827.4 $64,827.4 $0.0 k. CONTRACT COMPLETION DATE L ESTIMATED COMPLETION (YYYYMMDD) DATE (YYYYMMDD) 20160930 20160930

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Identifying PMB Changes Using I PMR Format 3

IPMR Format 3 details the budgeted time-phased baseline ( the PMB) through program completion . It shows significant baseline changes authorized during the reporting period.

I Format 3: Header Data li#.ij .ifilEIQ!ji.lj .ifii.13jtMM Format 3 focuses on performance data, showing changes between the beginning of period (BOP) PMB and the end of period (EOP) PMB. In internal replanning, while the values for the BOP and EOP PMB may vary from period to period, the total budget does not change.

MR values may change during internal replanning if previously unknown tasks are now required . Government EVM analysts can track changes to the PMB over time on this format, and through this analysis can detect changes to the PMB and use of MR, which should be explained in IPMR Format 5. Defense Contract Management Agency (DCMA) can review contractor change control logs and other change documentation during surveillance.

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Identifying PMB Changes Using IPMR Format 3

IPMR Format 3 details the budgeted time-phased baseline ( the PMB) through program completion. It shows significant baseline changes authorized during the reporting period.

I Format 3 : Header Data I Format 3 : Performance Data I

Long Description

Representative IPMR Format 3. Section 5, Contract Data, includes: Original negotiated cost is $64. 71M; negotiated contract changes are $65.4K; current negotiated cost is $64. 78M (original negotiated cost plus negotiated contract changes); estimated cost of authorized unpriced work is $50.5K; contract budget base is $64.83M (current negotiated cost plus estimated authorized unpriced work) ; total allocated budget is $64.83M; difference between contract budget base and total allocated budget is $0. Contract start date is 09/ 02/ 13; contract definization date is 09/ 10/ 13; planned completion date, contraction completion date, and estimated completion date are 09/ 30/ 16. Section 6, Performance Data, shows internal replanning changes included in baseline changes authorized during the reporting period for December through April : December - $168K; January $- 39.9K; February $112K; March $25.3K; April $22.0K.

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Identifying PMB Changes Using IPMR Format 5

In Format 5, the contractor must explain any changes to the PMB. The example below shows the explanation for the time- phasing shifts in the PMB reported in the JPMR Format 3.

IPMR Format 5, Explanations and Problem Analysis

Ex planation o f significant time- phasing shifts in the baseline: CR- 103: Due to delays in availability of parts, fabrication and assembly will be delayed 6 weeks. Successor tasks including testing will shift in the schedule. There is no impact to the overall contract end date and no change in overall cost.

The contractor will report on "significant changes" to the baseline, such as +/ - 5% change, in accordance with what is defined in the Contract Data Requirements List (CORL). Any "significant changes" must be explained in Format 5.




Knowledge Review

Which of the following describes internal contractor replanning?

~ A realignment of the schedule or reallocation of the budget for the remaining effort, within the existing constraints of the contract

Authorized changes that typically increase the scope and target price of the existing contrac t

D A comprehensive replanning of the remaining performance measurement baseline (PMB) that results in a total budget and/ or total schedule that exceeds the existing con tract requirements

Check Answer

Internal contractor replanning involves a realig nment o f t he schedule or reallocatio n o f t he budget for t he rem aining effort, wit hin t he existing constraints of the contract . Contractors typically perform replanning in one of two ways: replanning the remaining baseline or using rolling wave planning.

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Knowledge Review

Which of the following describe "rolling wave" planning?

Select all that apply.

~ Rolling wave planning provides more flexibility than laying out the complete baseline in detail at the beginning of the project.

LJ The Government must authorize the rolling wave planning schedule.

D Each "wave" in rolling wave planning must be three months in length.

~ In rolling wave planning, the contractor periodically plans the next increment of work into detailed work packages.

Check Answer

Rolling w ave planning provides more fle.xibility t h an lay i ng o ut t he complete baseline in detail at t h e beginning o f t h e project. I n rolling w ave planning, t he co ntractor periodically plans t he next increment o f work into detailed w ork packages . The length of each "wave" may vary. Though the Government may ask for insight, the schedule and processes for rolling wave planning are decided by the contractor.

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Knowledge Review

Which of the following can the contractor do with budget when replanning?


Remove scope from the contract to prevent a cost overrun

~ Use management reserve (MR) to provide budget for unplanned effort within contract scope

~ Conver t planning packages into work packages

Add budget so the total allocated budget (TAB) exceeds the contract budget base (CBB)

Check Answer

When replanning, the contractor can use managem ent reserve to provide budget for unplanned effort within cont ract scope, and convert planning packages into w ork packages. They may not add so much budget that the TAB exceeds the CBS .




Knowledge Review

What information does the Format 3 provide?


~ Changes to the performance measurement baseline (PMS) for a given period

Explanation o f changes to the PMS

~ In ternal replanning changes

Explanation of variances

Check Answer

Format 3 provides information about cha nges to t he PMB for a given period and i nternal replanning cha nges.



• Given a list o f hypothetical management reserve {MR) uses, select correct statements about the use of MR

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Using MR to Make Changes to the Baseline

Contractor PMs typically set aside budget in MR for management control purposes and for unplanned events. A robust risk management process can help the contractor PM to decide how much MR budget to set aside to cover risks that were unknown at the program's start.

As the program develops according to the baseline plan, metrics from the EVM system can be analyzed to identify risks that have been realized, as well as emerging risks and opportunities. The contractor PM and CAMs assess the need for MR budget as these emerging risks become evident. MR should not be used to cover up cost variances, but rather should be used to provide budget for future tasks and necessary risk mitigation activities that were not recognized before.

The contractor PM approves any uses of MR, and the contractor maintains an MR log to keep strict control of the uses of MR. Contractor CAMs request approval for uses of MR from their PM. As MR use is approved, that MR generally provides budget for new tasks in the PMB. In other words, it becomes part of the PMB.

$

12000

10000

8000

6000

4000

2000

0

- PMB - - - - PMB-1 -e- MR Usage

The Government PM should track the contractor's use of MR in connection with the overall risk management process. If the contractor exhausts the contract MR too early, there will not be budget left for the unforeseen risks on the contract. This is important management information that also should be reflected in the estimates at completion. The EVM analyst plays a crucial role in assisting the Government PM track the usage of MR via the IPMR by providing charts and ' information on reasons for MR usage.

2468W l2MIBIB20UM~~mnM•

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Using MR to Make Changes to the Baseline

Contractor PMs typically set aside budget in MR for management control purposes and for unplanned events. A robust risk management process can help the contractor PM to decide how much MR budget to set aside to cover risks that were unknown at the program's start.

As the program develops according to the baseline plan, metrics from the EVM system can be analyzed to identify risks that have been realized, as well as emerging risks and opportunities. The .-iiil--.ml;jil.OOIAll...,iililo""l.rlll-imoimii_,OliiiWiQQ~~ollillli.liloolll;llilll"""..,• these emerging risks b Long Description variances, but rather s necessary risk mitigati Chart plotting the PMB over 36 months. PMB total is

$100,000 with a 10,000 MR. An adjusted PMB begins at The contractor PM ap month 14, increasing the PMB total to $110,000 by month contractor maintains a of the uses of MR. Con 36. Note how the PMB changes as MR is moved to add

effort to the PMB. for uses of MR from th~-"!""!""-~---"!"""!'"!"----.-------that MR generally provides budget for new tasks in the PMB. In other words, it becomes part of the PMB.

The Government PM should track the contractor's use s 6000 -+-------r---77'--------l of MR in connection with the overall risk management process. I f the contractor exhausts the contract MR too early, there will not be budget left for the unforeseen risks on the contract. This is important management information that also should be reflected in the estimates at completion . The EVM analyst plays a crucial role in assisting the Government PM track the usage of MR via the IPMR by providing charts and ' information on reasons for MR usage.

4000 -+-------~,<-----------I

0 2468W 12MIBIBWUM~~mnM•

Months J;!

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Example of Applying MR

Contractors keep track of their use of MR in an MR log to ensure traceability. An MR log notes the date of the transaction, the control account affected, the amount of MR budget transferred, and the reasons for the change. MR logs help maintain disciplined processes necessary for effective use of MR and maintenance of PMB integrity.

Contractors report the total amount of remaining MR budget in JPMR Formats 1, 2, and 3. The total reported in the reports should match the running total reported in the contractor's MR log.

The example below is an excerpt of the Lightweight, Assault and Reconnaissance (LAR) Vehicle program contractor's MR log for the month of October 2014.

MR LOG

DATE Description Transaction Running Amount Total

1876 10/ 31/ 2014 Risk reduction for ongoing issues with simulation failures, non-closing 277 1,599

des:ru:s and prototype fabrication problems, additional testing will be con ucted as a risk reduction measure.

(see baseline change request # 123 and Control Account Risk Register # 15-012 for more information) End of Month - October 14 1,599



Example of Applying MR

Contrac tors keep track of their use of MR in an MR log to ensure traceabili ty. An MR log notes the date of the transac tion, the control account affec ted, the amount of MR budget transferred, and the reasons for the change. MR logs help maintain disciplined processes necessary for effec tive use of MR and maintenance of PMB integri ty.

Contrac tors report the to tal amount of remaining MR budget in JPMR Formats 1, 2, and 3 . The to tal re ported in the reports

Long Descript ion he example below is < T

co ntrac tor's MR log for LAR program MR Log dated 10/ 31/ 2014. Risk reduc tion for ongoing issues with simulation failures, non-closing

MR LOG designs and pro totype fabrication problems, additional testing will be conduc ted as a risk reduc tion measure.

DATE Descri1 (See baseline change request # 123 and Control Account Risk Register # 15-012 for more information.) Running to tal

10/ 31/ 2014 Risk reo begins at 1,876. The transac tion amount of 227 is deduc ted from the initial running to tal leaving 1,599 for

des:ru:s the End of Month - Oc tober 14. con U"

(see baseline change request # 123 and Control Account Risk Register # 15-012 for more information) End of Month - October 14

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R log.

11.R) Vehicle program

ransaction Running mount Total

1876 277 1,599

1,599


Appropriate Uses of MR in PMB Revisions

Contractor PMs may use MR to provide budget for future effort within the scope of the contract that was not foreseen in past planning. MR should be used as part of an overall risk management plan, as well as for management control purposes. MR should not be used to eliminate or obscure cost variances. The following scenarios reflect appropriate use of MR:

• CAMs identify necessary new tasks that were not foreseen in previous planning. New tasks are added to the Integrated Master Schedule ( IMS) ( IPMR Format 6), and MR is applied to resource the work.

• The contractor decides to purchase something instead of making it themselves. I f the estimate for buying it is lower than the cost of making it, the difference in estimated costs would revert to MR. I f it is more costly, MR could be applied to the task to account for the difference.

• New approved forward pricing rates have been approved since the last round of replanning . The PM may choose to replan the entire remaining work effort using the new rates, using MR to cover the difference in budget.

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Inappropriate Uses of MR

Here is an example of a typical chart of MR usage that an EVM analyst can develop using data from the IPMR. I t shows MR usage and the cumulative cost variance (CVcum) on one chart.

This chart shows what appears to be the inappropriate/ incorrect application of MR. In the period that MR is used, the cost variance (CV) is eliminated. This happens a number of times on this chart. In spite of the repeated use of MR, the unfavorable CV trend continues. Once MR is completely exhausted, the contractor has no reserve left for unforeseen risks . Tracking the use of MR in this way alerts the PMs to a potential issue with insuffic ient MR to cover future problems. I t is better to be aware of problems earlier when you might still be able to take mitigating actions.

600

200

0 ... 2' 4. 6 ... ... ...

-200 -+~~~~~':...ar----''-.--L~-4~~~-=.....--~~--1 ... ... ... ... ... -400 --• MR

-- -- CVcum

-600

The Government EVM analyst should work with DCMA to determine if MR has been appropriately used given what the chart shows. This chart shows such an extreme example of apparent misuse of MR that indicates EVMS compliance issues. Cumulative cost variances do not usually return to zero in such a systematic manner. DCMA can access contractor's MR logs and conduct interviews with CAMs to determine how they are using MR. DCMA can also issue corrective action requests for EVMS compliance issues .



Inappropriate Uses of MR

Here is an example of a typical chart of MR usage that an EVM analyst can develop using data from the IPMR. I t shows MR usage and the cumulative cost variance (CVcum) on one chart.

600

This chart shows what .. ----------.l.-----~~===:!L-• inappropriate/ incorrect Long Description In the period that MR i variance (CV) is elimin MR usage chart plotting the CVcum and MR usage over 36 a number of times on t months. The chart shows a series of unfavorable CVcum l===;:=;==!i'i=;==;===;:=I of the repeated use of trends, which reset to zero at months 10, 18, and 22 as ·~ ~6 28 30 32 34 36 unfavorable CV trend MR is applied. MR applied to current period, CV ' ... MR is completely exha disappears. No MR left; CV reappears . ' contractor has no rese,.,.!!"'ll!!ft~11""------... ----------,~.--unforeseen risks . Tracking the use of MR .. in this way alerts the PMs to a potential issue with insuffic ient MR to cover future problems. I t is better to be aware of problems earlier when you might still be able to take mitigating actions.

-400 --• MR -- -- CVcum

-600

... ... ... ... ...

The Government EVM analyst should work with DCMA to determine if MR has been appropriately used given what the chart shows. This chart shows such an extreme example of apparent misuse of MR that indicates EVMS compliance issues. Cumulative cost variances do not usually return to zero in such a systematic manner. DCMA can access contractor's MR logs and conduct interviews with CAMs to determine how they are using MR. DCMA can also issue corrective action requests for EVMS compliance issues .




Knowledge Review

Which of the following describes the use of management reserve {MR)?

MR is always a part of the performance measurement baseline {PMB).

~ MR is used for unplanned, in-scope work.

D MR can be tracked in Format 6.

MR is used to address cost v ariances in the current period.

Check Answer

MR is used for unpla nned, i n-scope w ork. It becomes part o f the PMB when it is allocated to control accounts. Its to tal is listed in the Integrated Program Management Report {IPMR) Formats 1, 2 and 3, and the use o f MR is detailed in Format 5. MR should no t be used to address cost variances in the current period.

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Knowledge Review

Which of the following are examples of appropriate uses of management reserve (MR) in making revisions to the performance measurement baseline (PMB)?

Select a ll t hat apply.

~ The con trac tor recognized a new risk to a con trol accoun t effort . The con trol accoun t manager (CAM) wan ts to conduc t an addi t ional tes t and reques ts MR for this.

0 The con trac tor failed to mi tiga te cos t overruns in the pas t few months, and wan ts to alloca te MR to tasks with the highes t cos t variances.

~ The con trac tor included a generic part for some hardware buil t in the budge ted cos t for work scheduled (BCWS), bu t after final design recognized the need for a differen t non- generic part, and the CAM reques ts MR to budge t for this part .

D The con trac tor wan ts to use MR to budge t for addi t ional tes ting tha t is beyond the scope of the original work.

Check Answer

The following are appropria te examples of MR use: the contractor recognized a new risk t o a control account effort. The CAM wants t o conduct an additional test and requests MR for this; and the contractor included a generic part for so me hardware built in the BCWS, but after final design recognized the need for a different non- generic part, and the CAM requests MR t o budget for this part. The o ther two op tions are no t appropria te uses of MR .

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Knowledge Review

Which of the following is an example of an inappropriate use of management reserve (MR) in making revisions to the performance measurement baseline (PMB)?

A control account manager (CAM) planned to make a part, but newly recognized risks indicate that buying the part is a better plan. The CAM requests MR in order to provide the additional budget needed above what was planned for making the part.

~ The contrac tor wants to add MR to some control account budgets so that their budgets equal their cos ts, eliminating an existing cost variance.

A new high risk has been identified, leading affected CAMs to request MR for new risk mitigation tasks.

The results of recent tests indicate additional and different tests need to be conducted due to unforeseen risks that have materialized during testing. The CAM requests MR budget to open a second test line.

Check Answer

The contractor may not use MR in this scenario: The co ntractor want s to add MR to som e cont rol account budgets so that their budget s equal their costs, eliminating an existing cost variance. The o ther scenarios are appropriate uses of MR .

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• Recognize the impact of a "rubber baseline" on Earned Value Management (EVM) performance metrics



Rubber Baseline

The contractor's baseline maintenance practices should require that when replanning, scope and budget should always be moved together.

A rubber baseline refers to a poor baseline maintenance practice in which budget (BCWS) is moved independently of its associated scope and schedule, which can mask unfavorable cost and/ or schedule variances. This is NOT in accordance with the intent of the Electronic Industries Alliance Standard 748 (EIA -748) EVMS Guidelines and could result in the contractor's EVMS approval being revoked. An example of a rubber baseline occurs when CAMs take budget from future work packages to provide extra budget to near term work packages. The future work package scope is not moved, only portions of its budget are moved. Later cost variances, however, will skyrocket as the same amount of work is supposed to be performed, but with little to zero budget to do the work.

Through analysis of information in the IPMR, it is possible to discern trends that could indicate poor baseline maintenance practices like a rubber baseline. By plotting data over time in graphs like the one shown here, these types of trends may become more evident. DCMA can delve more deeply into contractor processes to determine if a rubber baseline exists, and work with contractors to improve baseline maintenance practices. It is important to do this because rubber baselines reduce visibility and impact management's ability to take corrective action.

30

25

20

15

10

5

-_..- ~

/ / /" /

/ __./

/ ___..--

Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul


PMB -PMB (rubber)

-


Rubber Baseline

The contractor's baseline maintenance practices should require that when replanning, scope and budget should always be moved together.

A rubber baseline refers to a poor baseline maintenance practice in which budget (BCWS) is moved independently of its associated scope and schedule, which can mask unfavorable cost and/ or schedule variances. This is NOT in accordance with the intent of the Electronic Industries Alliance Standard 748 (EIA -748) EVMS Guidelines ked. An example of a rubber baseline occurs Long Description e extra budget to near term work packages. T its budget are moved. Later cost variances, t PMB and rubber PMB plotted over time from August ed to be performed, but with little to zero budg through July . The rubber PMB deviates from the PMB with

consistently higher dollar amounts each month. The Through analysis of inf rubber PMB aligns with the PMB toward the end of the d indicate poor baseline maintenance practices period in June. e the one shown here, these types of trends ...... , ,.... .... .... ..... .... . -, .. contractor processes to determine if a rubber baseline exists, and work with contractors to improve baseline maintenance practices. It is important to do this because rubber baselines reduce visibility and impact management's ability to take corrective action.

30

25

20

15

10

5

-_..- ~

/ / /" /

/ __./

/ ___..--

Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul


PMB -PMB (rubber)

-


Example of a Rubber Baseline

In the sample Format 3 below, it is possible to detect the types of changes that indicate a rubber baseline may exist. This can be detected by monitoring the changes in IPMR Format 3, comparing it to the IMS and the explanations in Format 5. If the Program Management Office (PMO) sees changes that indicate a possible rubber baseline, they can act on the early warning. During the early months, the PMO has many more options and opportunities to take appropriate management action.

The EVM analyst should track these kinds of changes and work with DCMA to correct any EVMS problems.

PMB (EOP)

MANAGEMENT RESERVE

Tot~


so.o $237.243.8

so.o

$237.243.8

Select the graphic to enlarge. !!




MANAGEMENT RESERVE

Total


so.o

SJ.834.S

so.o

$237,243..3





The EVM analyst shou1.., _____ ._ _____________ ____ "lt any EVMS problems.

Long Descript ion

Sample LAR program IPMR Format 3, Section 6 Performance Data, for the period of February through July . February beginning of period (BOP) PMB is $4,452 . 7 and end of period (EOP) is $4,776.7 . March BOP PMB is $9,934. 8 and EOP is $ 10,334.6 . April BOP PMB is $4,426 .5 and EOP is $4,826.5 . Here budget has been added in the near term: $ 1200 over 3 months. The to complete BOP PMB is

...,,.,===~=,,+--I $ 118,682.2 and EOP is $ 117, 482 .6 . Here the budget is t-:--:-"-:-:'---"---+.:;;1 $ 1200 less at the end of the month, indicating budget has 1-•_.,_• i_•o_PJ ____ +--1 been reduced .

MANAGEMENT RESERVE

Tot~

so.o $237.243.8

so.o

$237.243.8




Impact of a Rubber Baseline on the PMB

200

100

0 _. . . ' ' ' ' ' . . Aug s ct NOii Dec Jan Feb ~1ar Apr May Jun Jul

g " ""'-""' CVcum '--.,, ·-- --CVcum (rubber)

-100

-200

-3()0

-400

-500

-600

-700

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Impact of a Rubber Baseline on the PMB TOC View CR Submit CR

200

Closed captioning

The negative impact of a rubber baseline on the PMB can be examined more closely by plotting the cost variance over time. Recall that the contractor got behind early in the project. If the contractor had continued with the planned budget and schedule, the cumulative cost variance, shown as CVcum in the graph, would have indicated that a problem exists, because the cost variance wou ld immediately be negative and wou ld continue to get worse over time. The cumulative cost variance for the rubber baseline masks the issue until it is too late to correct. In fact, it can even make performance appear to be favorable. By February, when it comes time to execute the future work, the control accounts with unrealistic budgets begin and the cost variance and cost variance trends immediately become unfavorable, fin ishing the contract at a cost overrun. In th is scenario, the program manager is caught off guard, without enough time left to correct the issue. The Government program manager will have to take action when they discover there is insufficient budget to perform the work.

Cindy.Philpot

Placed Image


Impact of a Rubber Baseline on the PMB

200

100

Long Descript ion

Chart displays plotting CVcum and CVcum (rubber) over time from August through July . Dollar values range from 200 through -700. CVcum displays beginning at zero in August and shows a continuous unfavorable trend through July at -600. CVcum (rubber) displays beginning at zero in August and shows a continuous favorable trend through October, where it levels out just under 100 through January. In mid-January it abruptly becomes unfavorable at zero. The CVcum (rubber) unfavorable trend continues through July where it meets the CVcum at -600. A rubber baseline can make performance appear favorable. The result: the rubber baseline masks cost variances, and the program manager does not have time to react.

-600 - 1 v '" CVcum (rubber)

700 -

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Knowledge Review

Which of the following statements describe a rubber baseline?


Changes to the performance measurement baseline {PMB) that result in a rubber baseline do not impact cost variance.

~ A rubber baseline can eliminate near-term cost variances.

~ A rubber baseline moves future budget without moving the associated work.

The Government can check for a rubber baseline in Format 1.

Check Answer

A rubber basel ine can eliminate near-te rm cost variance.s because a rubber basel ine m oves futu re budget wit ho ut moving the associated w ork . As a result, the near-term positive results come at the expense of future work packages that have no budget allocated for execution .




Knowledge Review

What are some of the possible impacts of a rubber baseline?


~ Cost variances skyrocket later in the contract.

~ Trends suddenly change direction, or the slope of the cos t variance (CV) curve changes drastically.

~ The program manager (PM) is left with little opportunity to correc t poor performance.

~ The Government PM may have to reduce scope or utilize their Acquisition Performance Baseline's (APB) trade space when they discover there is insufficient budget to perform the work.

Check Answer

All of the a bove can be impacts of a rubber baseline .



Lesson Summary

Congratulations! You have completed the Contractor Internal Replanning lesson.

You should now know the following key points .

Internal replanning is the contractor's realignment of the schedule or reallocation of the budget for the remaining effort, wit hin t he existing constra ints of t he cont ract. The Government does not direct how the contractor performs internal replanning .

Contractors typically perform internal replanning in one of two ways:

• Rolling wave planning-The contractor creates detailed WPs for near- term activities, and holds future budget in higher level planning packages, which are incrementally replanned into detailed WPs.

• Replanning the remaining baseline-The contractor replans some or all of the remaining work by reallocating budget, realigning the schedule, or both.

As the program progresses, the CAMs get more insight into the complexity of the work. When executing rolling wave planning, the CAM reallocates budget from planning packages into the associated detailed work packages.

The contractor's EVMS will describe its specific methods for replanning . Common practice is to close down unfinished open work packages, so that the remaining work can be replanned .



Lesson Summary, Cont.

Contractors primarily report changes to the PMB using IPMR Form at s 3 and 5 . Format 3 includes a header data section, showing contract values and changes to contract costs . It also includes the performance data section, showing time-phased changes between the beginning of period PMB and the end of period PMB. Format 5 includes explanations of any changes.

The contractor can use MR during replanning .

• Contractor PMs may use MR to provide budget for future effort within the scope of the contract that was not foreseen in past planning. MR should be used as part of an overall risk management plan, as well as for management control purposes. MR should not be used to eliminate or obscure cost variances.

A rubber baseline is an example of a PMB with poor baseline maintenance.

• The rubber baseline is established by reallocating budget from future control accounts to current control accounts without moving the associated work scope.

• This "borrowing" of the budget makes the cost variances look smaller earlier on in the contract, because overruns are masked.

• Later cost variances, however, will skyrocket as the same amount of work is supposed to be performed, but with little to zero budget associated with the work .




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Fundamentals of Earne d Value Management lesson 6 .3 - Co ... › bbcswebdav › institution...Welcome to lesson 6 . 3 Contractor Internal Replanning This lesso n prov id e s an over