**Module 7: Introduction to Cost Estimating and Financial Management**

**Module Outline**

  ------------------------------------------------- --------- ---------------------
  Topic                                                       Time Frame

  Introduction/Objectives                           10        
                                                    minutes   

  Cost Estimating                                   60        
                                                    minutes   

  Financial Management                              30        
                                                    minutes   

  Other Forms of Performance Measurement            70        
                                                    minutes   

  Review                                            10        
                                                    minutes   

  **Estimated/Approximate Time for Module           **3       
  Completion**                                      hours**   
  ------------------------------------------------- --------- ---------------------

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  **Topic 1: Introduction/Objectives**
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| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| This module will discuss the different forms of cost estimating, cost |
| analysis, reconciliation of cost estimates, financial planning,       |
| formulating financial projects and budgets, budget                    |
| analysis/execution, cost-benefit analysis, earned value management    |
| (EVM), and other methods of performance measurement. It divided into  |
| five topics:                                                          |
|                                                                       |
| -   Introduction/Objectives                                           |
|                                                                       |
| -   Cost Estimating                                                   |
|                                                                       |
| -   Financial Management                                              |
|                                                                       |
| -   Other Forms of Performance Measurement                            |
|                                                                       |
| -   Review                                                            |
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  **Topic 1: Introduction/Objectives (continued)**

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| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| [Objectives]{.underline}                                              |
|                                                                       |
| At the end of this module, you will be able to:                       |
|                                                                       |
| -   Describe the theory of cost estimating.                           |
|                                                                       |
|     -   You will describe cost estimating and how it differs from     |
|         cost analysis.                                                |
|                                                                       |
| -   Explain how cost analysis is used in performance measurement.     |
|                                                                       |
|     -   You will learn the importance of performing a cost analysis.  |
|                                                                       |
| -   Define the different forms of financial planning.                 |
|                                                                       |
|     -   You will learn the forms of financial planning including:     |
|         formulating financial projects and budgets, and budget        |
|         analysis/execution.                                           |
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  **Topic 1: Introduction/Objectives (continued)**

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| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| [Objectives (continued)]{.underline}                                  |
|                                                                       |
| -   Describe how cost-benefit analysis is used in performance         |
|     measurement.                                                      |
|                                                                       |
|     -   You will learn when to use cost-benefit analysis and          |
|         cost-effectiveness analysis.                                  |
|                                                                       |
| -   Explain how earned value management (EVM) is used as a            |
|     performance measurement.                                          |
|                                                                       |
|     -   EVM, when implemented, is a project management technique that |
|         can provide significant benefits to both the government and   |
|         the contractor.                                               |
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  **Topic 1: Introduction/Objectives (continued)**

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| ![](media/image5.png){width="0.40555555555555556in"                   |
| height="0.6354166666666666in"}**Instructor Notes:**                   |
|                                                                       |
| This concludes the topic on the Introduction/Objectives. After        |
| addressing any questions the participants may have, inform them that  |
| we will be moving on to the next topic: Cost Estimating.              |
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  ![](media/image6.png){width="0.5006944444444444in"
  height="0.4888888888888889in"}**What questions do you have regarding
  the Introduction/Objectives?**

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  **Topic 2: Cost Estimating**
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| ![](media/image2.png){width="0.75in" height="0.6916666666666667in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| Before we get started, it is important to consider the element of     |
| timing.                                                               |
|                                                                       |
| -   One of the pitfalls you have likely encountered is the belief     |
|     that cost estimating and financial management are largely         |
|     completed at the beginning of a project. This presumption         |
|     undercuts the important ongoing responsibilities in this area.    |
|                                                                       |
| -   As we progress through this module and the rest of this course,   |
|     remember that, when a change is being considered, the decisions   |
|     you make will benefit [greatly]{.underline} if they are informed  |
|     by an impact analysis that includes cost.                         |
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  **Topic 2: Cost Estimating (continued)**

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| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| [Basics of Cost Estimating]{.underline}                               |
|                                                                       |
| Cost estimating is the process of forecasting a future result in      |
| terms of cost, based upon information available at the time.          |
|                                                                       |
| -   Cost estimating involves collecting and analyzing historical data |
|     and applying quantitative models, techniques, tools, and          |
|     databases to predict a project's future cost.                     |
|                                                                       |
| -   More simply, cost estimating combines science and art to predict  |
|     the future cost of something based on known historical data that  |
|     are adjusted to reflect new materials, technology, software       |
|     languages, and development teams.                                 |
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  **Topic 2: Cost Estimating (continued)**

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| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| [Basic of Cost Estimating (continued)]{.underline}                    |
|                                                                       |
| Cost estimating depends on inputs from the cost analysis activity,    |
| which is the process of studying and organizing past costs and future |
| estimates.                                                            |
|                                                                       |
| -   Likewise, effective and timely cost analysis often depends on the |
|     ability to make good preliminary cost estimates.                  |
|                                                                       |
| -   Cost estimating is principally a look forward into future         |
|     occurrences, and cost analysis is principally a look into the     |
|     past with and eye toward the future.                              |
|                                                                       |
| -   Although "cost estimating" and "cost analysis" are often used     |
|     interchangeably, cost estimating is a specific activity within    |
|     cost analysis.                                                    |
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| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| [Cost analysis -- Definition]{.underline}                             |
|                                                                       |
| Cost analysis is the systematic review and evaluation of the separate |
| cost elements, judgmental factors, and profit and/or fee that, when   |
| added together, constitute contract price.                            |
|                                                                       |
| -   It can be used to evaluate an offeror's or contractor's proposal  |
|     (including cost or pricing data or information other than cost or |
|     pricing data) to determine how well the proposed costs represent  |
|     what the cost of the contract should be, assuming reasonable      |
|     economy and efficiency.                                           |
|                                                                       |
| -   Cost analysis entails the examination of the basic cost building  |
|     blocks: direct cost, facilities capital cost money, and profit.   |
|                                                                       |
| -   Estimating is looking forward; Analysis is looking back           |
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| ![](media/image6.png){width="0.5006944444444444in"                    |
| height="0.4888888888888889in"}**What is the difference between cost   |
| estimating and cost analysis?**                                       |
|                                                                       |
| **Answer:**                                                           |
|                                                                       |
| Cost estimating is principally a look forward into future             |
| occurrences, and cost analysis is principally a look into the past    |
| with and eye toward the future.                                       |
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| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| [When to Use Cost Analysis]{.underline}                               |
|                                                                       |
| The Federal Acquisition Regulation (FAR) offers the following two     |
| situations when you may use cost analysis:                            |
|                                                                       |
| -   Cost analysis shall be used to evaluate the reasonableness of     |
|     individual cost elements when cost or pricing data are required.  |
|     Price analysis should be used to verify that the overall price    |
|     offered is fair and reasonable. (Required)                        |
|                                                                       |
| -   It may also be used to evaluate information other than cost or    |
|     pricing data to determine cost reasonableness or cost realism.    |
|     (Optional)                                                        |
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| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| [Cost Analysis Techniques and Procedures]{.underline}                 |
|                                                                       |
| The FAR also establishes that the government uses various cost        |
| analysis techniques and procedures to ensure a fair and reasonable    |
| price, given the circumstances of the acquisition. As appropriate,    |
| use the following techniques and procedures to perform cost analysis: |
|                                                                       |
| -   Verify cost or pricing data or information other that cost or     |
|     pricing data.                                                     |
|                                                                       |
| -   Evaluate cost elements, including:                                |
|                                                                       |
|     -   The necessity for and reasonableness of proposed costs,       |
|         including allowances for contingencies;                       |
|                                                                       |
|     -   Projections of the offeror\'s cost trends, on the basis of    |
|         current and historical cost or pricing data or information    |
|         other than cost or pricing data;                              |
|                                                                       |
|         (continued on next slide)                                     |
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| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points (continued):**                                           |
|                                                                       |
| [Cost Analysis Techniques and Procedures (continued)]{.underline}     |
|                                                                       |
| -   A technical appraisal of the estimated labor, material, tooling,  |
|     and facilities requirements, and scrap and spoilage factors; and  |
|                                                                       |
| -   The application of audited or negotiated indirect cost rates,     |
|     labor rates, cost of money factors, and other factors.            |
|                                                                       |
| ```{=html}                                                            |
| <!-- -->                                                              |
| ```                                                                   |
| -   Evaluate the effect of the offeror\'s current practices on future |
|     costs.                                                            |
|                                                                       |
|     -   Ensure that the effects of inefficient or uneconomical past   |
|         practices are not projected into the future.                  |
|                                                                       |
|     -   In pricing production of recently developed complex           |
|         equipment, perform a trend analysis of basic labor and        |
|         materials even in periods of relative price stability.        |
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| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| -   Compare costs proposed by the offeror for individual cost         |
|     elements with:                                                    |
|                                                                       |
|     -   Actual costs previously incurred by the offeror;              |
|                                                                       |
|     -   Previous cost estimates from the offeror or from other        |
|         offerors for the same or similar items;                       |
|                                                                       |
|     -   Other cost estimates received in response to the              |
|         government\'s request;                                        |
|                                                                       |
|     -   Independent government cost estimates by technical personnel; |
|         and                                                           |
|                                                                       |
|     -   Forecasts or planned expenditures.                            |
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| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| -   Verify that the offeror\'s cost submissions are in accordance     |
|     with the contract cost principles and procedures in FAR Part 31   |
|     and any applicable Cost Accounting Standards Board. (typically    |
|     get an auditor to do this part)                                   |
|                                                                       |
| -   Determine whether any cost or pricing data necessary to make the  |
|     contractor\'s proposal accurate, complete, and current have not   |
|     been either submitted or identified in writing by the contractor. |
|     If there are such data:                                           |
|                                                                       |
|     -   Attempt to obtain the data and negotiate using the data       |
|         obtained, or                                                  |
|                                                                       |
|     -   Make satisfactory allowance for the incomplete data.          |
|                                                                       |
| -   Analyze the results of any make-or-buy project reviews, in        |
|     evaluating subcontract costs.                                     |
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| ![](media/image5.png){width="0.40555555555555556in"                   |
| height="0.6354166666666666in"} **Instructor Notes:**                  |
|                                                                       |
| Several pages of slides pointing to the same thing: We are trying to  |
| make a decision of some sort.                                         |
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| ![](media/image6.png){width="0.5006944444444444in"                    |
| height="0.4888888888888889in"}**In what two situations does the FAR   |
| recommend to use cost analysis?**                                     |
|                                                                       |
| **Answer:**                                                           |
|                                                                       |
| -   To evaluate the reasonableness of individual cost elements when   |
|     cost or pricing data (from a contractor) are required             |
|                                                                       |
| ```{=html}                                                            |
| <!-- -->                                                              |
| ```                                                                   |
| -   To evaluate information other than cost or pricing data to        |
|     determine cost reasonableness or cost realism.                    |
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| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| [Reconciliation of Cost Estimates]{.underline}                        |
|                                                                       |
| Before cost estimates can be fairly compared, they must be            |
| reconciled. As an example, let us consider that two competing         |
| approaches are being considered to accomplish the same goal:          |
|                                                                       |
| -   If the requirements were silent on some particular detail, such   |
|     as the quantity of spare parts, it would not be surprising to see |
|     that one approach includes a different amount of parts from the   |
|     competing approach.                                               |
|                                                                       |
| -   For the purpose of the reconciliation, both estimates would need  |
|     to be adjusted to reflect the same basis for the spare parts.     |
|     This enables you to "compare apples to apples."                   |
|                                                                       |
|     (continued on next page)                                          |
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| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points (continued):**                                           |
|                                                                       |
| [Reconciliation of Cost Estimates (continued)]{.underline}            |
|                                                                       |
| Once the basis of your cost estimates is reconciled, then a cost      |
| comparison can be fairly made.                                        |
|                                                                       |
| -   Note: It is useful to select a basis that is consistent with the  |
|     previously prepared Should Cost Estimate.                         |
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| ![](media/image20.png)**Activity**                                    |
|                                                                       |
| Activity Purpose:                                                     |
|                                                                       |
| This activity will present the participants two examples that         |
| demonstrate the importance to perform cost analysis.                  |
|                                                                       |
| Activity Length: 15-20 minutes                                        |
|                                                                       |
| Activity Instructions:                                                |
|                                                                       |
| Break the class into groups of four. Have the participants read the   |
| examples and answer the questions on the following page. At the end   |
| of the activity, discuss the questions with the participants.         |
|                                                                       |
| Tell the participants the following:                                  |
|                                                                       |
| The following examples came to light because the government was       |
| accused of overpayment of some contracts that were awarded to assist  |
| in the hurricane Katrina clean up and recovery of New Orleans in      |
| 2005. Although the Operation Blue Rood and the Carnival Cruise        |
| examples are unique situations that were the result of urgent         |
| requirements which may not have allowed sufficient time to conduct    |
| cost analysis, they demonstrate the importance of why cost analysis   |
| should be performed.                                                  |
|                                                                       |
| **Example 1:**                                                        |
|                                                                       |
| Highly criticized after the wake of Hurricane Katrina were some of    |
| the contracts awarded under Operation Blue Roof. This operation hired |
| contractors to nail downs large blued tarpaulins on top of wind       |
| damaged roofs of the Gulf Coast residents in order to prevent         |
| furthers weather damage. These contractors were paid and average of   |
| \$2,480 for less than two hours of work to cover each damaged roof    |
| with government provided supplies. It was later reported that the     |
| cost should have been closer of \$300 to tarp a 2,000-square foot     |
| roof, a fraction of what the government paid.                         |
|                                                                       |
| **Example 2:**                                                        |
|                                                                       |
| The government awarded Carnival Cruise a \$236 million deal to        |
| provide temporary housing on the Mississippi River and off of the     |
| Gulf Coast. According to Congressional investigators, the cost per    |
| person was \$1,275 a week. That amount was nearly twice the typical   |
| cost of a weeklong cruise for a typical passenger.                    |
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| ![](media/image21.png)**Activity (continued)**                        |
|                                                                       |
| **Questions:**                                                        |
|                                                                       |
| 1.  Why do you think is it important to perform a cost analysis?      |
|                                                                       |
| **Answer**:                                                           |
|                                                                       |
| It is important to perform cost analysis to make wise business        |
| decisions that protect the best interest of the government and the    |
| tax dollars.                                                          |
|                                                                       |
| 2.  Do you think that the government should waste time reviewing and  |
|     evaluating the contractor's proposed cost, or not? Especially     |
|     when the contractor knows best what it should cost to do the job? |
|                                                                       |
| **Answer:**                                                           |
|                                                                       |
| It is very important for you, as project manager, to spend time       |
| reviewing and evaluating the contractor's proposed cost.              |
|                                                                       |
| As we have seen in the previous examples in both cases, the           |
| government paid more money than they should have paid if they would   |
| have conducted a cost analysis.                                       |
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| ![](media/image5.png){width="0.40555555555555556in"                   |
| height="0.6354166666666666in"}**Instructor Notes:**                   |
|                                                                       |
| This concludes the topic on Cost Estimating. After addressing any     |
| questions the participants may have, inform them that we will be      |
| moving on to the next topic: Financial Management.                    |
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  ![](media/image6.png){width="0.5006944444444444in"
  height="0.4888888888888889in"}**What questions do you have regarding
  Cost Estimating?**

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  **Topic 3: Financial Management**

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| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| Financial planning can also be called project cost management.        |
|                                                                       |
| It involves processes that are used for planning, estimating,         |
| budgeting, and controlling costs so that the project can be completed |
| within the budget that has been approved.                             |
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| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| -   A project budget is a time-phased representation of the project   |
|     costs to be spent                                                 |
|                                                                       |
| -   Built on stated assumptions                                       |
|                                                                       |
| -   May be reported at multiple project levels                        |
|                                                                       |
| -   Usually depicted as an "S" curve                                  |
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| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| There are challenges in creating a budget:                            |
|                                                                       |
| -   Difficult to determine needs due to uncertainty of requirements   |
|                                                                       |
| -   Reluctant to provide estimates because equated with commitment    |
|                                                                       |
| -   Estimates occur at various stages of the project, and differ in   |
|     accuracy                                                          |
|                                                                       |
| -   Blame assigned for future cost overruns- the first estimate that  |
|     you utter gets cast in concrete and you are forever held          |
|     accountable to it                                                 |
|                                                                       |
| -   People often lack experience in estimating                        |
|                                                                       |
| -   Many programs have no process for estimating                      |
|                                                                       |
| -   People have a bias toward underestimation                         |
|                                                                       |
|     Casual conversations may become commitments                       |
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| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| The government budget cycle is similar to the project cycle.          |
|                                                                       |
| -   It has a baseline, configuration management, distinct periods and |
|     phases, and control gates                                         |
|                                                                       |
| -   Three budgets are underway                                        |
|                                                                       |
| ```{=html}                                                            |
| <!-- -->                                                              |
| ```                                                                   |
| -   Formulation                                                       |
|                                                                       |
| -   Review                                                            |
|                                                                       |
| -   Execution                                                         |
|                                                                       |
| This causes intense uncertainty among project managers in the         |
| government. They have to apply for funding every year -- how do you   |
| run a four-year project when you're not sure of the amount of money   |
| you're getting from year to year?                                     |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 3: Financial Management**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
  ![](media/image26.jpeg){width="4.25in"           Notes:
  height="3.1875in"}                               

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| The budget cycle has an impact on the project budgets.                |
|                                                                       |
| -   Project budgets are subject to annual uncertainty                 |
|                                                                       |
| -   Obligation window is narrowed to less than 12 months (more like 6 |
|     months in reality)                                                |
|                                                                       |
| -   Project budget reductions that are beyond the project manager's   |
|     control may occur at any time                                     |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 3: Financial Management**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
  ![](media/image27.jpeg){width="4.25in"           Notes:
  height="3.1875in"}                               

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| Here are some things to consider when finalizing a budget.            |
|                                                                       |
| -   Has the scope been finalized?                                     |
|                                                                       |
| -   Are all resources identified?                                     |
|                                                                       |
| -   Are all assumptions documented?                                   |
|                                                                       |
| -   Where are you in the project cycle?                               |
|                                                                       |
| -   Is the budget balanced to the scope?                              |
|                                                                       |
| -   Do you have approval for the budget?                              |
|                                                                       |
| ```{=html}                                                            |
| <!-- -->                                                              |
| ```                                                                   |
| -   Budgets are rarely approved by everybody -- your job is to get    |
|     money on your project as soon as possible. It is much harder to   |
|     take it back once it is been given.                               |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 3: Financial Management**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
  ![](media/image28.jpeg){width="4.25in"           Notes:
  height="3.1875in"}                               

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image6.png){width="0.5006944444444444in"                    |
| height="0.4888888888888889in"}**What are the three types of budgets   |
| and what is the difference between them?**                            |
|                                                                       |
| **Answer:**                                                           |
|                                                                       |
| -   Formulation                                                       |
|                                                                       |
| -   Review                                                            |
|                                                                       |
| -   Execution                                                         |
|                                                                       |
| Execution involves the current FY. Review involves the current FY     |
| plus on year. Execution involves the current FY plus two to six       |
| years.                                                                |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 3: Financial Management**

  -----------------------------------------------------------------------

+-----------------------------------------------------------------------+
| ![](media/image5.png){width="0.40555555555555556in"                   |
| height="0.6354166666666666in"} **Instructor Notes:**                  |
|                                                                       |
| This concludes the topic on Financial Management. After addressing    |
| any questions the participants may have, inform them that we will be  |
| moving on to the next topic: Other Forms of Performance Measurement.  |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  ![](media/image6.png){width="0.5006944444444444in"
  height="0.4888888888888889in"}**What questions do you have regarding
  Financial Management?**

  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  **Topic 4: Other Forms of Financial Performance Measurement**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
  ![](media/image29.jpeg){width="4.25in"           Notes:
  height="3.1875in"}                               

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| [Definition - Cost-Benefit Analysis]{.underline}                      |
|                                                                       |
| -   Cost-Benefit analysis, also referred to as cost-benefit analysis, |
|     is a systematic quantitative method of assessing the desirability |
|     of government projects or policies when it is important to take a |
|     long view of future effects and a broad view of possible          |
|     side-effects.                                                     |
|                                                                       |
| -   It is recommended as the technique to use in a formal economic    |
|     analysis of government programs or projects.                      |
|                                                                       |
| -   When a cost-benefit analysis cannot be done cost-effectiveness    |
|     analysis should be performed.                                     |
|                                                                       |
| -   Cost-effectiveness analysis is a less comprehensive technique,    |
|     but it can be appropriate when the benefits from competing        |
|     alternatives are the same or where a policy decision has been     |
|     made that the benefits must be provided.                          |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 4: Other Forms of Financial Performance Measurement
  (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
  ![](media/image30.jpeg){width="4.25in"           Notes:
  height="3.1875in"}                               

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| [Cost-Effective Analysis]{.underline}                                 |
|                                                                       |
| -   Cost-effective analysis is appropriate whenever it is unnecessary |
|     or impractical to consider the dollar value of the benefits       |
|     provided by the alternatives under consideration. This is the     |
|     case whenever each alternative has:                               |
|                                                                       |
|     -   The same annual benefits expressed in monetary terms; or      |
|                                                                       |
|     -   The same annual affects, but dollar values cannot be assigned |
|         to their benefits.                                            |
|                                                                       |
| -   It can also be used to compare projects with identical costs but  |
|     differing benefits. In this case, the decision criterion is the   |
|     discounted present value of benefits. The alternative project     |
|     with the largest benefits would normally be favored.              |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 4: Other Forms of Financial Performance Measurement
  (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------------ ----------------
  ![](media/image31.jpeg){width="5.0in" height="3.75in"} Notes:

  ------------------------------------------------------ ----------------

+-----------------------------------------------------------------------+
| ![](media/image6.png){width="0.5006944444444444in"                    |
| height="0.4888888888888889in"}**When should you use                   |
| cost-effectiveness analysis?**                                        |
|                                                                       |
| **Answer:**                                                           |
|                                                                       |
| You should use cost-effectiveness analysis when the benefits of the   |
| alternatives cannot be quantified in terms of dollar.                 |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 4: Other Forms of Financial Performance Measurement
  (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
  ![](media/image32.jpeg){width="4.25in"           Notes:
  height="3.1875in"}                               

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| [Elements of cost- benefit analysis or cost-effective                 |
| analysis]{.underline}                                                 |
|                                                                       |
| -   Policy Rationale                                                  |
|                                                                       |
|     -   The rationale for the government project being examined       |
|         should be clearly stated in the analysis.                     |
|                                                                       |
|     -   Projects may be justified on efficiency grounds where they    |
|         address market failure, such as public goods and              |
|         externalities.                                                |
|                                                                       |
|     -   They may also be justified where they improve the efficiency  |
|         of the government\'s internal operations, such as cost-saving |
|         investments.                                                  |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 4: Other Forms of Financial Performance Measurement
  (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
  ![](media/image33.jpeg){width="4.25in"           Notes:
  height="3.1875in"}                               

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| [Elements of cost- benefit analysis (continued)]{.underline}          |
|                                                                       |
| -   Explicit Assumptions                                              |
|                                                                       |
|     -   Analyses should be explicit about the underlying assumptions  |
|         used to arrive at estimates of future benefits and costs.     |
|                                                                       |
|     -   In the case of public health projects, for example, it may be |
|         necessary to make assumptions about the number of future      |
|         beneficiaries, the intensity of service, and the rate of      |
|         increase in medical prices.                                   |
|                                                                       |
|     -   The analysis should include a statement of the assumptions,   |
|         the rationale behind them, and a review of their strengths    |
|         and weaknesses. Key data and results, such as year-by-year    |
|         estimates of benefits and costs, should be reported to        |
|         promote independent analysis and review.                      |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 4: Other Forms of Financial Performance Measurement
  (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
  ![](media/image34.jpeg){width="4.25in"           Notes:
  height="3.1875in"}                               

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| [Elements of cost- benefit analysis (continued)]{.underline}          |
|                                                                       |
| -   Evaluation of Alternatives                                        |
|                                                                       |
|     -   Analyses should also consider alternative means of achieving  |
|         project objectives by examining different project scales,     |
|         different methods of provision, and different degrees of      |
|         government involvement.                                       |
|                                                                       |
|     -   For example, in evaluating a decision to acquire a capital    |
|         asset, the analysis should generally consider: (i) doing      |
|         nothing; (ii) direct purchase; (iii) upgrading, renovating,   |
|         sharing, or converting existing government property; or (iv)  |
|         leasing or contracting for services.                          |
|                                                                       |
|     -   Most people can only handle 5-7 alternatives                  |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 4: Other Forms of Financial Performance Measurement
  (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
  ![](media/image35.jpeg){width="4.25in"           Notes:
  height="3.1875in"}                               

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| [Elements of cost- benefit analysis (continued)]{.underline}          |
|                                                                       |
| -   Verification                                                      |
|                                                                       |
|     -   Retrospective studies to determine whether anticipated        |
|         benefits and costs have been realized are potentially         |
|         valuable. Such studies can be used to determine necessary     |
|         corrections in existing projects, and to improve future       |
|         estimates of benefits and costs in these projects or related  |
|         ones.                                                         |
|                                                                       |
|     -   Agencies should have a plan for periodic, results-oriented    |
|         evaluation of project effectiveness.                          |
|                                                                       |
|     -   They should also discuss the results of relevant evaluation   |
|         studies when proposing reauthorizations or increased project  |
|         funding.                                                      |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 4: Other Forms of Financial Performance Measurement
  (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
  ![](media/image36.jpeg){width="4.25in"           Notes:
  height="3.1875in"}                               

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image6.png){width="0.5006944444444444in"                    |
| height="0.4888888888888889in"}**What are the elements of cost-        |
| benefit analysis or cost-effectiveness analysis?**                    |
|                                                                       |
| **Answer:**                                                           |
|                                                                       |
| -   Policy Rationale                                                  |
|                                                                       |
| -   Explicit Assumptions                                              |
|                                                                       |
| -   Evaluation Alternatives                                           |
|                                                                       |
| -   Verification                                                      |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 4: Other Forms of Financial Performance Measurement
  (continued)**

  -----------------------------------------------------------------------

  ---------------------------------------------------- ----------------------
  ![](media/image37.png){width="4.413888888888889in"   Notes:
  height="3.04375in"}                                  

  ---------------------------------------------------- ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| [Earned Value Management (EVM)]{.underline}                           |
|                                                                       |
| EVM is a tool considered by many in the project management community  |
| to be the best option currently available for holding all parties     |
| accountable for the effective management of large and complex         |
| projects.                                                             |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 4: Other Forms of Financial Performance Measurement
  (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
  ![](media/image38.jpeg){width="4.25in"           Notes:
  height="3.1875in"}                               

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| [Earned Value Management (EVM) (continued)]{.underline}               |
|                                                                       |
| -   It provides a disciplined approach to managing projects           |
|     successfully through the use of an integrated system to plan and  |
|     control authorized work to achieve cost, schedule, and            |
|     performance objectives.                                           |
|                                                                       |
| -   The fidelity of the information produced by the EVM System (EVMS) |
|     is critical to providing an objective assessment of a project's   |
|     performance from which well informed management decisions can be  |
|     made.                                                             |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 4: Other Forms of Financial Performance Measurement
  (continued)**

  -----------------------------------------------------------------------

  ----------------------------------------------------- ----------------------
  ![](media/image39.png){width="4.4118055555555555in"   Notes:
  height="3.0305555555555554in"}                        

  ----------------------------------------------------- ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| [Performance Indicators - EVM and Management Needs]{.underline}       |
|                                                                       |
| A fundamental requirement for managing any major acquisition system   |
| is insight into the contractors\' performance, specifically the       |
| management and control.                                               |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 4: Other Forms of Financial Performance Measurement
  (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
  ![](media/image40.jpeg){width="4.25in"           Notes:
  height="3.1875in"}                               

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| [Performance Indicators - EVM and Management Needs                    |
| (continued)]{.underline}                                              |
|                                                                       |
| Proper EVM implementation ensures that the project manager is         |
| provided contractor performance data that:                            |
|                                                                       |
| -   Properly relates cost, schedule, and technical accomplishment.    |
|                                                                       |
| -   Relates time-phased budgets to specific contract tasks and/or     |
|     statements of work (SOW).                                         |
|                                                                       |
| -   Objectively measures work progress.                               |
|                                                                       |
| -   Allows for informed decision making and corrective action.        |
|                                                                       |
| (continues on next slide)                                             |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 4: Other Forms of Financial Performance Measurement
  (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
  ![](media/image41.jpeg){width="4.25in"           Notes:
  height="3.1875in"}                               

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| [EVM and Management Needs (continued)]{.underline}                    |
|                                                                       |
| -   Is valid, timely, and able to be audited                          |
|                                                                       |
| -   Allows for statistical estimation of future costs                 |
|                                                                       |
| -   Supplies managers at all levels with status information at the    |
|     appropriate level, and                                            |
|                                                                       |
| -   Is derived from the same EVM system used by the contractor to     |
|     manage the contract.                                              |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 4: Other Forms of Financial Performance Measurement
  (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
  ![](media/image42.jpeg){width="4.25in"           Notes:
  height="3.1875in"}                               

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| [EVM Features]{.underline}                                            |
|                                                                       |
| EVM implementations for large or complex projects include many more   |
| features, such as indicators and forecasts of cost performance        |
| (over/under budget) and schedule performance (behind/ahead of         |
| schedule).                                                            |
|                                                                       |
| The most basic requirement of an EVM system, however, is that it      |
| quantifies progress using PV and EV.                                  |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 4: Other Forms of Financial Performance Measurement
  (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
  ![](media/image43.jpeg){width="4.25in"           Notes:
  height="3.1875in"}                               

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| [EVM Features (continued)]{.underline}                                |
|                                                                       |
| -   Essential features of any EVM implementation include:             |
|                                                                       |
|     -   A project plan that identifies work to be accomplished,       |
|                                                                       |
|     -   A valuation of planned work, called planned value (PV), and   |
|                                                                       |
|     -   Pre-defined "earning rules" (also called metrics) to quantify |
|         the accomplishment of work, called Earned Value (EV).         |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 4: Other Forms of Financial Performance Measurement
  (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
  ![](media/image44.jpeg){width="4.25in"           Notes:
  height="3.1875in"}                               

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| [How is EVM Implemented?]{.underline}                                 |
|                                                                       |
| Cost Variance provides information for the implementation of EVM --   |
| highlighting target costs and project time against the reporting      |
| cut-off date.                                                         |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| ![](media/image5.png){width="0.40555555555555556in"                   |
| height="0.6354166666666666in"} **Instructor Notes:**                  |
|                                                                       |
| Review this chart and the following chart together to show the cost   |
| and schedule variances.                                               |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 4: Other Forms of Financial Performance Measurement
  (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
  ![](media/image45.jpeg){width="4.25in"           Notes:
  height="3.1875in"}                               

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| [How is EVM Implemented?]{.underline}                                 |
|                                                                       |
| Schedule Variance provides information for the implementation of EVM  |
| -- highlighting target costs and project time against the reporting   |
| cut-off date.                                                         |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 4: Other Forms of Financial Performance Measurement
  (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
  ![](media/image46.jpeg){width="4.25in"           Notes:
  height="3.1875in"}                               

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| [How is EVM Implemented? (continued)]{.underline}                     |
|                                                                       |
| -   During the planning phase, an integrated baseline is developed by |
|     time phasing budget resources for defined work.                   |
|                                                                       |
| -   As work is performed and measured against the baseline, the       |
|     corresponding budget value is "earned".                           |
|                                                                       |
| -   From this earned value metric, cost and schedule variances can be |
|     determined and analyzed.                                          |
|                                                                       |
| -   From these basic variance measurements, the project manager can   |
|     identify significant drivers, forecast future cost and schedule   |
|     performance, and construct corrective action plans to get the     |
|     project back on track.                                            |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 4: Other Forms of Financial Performance Measurement
  (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
  ![](media/image47.jpeg){width="4.25in"           Notes:
  height="3.1875in"}                               

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| [Earned Value Management System (EVMS)]{.underline}                   |
|                                                                       |
| -   The implementation and use of EVM is governed by an industry      |
|     standard---ANSI/EIA-748, Earned Value Management Systems.         |
|     ANSI/EIA stands for American National Standards                   |
|     Institute/Electronic Industries Alliance.                         |
|                                                                       |
| -   The standard establishes 32 minimum management control guidelines |
|     for an Earned Value Management System (EVMS) to ensure the        |
|     validity of the information used by management.                   |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 4: Other Forms of Financial Performance Measurement
  (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
  ![](media/image48.jpeg){width="4.25in"           Notes:
  height="3.1875in"}                               

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| [Earned Value Management System (continued)]{.underline}              |
|                                                                       |
| An EMVS can be defined as an integrated management system that allows |
| for:                                                                  |
|                                                                       |
| -   Planning all work scope for the project to completion.            |
|                                                                       |
| -   Assignment of authority and responsibility at the work            |
|     performance level.                                                |
|                                                                       |
| -   Integration of the cost, schedule and technical aspects of the    |
|     work into a detailed baseline plan.                               |
|                                                                       |
| -   Objective measurement of progress (earned value) at the work      |
|     performance level.                                                |
|                                                                       |
| -   Accumulation and assignment of actual costs.                      |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 4: Other Forms of Financial Performance Measurement
  (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
  ![](media/image49.jpeg){width="4.25in"           Notes:
  height="3.1875in"}                               

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| [Earned Value Management System (continued)]{.underline}              |
|                                                                       |
| -   Analysis of variances from plans.                                 |
|                                                                       |
| -   Summarization and reporting of performance data to higher levels  |
|     of management for action.                                         |
|                                                                       |
| -   Forecast of achievement of milestones and completion of contract  |
|     events.                                                           |
|                                                                       |
| -   Forecast of final contract costs.                                 |
|                                                                       |
| -   Baseline maintenance and incorporation of baseline revisions in a |
|     timely manner.                                                    |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 4: Other Forms of Financial Performance Measurement
  (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
  ![](media/image50.jpeg){width="4.25in"           Notes:
  height="3.1875in"}                               

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| [Successful Government Implementation of EVM: Example]{.underline}    |
|                                                                       |
| Lawrence Livermore Labs (part of the Energy Department's National     |
| Nuclear Security Administration) successfully uses EVM to support its |
| mission: to ensure that nuclear weapons are safe, secure and          |
| reliable. Some information about this example include:                |
|                                                                       |
| -   EVM is used to manage about 20 projects with a total value of     |
|     about \$500 million.                                              |
|                                                                       |
| -   In August 2005, the lab transitioned from spreadsheets to         |
|     commercial software (Primavera Systems' EVM suite) to simplify    |
|     and automate project management.                                  |
|                                                                       |
| -   EVM enhances the ability of lab managers to keep projects on      |
|     schedule and on budget.                                           |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 4: Other Forms of Financial Performance Measurement
  (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
  ![](media/image51.jpeg){width="4.25in"           Notes:
  height="3.1875in"}                               

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| [Successful Government Implementation of EVM: Example                 |
| (continued)]{.underline}                                              |
|                                                                       |
| -   EVM data contributes to DOE's planning and investment control     |
|     efforts. Data about past trends is used to forecast the future,   |
|     mitigate risk and increase the potential for program success.     |
|                                                                       |
| -   Management wants to expand the use of EVM at Lawrence Livermore   |
|     in the future.                                                    |
|                                                                       |
| -   More information about Lawrence Livermore Labs use of EVM is      |
|     available online:\                                                |
|     <http://www.fcw.com/print/13_36/management/150387-1.html>         |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 4: Other Forms of Financial Performance Measurement
  (continued)**

  -----------------------------------------------------------------------

+-----------------------------------------------------------------------+
| ![](media/image52.png)**Activity**                                    |
|                                                                       |
| Activity Purpose:                                                     |
|                                                                       |
| This activity is for the participants to review the elements of a     |
| successful Earned Value Management System program.                    |
|                                                                       |
| Activity Length: 5-10 minutes                                         |
|                                                                       |
| Activity Instructions:                                                |
|                                                                       |
| Read each statement to the class and ask participants to identify     |
| which ones contribute to the success of EVM (true), and which do not  |
| (false).                                                              |
|                                                                       |
| +------------------------------------------------------------------+  |
| | **STATEMENT**                                                    |  |
| +------------------------------------------------------------------+  |
| | [\_*FALSE*]{.underline}\_ 1. It is best to keep EVM isolated     |  |
| | within the project management area.                              |  |
| |                                                                  |  |
| | (It should be raised to the executive level, where important     |  |
| | discussions can take place.)                                     |  |
| +------------------------------------------------------------------+  |
| | [*FALSE*]{.underline} 2. EVM managers and analysts require no to |  |
| | minimal training. It is a skill best learned on-the-job.         |  |
| |                                                                  |  |
| | (Training is necessary in order to ensure that policies are      |  |
| | enforceable and strong enough to make the whole set of           |  |
| | management controls work.)                                       |  |
| +------------------------------------------------------------------+  |
| | [*TRUE*]{.underline} 3. Performance information, including cost  |  |
| | and schedule variances, should be presented to senior management |  |
| | in nontechnical terms in order to increase executive             |  |
| | accountability.                                                  |  |
| +------------------------------------------------------------------+  |
| | [*TRUE*]{.underline} 4. Good, initial baseline data is essential |  |
| | in order for EVM to be an effective and valuable tool.           |  |
| +------------------------------------------------------------------+  |
| | [*FALSE*]{.underline} 5. The success of EVM can be measured on   |  |
| | the amount of data that is generated.                            |  |
| |                                                                  |  |
| | (A successful EVM implementation is measured by how heavily the  |  |
| | resulting data is relied on for use in management and oversight  |  |
| | decision-making.)                                                |  |
| +------------------------------------------------------------------+  |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 4: Other Forms of Financial Performance Measurement
  (continued)**

  -----------------------------------------------------------------------

+-----------------------------------------------------------------------+
| ![](media/image53.png)Activity (continued)                            |
|                                                                       |
| +------------------------------------------------------------------+  |
| | **STATEMENT**                                                    |  |
| +------------------------------------------------------------------+  |
| | [*FALSE*]{.underline} 6. EVM can tell you if the outcome is the  |  |
| | right one from a business perspective.                           |  |
| |                                                                  |  |
| | (EVM provides transparency in terms of project cost, schedule    |  |
| | and performance. It should be used to educate an organization on |  |
| | why variances are occurring.)                                    |  |
| +------------------------------------------------------------------+  |
| | [*TRUE*]{.underline} 7. EVM compares baseline schedule and       |  |
| | performance against the actual schedule and costs incurred.      |  |
| +------------------------------------------------------------------+  |
| | [*TRUE*]{.underline} 8. The biggest benefit of a mature,         |  |
| | established EVM system is enhanced planning.                     |  |
| +------------------------------------------------------------------+  |
| | [*FALSE*]{.underline} 9. The absence of an oversight agency is   |  |
| | an asset to civilian agencies' EVM efforts.                      |  |
| |                                                                  |  |
| | (The absence of an oversight agency could be an impediment to    |  |
| | civilian agencies. In contrast, the Defense Contract Management  |  |
| | Agency can certify Defense Department EVM systems and do         |  |
| | analysis.)                                                       |  |
| +------------------------------------------------------------------+  |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 4: Other Forms of Financial Performance Measurement
  (continued)**

  -----------------------------------------------------------------------

+-----------------------------------------------------------------------+
| ![](media/image5.png){width="0.40555555555555556in"                   |
| height="0.6354166666666666in"}**Instructor Notes:**                   |
|                                                                       |
| This concludes the topic on other forms of performance measurement.   |
| After addressing any questions the participants may have, inform them |
| that we will be moving on to the next topic: Module Review.           |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  ![](media/image6.png){width="0.5006944444444444in"
  height="0.4888888888888889in"}**What questions do you have regarding
  other forms of performance measurement?**

  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  **Topic 5: Review**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
  ![](media/image54.jpeg){width="4.25in"           Notes:
  height="3.1875in"}                               

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| Let's review the learning objectives for this module on Introduction  |
| to Cost Estimating and Financial Management:                          |
|                                                                       |
| -   Describe the theory of cost estimating.                           |
|                                                                       |
| -   Explain how cost analysis is used in performance measurement.     |
|                                                                       |
| -   Define the different forms of financial planning.                 |
|                                                                       |
| -   Describe how cost-benefit analysis is used in performance         |
|     measurement.                                                      |
|                                                                       |
| -   Explain how earned value management (EVM) is used as a            |
|     performance measurement.                                          |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 5: Review (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
  ![](media/image55.jpeg){width="4.25in"           Notes:
  height="3.1875in"}                               

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| Let's review some Key Points in this module:                          |
|                                                                       |
| -   Cost estimating is:                                               |
|                                                                       |
|     -   The process of forecasting a future result in terms of cost,  |
|         based upon information available at the time.                 |
|                                                                       |
| -   Cost analysis is:                                                 |
|                                                                       |
|     -   The systematic review and evaluation of the separate cost     |
|         elements, judgmental factors, and profit and/or fee that,     |
|         when added together, constitute contract price.               |
|                                                                       |
| -   Reconciliation of cost estimates                                  |
|                                                                       |
|     -   Establishing a consistent cost estimate basis allows for fair |
|         comparison.                                                   |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 5: Review (continued)**

  -----------------------------------------------------------------------

  ------------------------------------------------ ----------------------
  ![](media/image56.jpeg){width="4.25in"           Notes:
  height="3.1875in"}                               

  ------------------------------------------------ ----------------------

+-----------------------------------------------------------------------+
| ![](media/image2.png){width="0.75in" height="0.6868055555555556in"}   |
| **[CONTENT TO BE PRESENTED:]{.underline}**                            |
|                                                                       |
| **Key Points:**                                                       |
|                                                                       |
| Let's review some Key Points in this module:                          |
|                                                                       |
| -   Financial management and budgeting                                |
|                                                                       |
| ```{=html}                                                            |
| <!-- -->                                                              |
| ```                                                                   |
| -   An important part of financial management is budgeting where a    |
|     project budget is a time-phased representation of the project     |
|     costs to be spent                                                 |
|                                                                       |
| ```{=html}                                                            |
| <!-- -->                                                              |
| ```                                                                   |
| -   Cost-benefit analysis is:                                         |
|                                                                       |
|     -   A systematic quantitative method of assessing the             |
|         desirability of government projects or policies when it is    |
|         important to take a long view of future effects and a broad   |
|         view of possible side-effects.                                |
|                                                                       |
| -   Earned value management provides:                                 |
|                                                                       |
|     -   A disciplined approach to managing projects successfully      |
|         through the use of an integrated system to plan and control   |
|         authorized work to achieve cost, schedule, and performance    |
|         objectives.                                                   |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  **Topic 5: Review (continued)**

  -----------------------------------------------------------------------

+-----------------------------------------------------------------------+
| ![](media/image5.png){width="0.40555555555555556in"                   |
| height="0.6354166666666666in"}**Instructor Notes:**                   |
|                                                                       |
| This concludes Module 7 -- Introduction to Cost Estimating and        |
| Financial Management. Address any questions the participants may have |
| before moving on to Module 8 -- Cost Estimating.                      |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  ![](media/image6.png){width="0.5006944444444444in"
  height="0.4888888888888889in"}**What questions do you have about Module
  7 -- Introduction to Cost Estimating and Financial Management?**

  -----------------------------------------------------------------------