U.S. Department of Commerce

Office of the Chief Information Officer

IT Investment Performance Management Policy

[What is the purpose of this policy and to whom does it
apply?](#_What_are_Earned_Value_Management_an)

[Why is a policy on performance management
required?](#why-is-a-policy-on-performance-management-required)

[What is performance management?](#what-is-performance-management)

[What does this policy require?](#what-does-this-policy-require)

[What is a major IT Investment?](#what-is-a-major-it-investment)

[What is a performance measurement
baseline?](#what-is-a-performance-measurement-baseline)

[What types of performance measurement and performance reporting are
required by this policy?](#what-is-a-performance-measurement-baseline)

[What is Earned Value Management?](#what-is-earned-value-management)

[When and how must I employ Earned Value
Management?](#when-and-how-must-i-employ-earned-value-management)

[What are the specific requirements for incorporation of Earned Value
requirements into major IT developmental
contracts?](#what-are-the-specific-requirements-for-incorporation-of-earned-value-requirements-into-major-it-developmental-contracts)

[What is Operational Analysis?](#what-is-operational-analysis)

[When must I conduct an Operational
Analysis?](#when-must-i-conduct-an-operational-analysis)

[Who is responsible for conducting performance measurement and
performance
reporting?](#who-is-responsible-for-conducting-performance-measurement-and-performance-reporting)

[How, when, and to whom must I provide performance measurement
reporting?](#how-when-and-to-whom-must-i-provide-performance-measurement-reporting)

[How do I request a rebaselining of a major IT
investment?](#how-do-i-request-a-rebaselining-of-a-major-it-investment)

[How does the Department use the performance measurement reports I
submit?](#how-does-the-department-use-the-performance-measurement-reports-i-submit)

[Are there any exceptions to this
policy?](#are-there-any-exceptions-to-this-policy)

[How do I request an exception to this
policy?](#how-do-i-request-an-exception-to-this-policy)

[Where can I get information on Earned Value Management and Operational
Analysis?](#where-can-i-get-information-on-earned-value-management-and-operational-analysis)

[Who can address questions regarding this
policy?](#who-can-address-questions-regarding-this-policy)[]{#_What_are_Earned_Value_Management_an
.anchor}

What is the purpose of this policy and to whom does it apply?

This policy provides guidance to ensure that Commerce's major
Information Technology (IT) investments are managed effectively and that
the performance of those investments is measured and reported to
Departmental management on a regular basis. This policy applies to all
Commerce operating units as well as the Office of the Secretary.

# Why is a policy on performance management required?

This policy is required because the success of major IT investments is
critical to the achievement of Commerce's mission and goals. Effective
management of the Department's major IT investments is key to delivering
IT services of the highest quality while controlling cost to the
taxpayer, and the accurate measurement and reporting of the performance
of those investments is an important part of the management process.

The management and monitoring of the performance of our major IT
investments is a critical part of the Department's Capital Planning and
Investment Control (CPIC) process. The CPIC process is built on a
foundation of strategic and operational IT planning that is integrated
with processes for the selection, control, and evaluation of IT
investments. The performance management processes and Departmental
monitoring of IT investment performance are vital parts of the control
and evaluation phases of the CPIC process, and the roles and
responsibilities of those involved in the management of our IT
investments are spelled out in the [CPIC
Process](http://ocio.os.doc.gov/ITPolicyandPrograms/Capital_Planning/DEV01_003722).

# What is performance management?

Performance management is the activity of tracking performance against a
target and identifying opportunities for improvement. The focus of
performance management is the future - what do you need to be able to do
and how can you do things better? Managing performance is about managing
for results. Performance-based management at any level in the
organization should demonstrate that:

-   you know what you are aiming for,

-   you know what you have to do to meet your objectives,

-   you know how to measure progress toward your objectives, and

-   you can detect performance problems and remedy them.

    Three important components of performance management within the
    Department of Commerce are the establishment of a performance
    measurement baseline, regular periodic measurement of performance
    against that baseline, and reporting the status of that performance
    to operating unit and Departmental management.

The Office of Management and Budget's (OMB) Circular A-11, Part 7
Supplement, "[Capital Programming
Guide](http://www.whitehouse.gov/omb/circulars/a11/current_year/part7.pdf)"
defines performance *measurement* as a "means of evaluating efficiency,
effectiveness, and results. Performance measurement should include
program accomplishments in terms of outputs (quantity of products or
services provided) and outcomes (results of providing outputs in terms
of effectively meeting intended agency mission objectives)."

Performance *reporting* of Commerce's major IT investments provides a
means for the Department's senior management to remain apprised as to
whether and how those investment initiatives satisfy defined
requirements and attain identified results.

# What does this policy require?

This policy requires that the project sponsor establish a performance
measurement baseline for any major IT investment within Commerce, that
the project manager regularly measure and report performance against
that baseline, and that the project sponsor only change the established
baseline in accordance with Departmental guidance and with appropriate
approval.

# What is a major IT investment?

A major IT investment is defined by the Commerce Office of the Chief
Information Officer (OCIO) as a system or project meeting one or more of
the following criteria: systems meriting special attention due to their
sensitivity, mission criticality, or risk potential; Department-wide
systems; systems where resources are shared between operating units
and/or the Department; and systems with life cycle costs over \$25
million.

# What is a performance measurement baseline?

A performance measurement baseline is a primary tool for measuring
project performance and identifying risk. The baseline identifies the
work that will be accomplished on a project, and defines the cost and
schedule for accomplishment of that work.

The performance measurement baseline, which consists of the cost,
schedule, and scope baseline, is derived from the scope of work
described in a hierarchical Work Breakdown Structure (WBS) -- which, in
turn, decomposes the entire project into a logical structure of tasks
and activities tied to deliverables and to assigned responsibilities --
and the associated WBS dictionary. The performance measurement baseline
comprises:

-   The cost baseline, which defines the approved, projected,
    time-phased, life-cycle costs for acquiring, operating, and
    disposing of the physical and/or logical system represented by the
    scope baseline.

-   The schedule baseline, which is the approved timeline for acquiring,
    operating, and disposing of the physical and/or logical system.

-   The scope baseline, which represents the configuration of the
    product of the project as developed and described in the project's
    technical documentation.

The baseline is integrated where the time-phased cost baseline is
consistent with the schedule baseline, and the costs are related to
acquiring, operating, and disposing of the physical and/or logical
system represented by the scope baseline.

The official baseline for any major IT investment project is the latest
documented baseline approved by the Commerce CIO, along with any
approved changes to cost, schedule, or scope. It is important to note
that the cost, schedule, and scope baselines represented in the
Performance Measurement Baseline must be fully risk-adjusted and must be
integrated with the risk management process. Refer to section I.5.2 of
the [Capital Programming
Guide](http://www.whitehouse.gov/omb/circulars/a11/current_year/part7.pdf)
for a more in-depth discussion of the need for risk-adjustment in
developing a Performance Measurement Baseline.

# What types of performance measurement and performance reporting are required by this policy?

The project manager of any major IT investment within Commerce must use
Earned Value Management to measure and report the performance of the
Development, Modernization, and Enhancement portion of the IT investment
and conduct an Operational Analysis on the steady state portion of the
investment. Earned Value Management and Operational Analysis are two
methods of performance measurement applicable to IT capital investments.
They are analytical processes used to measure objectively how well a
project or program is accomplishing its mission.

# What is Earned Value Management?

Earned Value Management (EVM) is a performance measurement tool commonly
used in developmental IT projects that relates project and resource
planning to actual cost and schedule achievements. All work is planned,
budgeted, and scheduled in time-phased \"planned value\" increments that
constitute a cost and schedule measurement baseline. EVM is practiced
through the use of an Earned Value Management System (EVMS) that
provides an integrated picture of the cost and schedule performance of a
project and allows a project manager to analyze deviations from plans,
forecast completion of events, and implement corrective actions in a
timely manner. Two major objectives of an EVMS are:

-   to ensure that Commerce's project managers and contractors use
    effective internal cost and schedule management control systems, and

-   to provide the government with timely cost and schedule performance
    data in order to allow project managers to effectively monitor and
    control their projects.

# When and how must I employ Earned Value Management?

Project managers must use Earned Value Management in the management of
the Development, Modernization, and Enhancement (DME) portion of all
Department of Commerce major IT projects with total DME costs of \$25
million or more. The EVM methodology employed must be part of an EVMS
that meets the criteria specified in the latest version of the
Electronic Industries Alliance standard, "ANSI/EIA 748, Earned Value
Management Systems," including the requirement to conduct a monthly
assessment of cost and schedule performance.

The EVMS employed on Commerce projects must include both government and
contractor costs and schedules, and those costs and schedules must be
based on a Work Breakdown Structure that describes both government and
contractor activities. The Earned Value Management calculations (e.g.,
cost and schedule variances) produced by the EVMS must also be
calculated against the OMB Approved Current Baseline which includes both
government and contractor costs.

# What are the specific requirements for incorporation of Earned Value requirements into major IT developmental contracts?

Contracting Officers must include in all contracts for major DME
investments a requirement that the contractor and all applicable
subcontractors have and use an EVMS determined to be compliant with
ANSI/EIA 748 [or]{.underline} have taken the necessary steps to meet
milestones in the contractor's EVMS plan for providing EVMS data that
complies with ANSI/EIA 748. Commerce's requirements for inclusion of
EVMS clauses in contracts are specified in the [Procurement
Memorandum](http://ocio.os.doc.gov/s/groups/public/@doc/@os/@ocio/@oitpp/documents/content/prod01_004249.pdf)
issued by the Department's Office of Acquisition Management, and
specifically require that Earned Value Management clauses be
incorporated in all contracts for major DME investments in accordance
with the [Federal Acquisition Regulation (FAR) Subpart
34.2](http://acquisition.gov/far/current/html/Subpart 34_2.html).

Project managers are also required to conduct an Integrated Baseline
Review (IBR) on contracts with an EVMS requirement, before or after
award as appropriate, in order to establish and document a performance
measurement baseline agreed to by all parties and against which
performance will be measured. In conducting the IBR, the project manager
should use the National Defense Industrial Association (NDIA) [Program
Manager's Guide to the Integrated Baseline Review
Process](https://acc.dau.mil/simplify/ev.php?ID=12824_201&ID2=DO_TOPIC)
as a resource document. Because it is an integral component of the
overall risk management process, the IBR process and documentation of
the baseline must be repeated whenever there are major changes to the
baseline.

In addition to including a requirement for an EVMS in contracts for
major DME investments, the Contracting Officer and project manager also
must demonstrate, through a compliance review, that the Earned Value
data and analysis used to measure and report the contractor's work
progress are produced by an EVMS that meets the guidelines in the
ANSI/EIA 748 standard.

The [NDIA Program Management Systems Committee (PMSC) Intent
Guide](http://www.ndia.org/Content/ContentGroups/Divisions1/Procurement/EVMS_IntentGuide_Nov06.pdf)
provides additional insight into the earned value EVMS guidelines
included in the ANSI/EIA 748 standard and is recommended for use in
performing the initial compliance review. The Intent Guide defines in
detail the management value and intent for each of the guidelines listed
in the ANSI/EIA 748 standard. The Contracting Officer and project
manager are encouraged to use the Intent Guide as a resource document to
conduct the compliance review.

Beyond the initial compliance review, the Contracting Officer and
project manager must also, on a triennial basis, conduct a surveillance
review of the EVMS to ensure it continues to meet the requirements of
ANSI/EIA 748. A standardized approach to surveillance benefits all
parties because it ensures a common understanding of expectations and
gives consistent guidance for implementation of the ANSI/EIA 748 EVMS
guidelines. The [NDIA PMSC Surveillance
Guide](http://www.ndia.org/Content/ContentGroups/Divisions1/Procurement/PDFs10/NDIA_PMSC_SurveillanceGuide_Oct2004.pdf)
provides such a standardized approach to surveillance and is recommended
for all stakeholders in the EVMS process. The Contracting Officer and
project manager are encouraged to use the [Surveillance
Guide](http://www.ndia.org/Content/ContentGroups/Divisions1/Procurement/PDFs10/NDIA_PMSC_SurveillanceGuide_Oct2004.pdf)
to conduct the triennial review.

# What is Operational Analysis?

Operational Analysis is a method of examining the current performance of
the steady state portion of an investment, measuring that performance
against an established set of performance parameters, and examining
opportunities for improvement in operational performance. Beyond the
typical developmental performance measures of "Are we on schedule?" and
"Are we within budget?," an Operational Analysis should seek to answer
more subjective questions in the specific areas of:

-   Customer Results,

-   Strategic and Business Results,

-   Financial Performance, and

-   Innovation.

Operational Analysis is another phrase for \"process improvement," and
should trigger considerations of how the investment's objectives could
be better met, how costs could be saved, and whether, in fact, the
organization should even be performing a particular function.

# When must I conduct an Operational Analysis?

Investment managers must conduct a full Operational Analysis of the
steady state portion of their major IT investment initiatives annually.
Annual Operational Analyses of steady-state investments must address the
four specific areas of Customer Results, Strategic and Business Results,
Financial Performance, and Innovation and must include the investment's
performance measurement baseline and actual performance measurement
information to determine if the investment is continuing to provide
realizable benefits.

In addition to the annual full Operational Analysis, investment managers
of steady state investments must conduct a quarterly performance review
that compares planned vs. actual expenditures and planned vs. actual
performance results.

# Who is responsible for conducting performance measurement and performance reporting?

Project managers of all major IT investments must provide monthly Earned
Value performance measurement reports on the DME portion of the
investment, and quarterly status reports and annual Operational Analysis
reports on the steady state portion.

Project managers of IT investments not classified as major may also be
required to submit Earned Value performance reports or Operational
Analysis reports. These investments will typically be those that are
identified by the Departmental CIO as high risk or that are named in the
Department's Strategic IT Plan as requiring management attention.

# How, when, and to whom must I provide performance measurement reporting?

Project managers must provide the required performance measurement
reports to the Commerce OCIO.

Earned Value performance measurement reports are due on a monthly basis.
Monthly Earned Value performance reports are due on the last day of each
month and must include performance data through the end of the previous
month. The [IT Investment Performance Reporting Data
Call](http://ocio.os.doc.gov/ITPolicyandPrograms/Capital_Planning/PROD01_006832)
issued by OCIO provides information on the reports' required content and
format.

If at any time during project execution, cost, schedule, or scope
performance varies from the approved project baseline by more than 10
percent, the project sponsor must report the variance to the
Departmental CIO, detailing the baseline component (cost, schedule, or
scope) responsible for the variance, as well as the dollar amount and
percentage of the variance. The project sponsor must also provide to the
CIO either a baseline change request or a corrective action plan that
specifies what actions will be taken to address the performance variance
and ensure it will not recur.

Additionally, when Earned Value data for a project indicates that cost,
schedule, or scope performance will vary from the approved project
baseline by more than 10 percent at project completion, project sponsors
must present to the CIO a baseline change request or recommend other
action to correct the project's variance from the approved baseline. A
corrective action plan that specifies what actions will be taken to
address the variance and ensure it will not recur must accompany the
baseline change request.

Full Operational Analysis reports are due annually and must address all
four factors (Customer Results, Strategic and Business Results,
Financial Performance, and Innovation) of the investment during the
immediately preceding year. Quarterly performance reviews of steady
state investments must address financial and technical performance of
the investment during the previous quarter. Due dates for annual
Operational Analysis reports and quarterly performance reports are as
specified in the latest [IT Investment Performance Reporting Data
Call.](http://ocio.os.doc.gov/ITPolicyandPrograms/Capital_Planning/PROD01_006832)

# How do I request a rebaselining of a major IT investment?

Requests for baseline changes of major IT investments must be submitted
in writing to the Departmental CIO. In requesting a rebaselining of a
major IT investment, the project sponsor must address the following
issues:

-   [The reason for rebaselining]{.underline}. Projects will typically
    be rebaselined for one of two reasons; (1) either the scope of the
    project has changed from the original plan, and the performance
    measurement baseline is no longer valid; or (2) the project's cost
    and/or schedule variance(s) at completion are projected to be
    outside a tolerant range (typically 10%). In either of these cases,
    the performance measurement baseline is no longer a valid management
    tool, and the project should be rebaselined.

-   [The process for developing a new performance measurement
    baseline]{.underline}. The rebaseline request must describe in
    detail the portions of the performance measurement baseline that are
    to be rebaselined by comparing the currently approved baseline to
    the requested baseline. The level of detail required is as follows:

```{=html}
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```
-   If budget or reserves are to be changed, provide a side-by-side
    comparison of the previously approved budget vs. the proposed
    rebaseline.

-   If the project completion date is to be extended, provide a
    side-by-side comparison of the previously approved master schedule
    vs. the proposed rebaselined master schedule.

-   If project success criteria or technical objectives are to be
    modified (e.g., descoped), provide a detailed side-by-side
    comparison of the previously approved scope baseline vs. the
    proposed rebaseline.

-   If acquisition strategy is to be modified, describe any changes in
    the proposed rebaselined acquisition plan.

```{=html}
<!-- -->
```
-   [The process for validating and documenting the new
    baseline]{.underline}. Project managers must validate the new
    baseline by conducting an IBR to establish a new performance
    measurement baseline agreed to by all parties and against which
    performance will be measured. In conducting the IBR, the project
    manager should use the NDIA [Program Manager's Guide to the
    Integrated Baseline Review
    Process](https://acc.dau.mil/simplify/ev.php?ID=12824_201&ID2=DO_TOPIC)
    as a resource document. As with the development of an initial
    baseline, a revised baseline must also be documented and approved by
    the Departmental CIO (refer to the definition of an official
    baseline under the "[What is a performance measurement
    baseline?](#what-is-a-performance-measurement-baseline)" section of
    this document.

# How does the Department use the performance measurement reports I submit?

The monthly Earned Value performance reports and annual Operational
Analysis reports are used by Departmental managers in the control and
evaluation phases of the CPIC process. The Office of the CIO reviews the
monthly Earned Value performance reports and annual Operational Analysis
reports and reports to the Deputy Secretary on investments that deviate
from cost, schedule, or performance goals by more than 10% or that are
in other ways troublesome. The OCIO also ensures that, where necessary,
corrective action is taken to mitigate unacceptable variances and
monitors ongoing corrective action to ensure that projects continue to
meet cost and schedule goals.

# Are there any exceptions to this policy?

In rare instances where performance risk is low, exceptions may be
granted to the requirements for monthly submission of Earned Value
performance measurement reports or annual submission of Operational
Analyses. Such exceptions will apply only to the reporting of Earned
Value and Operational Analysis, not to the requirement to use Earned
Value management and Operational Analysis in the management of major
investments.

# How do I request an exception to this policy?

A project sponsor may request an exception to the requirement to submit
monthly Earned Value performance measurement reports or quarterly steady
state status reports and annual Operational Analyses by submitting a
request in accordance with the instructions provided in the latest [IT
Investment Performance Reporting Data
Call](http://ocio.os.doc.gov/ITPolicyandPrograms/Capital_Planning/PROD01_006832http:/ocio.os.doc.gov/ITPolicyandPrograms/Capital_Planning/PROD01_006832).
In the request for an exception, the project sponsor must explain fully
how the performance risk of the investment initiative has been mitigated
sufficiently to justify the exception.

# Where can I get information on Earned Value Management and Operational Analysis?

The requirements of an EVMS are spelled out in ANSI/EIA 748, "Standard
for Earned Value Management Systems." This Standard is copyrighted and
is available for purchase from [Global Engineering Documents,
Inc](http://global.ihs.com/doc_detail.cfm?currency_code=USD&customer_id=2125472C200A&shopping_cart_id=28255827294A4030415B3D58280A&country_code=US&lang_code=ENGL&item_s_key=00280332&item_key_date=971131&input_doc_number=&input_doc_title=Earned Value).
While copyright provisions preclude the Standard's availability on the
Web, NDIA has published an [Intent
Guide](http://www.ndia.org/Content/ContentGroups/Divisions1/Procurement/EVMS_IntentGuide_Nov06.pdf),
which delineates the criteria for, and typical attributes of, an EVMS.
The NDIA [Program Management Systems
Committee](http://www.ndia.org/Template.cfm?Section=Procurement&Template=/ContentManagement/ContentDisplay.cfm&ContentID=1109)
has also produced a number of other publications and supplemental
guidance to assist governmental agencies with EVMS implementation. The
guides can be found on the Committee\'s Web site, but are most easily
accessed on the Defense Acquisition University's Web site under [OMB
Recommended
References](https://acc.dau.mil/simplify/ev.php?ID=52961_201&ID2=DO_TOPIC).

Information on Operational Analysis can be found in the
Management-In-Use section of OMB Circular A-11, Part 7 Supplement,
"[Capital Programming
Guide](http://www.whitehouse.gov/omb/circulars/a11/current_year/part7.pdf)."
More detailed information on the Operational Analysis process and
specific guidance on content required for Operational Analyses of
Commerce's major steady state IT investments can be found on the OCIO
Web site, under [Operational Analysis and Performance
Reporting](http://ocio.os.doc.gov/ITPolicyandPrograms/dev01_003715).

Also, contact the following specialists:

Commerce's IT Capital Planning and Investment Control process: Office of
IT Policy and Planning, Stuart Simon, 202-482-0275, <ssimon@doc.gov>.

EVM and Operational Analysis content requirements and characteristics:
Office of IT Policy and Planning, Jerry Harper, 202-482-0222,
<jharper@doc.gov>.

# Who can address questions regarding this policy?

Contact Jerry Harper, 202-482-0222, <jharper@doc.gov>.

Supersedes policy dated: December 14, 2007

Revision Date: August 7, 2008\
Approved by: Suzanne Hilding, Chief Information Officer, September 10,
2008