**United States Department of Energy**

![](media/image1.wmf)

Earned Value Management

Application Guide

# FORWARD

**Standards seldom can stand alone and always require interpretation and
discussion. ANSI/EIA 748-1998, Earned Value Management Systems is no
exception. There are several sources for expert guidance on EVM; some of
these sources are listed below. The DOE Earned Value Management
Application Guide adds to that body of knowledge by providing a context
and interpretation of the criteria in the standard for implementing
Earned Value Management on DOE programs and projects by DOE contractors.
This guide was adapted from various sources including the Defense
Contract Management Agency Earned Value Implementation Guide, which
focused on procedures for government use of Earned Value. The DCMA
guidance remains a valuable resource in comprehending using Earned Value
Management. The reader is encouraged to avail themselves of these
sources of information because they represent many years of experience
in implementing and using Earned Value Management and are authoritative.
If you have any comments or questions please contact David Treacy, U.S.
Department of Energy at** <david.treacy@hq.doe.gov> **or post your
comments on the DOE Earned Value Management Community of Practices at:**
<http://projects.energy.gov/>

-   [ANSI EIA 748 Intent Guide Revision
    9a](http://www.ndia.org/Content/ContentGroups/Divisions1/Procurement/PDFs10/ANSI_EIA_748_IntentGuide.pdf.pdf) (PDF)\
    Created by the NDIA Program Management Systems Committee to promote
    a clearer understanding of the Standard.  For each of the 32
    guidelines, the Intent Guide provides:  the value to management, an
    intent statement, typical attributes, and examples of objective
    evidence.

-   [NDIA Surveillance
    Guide](http://www.ndia.org/Content/ContentGroups/Divisions1/Procurement/PDFs10/NDIA_Surveillance_Guide.pdf)(PDF)\
    Contractors and the government are encouraged to use this guide for
    the implementation of EVMS surveillance in accordance with the
    American National Standards Institute/Electronic Industry Alliance
    (ANSI/EIA) 748, latest revision.

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-   [NDIA Program Managers\' Guide to the Integrated Baseline Review
    Process](http://www.ndia.org/Content/ContentGroups/Divisions1/Procurement/PDFs10/program_managers_guide.pdf)
    (PDF)\
    A guide to conducting an effective Integrated Baseline Review for a
    clearer understanding of program risks.

```{=html}
<!-- -->
```
-   [Earned Value Management System Standard Equivalence
    Agreement](http://www.ndia.org/Content/ContentGroups/Divisions1/Procurement/PDFs10/EVMS_Standard_Equivalence_Agreement.pdf) (PDF)\
    The NDIA Program Management Systems Committee has signed an
    equivalence agreement with its counterpart in Great Britain, the
    Association for Project Management.  In this agreement, the two
    organizations recognize the equivalence of their respective EVMS
    documents in contracts, partnering agreements, and other applicable
    business transactions.  The agreement, which took effect on July 1,
    2004, remains in effect until either group provides written
    notification to the other of an intention to withdraw.

# TABLE OF CONTENTS

[FORWARD 3](#forward)

[TABLE OF CONTENTS 4](#table-of-contents)

[PART I EARNED VALUE MANAGEMENT SYSTEM CONCEPTS
7](#part-i-earned-value-management-system-concepts)

[Earned Value Management Definitions
7](#earned-value-management-definitions)

[Fundamental Principles of Earned Value Management
7](#fundamental-principles-of-earned-value-management)

[Essential Characteristics 8](#essential-characteristics)

[The Value Of Earned Value Management
8](#the-value-of-earned-value-management)

[Risk-Based Application 9](#risk-based-application)

[The project lifecycle and Earned Value Management implementation
10](#the-project-lifecycle-and-earned-value-management-implementation)

[System Design and Development. 11](#system-design-and-development.)

[Corporate Earned Value Management Policy
12](#corporate-earned-value-management-policy)

[System Description 13](#system-description)

[PART II DEPARTMENT OF ENERGY EARNED VALUE MANAGEMENT PROGRAM
14](#part-ii-department-of-energy-earned-value-management-program)

[Requirement For Earned Value Management
14](#requirement-for-earned-value-management)

[System Certification 14](#system-certification)

[Certification Threshold 14](#certification-threshold)

[Corporate Earned Value Management Policy
14](#corporate-earned-value-management-policy-1)

[Corporate Partnerships and Evms Certification
15](#corporate-partnerships-and-evms-certification)

[Contractor Self-Assessments 15](#contractor-self-assessments)

[Compliance Review Process. 16](#compliance-review-process)

[Integrated Project Team 16](#integrated-project-team)

[Review Process. 16](#review-process.)

[Prior Acceptance 17](#prior-acceptance)

[System Surveillance. 18](#system-surveillance.)

[PART III EARNED VALUE MANAGEMENT SYSTEM GUIDELINES
20](#part-iii-earned-value-management-system-guidelines)

[Organization 20](#organization)

[Planning and Budgeting 20](#planning-and-budgeting)

[Accounting Considerations 21](#accounting-considerations)

[Analysis and Management Reports 22](#analysis-and-management-reports)

[Revisions and Data Maintenance 22](#revisions-and-data-maintenance)

[PART Iv INTERPRETING THE GUIDELINES
24](#part-iv-interpreting-the-guidelines)

[Organization. 24](#organization.)

[Work Definition (Work Breakdown Structure)**.**
24](#work-definition-work-breakdown-structure.)

[Responsibility Assignment (Organization Breakdown Structure).
25](#responsibility-assignment-organization-breakdown-structure.)

[Planning, Scheduling and Budgeting.
26](#planning-scheduling-and-budgeting.)

[Integrated Program/Project Schedule.
26](#integrated-programproject-schedule.)

[Control Accounts Budgets. 27](#control-accounts-budgets.)

[Level-of-Effort (LOE). 29](#level-of-effort-loe.)

[Management Reserve (MR). 30](#management-reserve-mr.)

[Undistributed Budget (UB). 30](#undistributed-budget-ub.)

[Total Allocated Budget. and the contract budget base
31](#total-allocated-budget.-and-the-contract-budget-base)

[Apportioned Effort. 31](#apportioned-effort.)

[Earning Value. 31](#earning-value.)

[The Performance Measurement Baseline (PMB).
33](#the-performance-measurement-baseline-pmb.)

[Managing Material. 36](#managing-material.)

[Material Item Budgets. 36](#material-item-budgets.)

[Material Items Work Packages. 36](#material-items-work-packages.)

[Material item accounting. 37](#material-item-accounting.)

[Material Variances. 37](#material-variances.)

[Subcontract Management. 38](#subcontract-management.)

[Subcontract Management Organizations.
38](#subcontract-management-organizations.)

[Subcontract Budgets. 38](#subcontract-budgets.)

[Subcontract Work Packages. 39](#subcontract-work-packages.)

[Subcontract Schedules. 39](#subcontract-schedules.)

[Subcontract Actuals Collection and Reporting.
39](#subcontract-actuals-collection-and-reporting.)

[Subcontractor Performance Analysis.
39](#subcontractor-performance-analysis.)

[Subcontract Estimates At Completions.
39](#subcontract-estimates-at-completions.)

[Change orders. 40](#change-orders.)

[Accounting Considerations. 40](#accounting-considerations.)

[Accruals. 40](#accruals.)

[Work Breakdown Structure Summarization.
40](#work-breakdown-structure-summarization.)

[Organization Breakdown Structure Summarization.
41](#organization-breakdown-structure-summarization.)

[Unit Costs. 41](#unit-costs.)

[Actual Costs for Variance Analysis.
41](#actual-costs-for-variance-analysis.)

[Retroactive Changes to Actual Costs.
41](#retroactive-changes-to-actual-costs.)

[Indirect Cost Management. 42](#indirect-cost-management.)

[Cost Accounting Standards Considerations for Earned Value Management.
42](#cost-accounting-standards-considerations-for-earned-value-management.)

[Analysis, Reporting and Management.
43](#analysis-reporting-and-management.)

[Variance Analysis. 43](#variance-analysis.)

[Required Analysis. 44](#required-analysis.)

[Technical Progress. 45](#technical-progress.)

[Summarize Performance Data for Management Evaluation.
45](#summarize-performance-data-for-management-evaluation.)

[Effective Management Action as a Result of Analysis.
45](#effective-management-action-as-a-result-of-analysis.)

[Periodic Estimates At Completion.
45](#periodic-estimates-at-completion.)

[Revisions and Data Maintenance. 46](#revisions-and-data-maintenance.)

[Directed Changes. 46](#directed-changes.)

[Traceability of Changes 47](#traceability-of-changes)

[Rubber Performance Measurement Baselines (Rubber Baseline).
47](#rubber-performance-measurement-baselines-rubber-baseline.)

[Single Point Adjustments. 48](#single-point-adjustments.)

[Control Account Replanning. 50](#control-account-replanning.)

[Production Work Package Replanning.
50](#production-work-package-replanning.)

[APPENDICES 51](#appendices)

[Appendix A Sample Contractor's System Description Document
52](#appendix-a-sample-contractors-system-description-document)

[Appendix B Typical Documentation Used in Evms Certification Reviews
54](#appendix-b-typical-documentation-used-in-evms-certification-reviews)

[Appendix C Compliance Map Template
55](#appendix-c-compliance-map-template)

[Appendix D Draft FAR Clause To Require Implementation of Earned Value
62](#appendix-d-draft-far-clause-to-require-implementation-of-earned-value)

[Appendix E A Contract Performance Report Description
65](#appendix-e-a-contract-performance-report-description)

# PART I EARNED VALUE MANAGEMENT SYSTEM CONCEPTS

The purpose of this Part of the guide is to provide guidance for
understanding earned value management concepts, define objective
criteria for earned value management systems and provide guidance in
interpreting those criteria for use on DOE programs.

## Earned Value Management DefinITIONS

There are three definitional aspects of Earned Value that provide a
context for this guide. Each definition logically follows from and is
dependent on the other.

**Earned Value Management.** Earned Value Management is a methodology
that allows both Government and Contractor Program Managers to have
visibility into cost, schedule, and technical progress on their
contracts to measure and manage performance. ANSI/EIA 748, Earned Value
Management System contains the industry guidelines, which establish the
framework within which an adequate integrated cost, schedule, and
technical performance management system will be effective.

**Earned Value Management System** is the integrated set of processes,
which implements ANSI/EIA 748. In its simplest form, EVMS can be
implemented without any software. Software simply enhances productivity,
allows the implementation of EVM more economically and facilitates
managing complex projects. EVMS is not software.

**Earned Value** is the budgeted value of the work actually
accomplished. When compared to the planned (scheduled) work and to the
actual cost of that work, performance and progress can be determined.

The three terms cannot be used interchangeably. Each has a different
meaning, however, slight. When discussing Earned Value Management, the
guide makes deliberate distinctions and the terms are consistently
employed.

## Fundamental Principles of Earned Value Management

Earned Value Management originated in industry, was adopted and further
developed by the Department of Defense and spread throughout the U.S.
Government, industry and other countries because the management concept
embodied fundamentally sound principles for managing performance of
projects and programs. These principles are:

-   All work is planned to completion

-   The work is broken down into finite product-oriented components that
    can be assigned to a responsible organization

-   The scope, schedule and cost objectives are integrated into a plan
    by which progress can be measured.

-   Actual costs are recorded.

-   Performance is objectively measured

-   Variances and deviations are analyzed, impacts are forecasted and
    estimates at completion are based on the actual performance to date.

-   Changes to the performance measurement baseline are controlled.

-   Earned Value information is employed in the organization's
    management processes.

## Essential Characteristics

The 32 criteria contained in the guidelines do not describe a system;
rather they state the qualities and operational considerations of an
integrated management system without mandating detailed system
characteristics. In designing, implementing and improving the earned
value management system, the objective should be effective management
and control. A system that meets the letter of the criteria but not
their intent will not support management needs. Earned value management
systems that meet the intent of the criteria will feature:

-   Thorough planning;

-   Timely baseline establishment and control;

-   Information broken down by product as well as by organization or
    function;

-   Objective measures of progress and performance against the plan at
    levels where the work is being performed;

-   Consistent reporting to higher management for use in
    decision-making;

-   Analysis of significant variances; and,

-   The implementation of management actions to mitigate risk and manage
    cost and schedule performance.

The standard and its criteria do not address all of an organization's
needs for day-to-day or week-to-week internal control, such as status
reports, reviews, and communications (formal and informal). These also
are characteristics of good management and are equally important. They
should be used in conjunction with Earned Value Management to provide
the insight and information necessary to make informed decisions.

## The Value Of Earned Value Management

While all projects need effective management, projects which are complex
or on the leading edge of technology or have other parameters which make
it difficult and risky must have greater insight, control, and
performance indicators to be successful. An Earned Value Management
System implementing the ANSI/EIA 748 32 EVMS Guidelines provides that
control and insight because it:

-   Relates time-phased budgets to specific tasks to requirements
    contained in a statement of work;

-   Provides accurate, reliable and timely data;

-   Measures project progress and performance;

-   Accurately relates cost, schedule and technical accomplishment;

-   Provides Federal managers with information at a practical level
    because the data originates from the same systems used by the
    contractor to manage the project.

## Risk-Based Application

The application of Earned Value Management must consider the nature and
characteristics of the project. The size, complexity, risks, type of
contract and other characteristics will influence both the management
methods for a project and the systems that support the management. The
requirements for control, insight, management structure, etc. become
critical success factors when one or more significant risks are present.
In considering these factors it does not become a question of how many
or which criteria to apply or whether to employ Earned Value Management
at all. In is in the implementation of the system, which considers all
the criteria, that the level or degree of application is influenced by
the risks.

For instance, criteria 2.3 d) requires the project to record all
indirect costs that will be allocated to the contract. Yet, many
projects are fixed-price contracts where there may be no indirect costs.
When the indirect costs are not identifiable or do not exist, that
criteria would be not applicable in that specific instance. The
criterion does not require you to have indirect costs. It merely
requires you to record indirect costs if they exist. If the costs were
not normally segregated on a particular type of contract, then no
indirect costs would be recorded.

The requirement and necessity to implement Earned Value Management is
principally governed by five factors.

A.  The system or investment has one or more of the following
    characteristics: integration or technical complexity, high risk,
    cost driven, or schedule driven. When the characteristics of the
    project are such that a high degree of control, insight and action
    are necessary to manage the effort, then Earned Value Management is
    warranted. This is especially true when the project is highly
    complex with many components, involving both research and
    development. It is also true when the project is constrained by cost
    or schedule objectives.

B.  The work can be discretely defined in terms of the technical
    components, resources and schedule. Earned Value Management is of
    value to the manager when the work is primarily defined in specific
    terms of cost, schedule and work. Implementing Earned Value
    Management on a project where the work is primarily categorized as
    Level of Effort (LOE), may not be of any significant value for
    managing the project because Earned Value on LOE simply measures the
    passage of time. There is no relationship to the actual performance
    on a project because value is earned as it was planned. That is,
    there is no schedule variance because BCWP is always equal to BCWS
    and is not tied to specific deliverables. However, using LOE when
    the tasks are clearly discrete and measurable is an unacceptable
    practice.

C.  The execution of the project crosses multiple years. One valuable
    function of Earned Value Management is the availability of
    information to determine trends and provide early warning. For short
    duration projects, the time lag in the reconciliation and reporting
    process as well as the time needed to develop a trend could result
    in delays of several months before data is available which would
    inform a manager that there are problems on a project. For a project
    with a duration of approximately one year, a delay in the
    availability of status information could prevent need information
    from reaching management in time to prevent a non-recoverable
    condition. Consequently, unless the project is of longer duration or
    the EVMS is able to provide real time, accurate information EVM may
    not be suitable for such projects. Of course, information is only
    one benefit to employing Earned Value Management. Value is also
    obtained through the implementation of a management system that
    employs proven techniques and processes such as is used in EVM. The
    more institutionalized the system is for the contractor, the easier
    it is to implement for even smaller short duration projects.

D.  When there is a significant investment of funds or effort, there
    must be a mechanism for measuring performance to ensure that
    outcomes, performance, and budget are integrated. Without this
    mechanism, budget is expended without regard to specific events,
    products or other deliverables.

E.  When the breadth of EVM employment encompasses multiple projects
    under the same system. Some companies employ Earned Value Management
    as a standard business practice for all contracts and work. When a
    company has a corporate policy and a common system for managing,
    they often employ EVM on all projects regardless of the size. The
    company is not likely to employ a different management system simply
    because the other factors are not present.

The factors to consider are usually complimentary. That is, there is
seldom only one factor present. When a project has a small budget, it is
likely to not be very complex. Nor is it likely to be accomplished over
multiple years. It is also likely that the project will have few
deliverables or events that would support defining the work more
discretely. Because of these factors, the Department has a threshold for
implementing Earned Value Management on projects where the total cost is
\$20 million or greater.

## the project lifecycle and Earned Value Management implementation

The point in the project or program lifecycle that Earned Value
Management is implemented should not depend on the DOE requirement for
implementation at a specific point. Rather it depends on the ability to
discretely define the work that must be accomplished; a defined
deliverable (data, products, or services) and the need that both the
contractor and the government have for insight into the progress and
performance.

The requirement to have an EVMS in place at the point at which the
project has defined and seeks a decision on the performance baseline was
selected specifically to create a common implementation point for all
projects regardless of type. This was done even though it is recognized
that many projects can and should implement EVMS very early in the
project lifecycle. Selecting the performance baseline point for
implementation creates an unintentional relationship between the
Performance Baseline and the Performance Measurement Baseline.
Establishing a PMB does not depend on establishing a Performance
Baseline. Consequently, for the purposes of timing, there is no absolute
dependency of the PMB on the PB or vice versa.

It cannot be overemphasized that the timing for the implementation of
the EVMS depends on the need for insight and the ability to define the
near term work Many complex projects and programs are spending
considerable funds early in the system concept and definition stage.
This work, although often characterized as research and development, is
often more development than research. The objective of basic research is
the pursuit of knowledge rather than the creation of products. The
objective of applied research is development of viable processes,
solutions, materials and components that are necessary for success of
the project and program. These types of efforts should employ EVMS and
should integrate that effort with the effort on the entire program or
program. In these cases, the organization and the government both must
be diligent in monitoring progress and performance so that the
development work is in sync with the objectives of the program or
project and will result in a technically viable and affordable solution.
Earned Value Management is especially important in these types of
projects because the outcome (or output) in the early phases is
generally technical information. These products are often difficult to
measure when completed as well as when they are in progress.

Yet, even though early implementation is often important, much of the
early R&D and other conceptual work is difficult to define in discrete
terms. Consequently, while it may be very important to implement Earned
Value Management as early as possible, it is often difficult to
implement effectively. Much of this difficulty is caused by the lack of
specific requirements and the tendency to operate in a level-of-effort
mode. However, when a site or company has a site-wide or company-wide
system, early employment for specific projects decreases in difficulty.
Applying a system that has proven to be capable to a new project is the
most effective way of implementing Earned Value Management. Program and
project managers must balance these competing elements to find the
optimum point for implementation. This is generally before establishing
the performance baseline, but following the alternative selection.

At the other end of the spectrum, some projects may involve a relatively
small amount of effort prior to alternative selection and even prior to
establishing the performance baseline. A project to construct an
administrative support building is an example where the work after
selecting the alternative may be limited to preliminary design, which
often would be completed in less than 18 months. While it may be easier
to implement EVMS early, there may not be little benefit to be gained.
In this particular case, a decision should be made to establish EVMS
very early, in anticipation of combined decisions, which would result in
an early Performance Baseline. Again, sound judgments should be made
after careful analysis of the appropriate systems and structure
necessary to effectively manage the project, not because there is
specific requirement for compliance.

## System Design and Development.

The responsibility for developing and applying the specific procedures
for complying with these criteria is vested in the contractor
organization. The proposed earned value management system is subject to
government acceptance, which will include evaluation by a joint
government and organization/contractor team. In cases where the system
does not meet the intent of the criteria, adjustments may necessary to
achieve conformance, and must be made by the organization.

Contractors have flexibility under the criteria to develop a system
optimized for its management needs. This approach allows contractors to
use systems of their choice, provided they meet the criteria. Earned
value management systems may range from documented, fully manual
processes to totally automated (paperless) systems. All are acceptable,
provided the system conforms to the standard. Contractors are encouraged
to establish and maintain innovative, cost effective processes, and to
improve them continuously.

The degree of compliance is not in the number of criteria met, but in
the form and substance of meeting the criteria. In some cases certain
criteria may not be applicable or feasible. For projects where this is
the case, the plan should identify those criteria and discuss the
rationale for not complying with specific criteria. Projects for which
there is a low level of complexity and risk, such as construction of a
building may not require the same level of insight, management and
control associated with a more complex project requiring significant
research, development, and engineering.

When the request for proposal or other form of solicitation specifies
application of the criteria, an element in the evaluation of proposals
should be the prospective contractor's proposed system for planning,
controlling and reporting contract performance. The prospective
contractor should describe the systems to be used in sufficient detail
to permit its evaluation for compliance with the criteria.

If the company proposes to use a system that does not meet the standard
or has not been recognized by a federal agency as compliant with the
standard, the contractor should prepare and submit a comprehensive plan
for conformance with the EVMS criteria. This plan should discuss any
criteria, which may not be applicable.

The plan should---

-   Describe the EVMS the contractor intends to use in performance of
    the contract;

-   Distinguish between the contractors existing management system and
    modifications proposed to meet the criteria;

-   Describe the management system and its application in terms of the
    criteria;

-   Describe the proposed procedure for administration of the criteria
    as applied to subcontractors; and

-   Provide documentation describing the process and results of any
    third-party or self-evaluation of the system's compliance with EVMS
    criteria.

## Corporate Earned Value Management Policy

When a corporation or entity has a contract with the Department and
employs their corporate system that has been formally accepted by
another government agency as compliant with the standard, the DOE will
also recognize the system as compliant. Though the system may be deemed
compliant, it remains the responsibility of the Department to verify and
the company's responsibility to demonstrate that the system is being
implemented and used by management. This verification may be
accomplished in many ways and depends on the company or entity, the
characteristics of the project and the past performance of company in
EVM. While many corporations have a corporate EVM policy the
implementation within all business units is not always complete or often
does not comply with corporate policy. The Department's acceptance of
the system for other projects will be highly dependent upon the entity's
surveillance policy and process. Because management systems are dynamic
due to personnel and other changes, surveillance plays a key role in
ensuring the continued compliance of the system. Without an effective
surveillance policy and process, the Department may not unconditionally
accept the system.

## System Description

There is no specific requirement for an Earned Value Management System
Description. Where a company has documented processes in place and
compliance with the criteria in these processes is clearly identified, a
summarizing document may suffice. The requirement is simply that the
contractor or company must demonstrate compliance. Generally companies
choose to do this in a form that provides a description of the system
and the contractor's comprehensive plan for meeting the criteria in
ANSI/EIA 748-1998. The System Description provides an understanding of
each activity required to meet the EVMS standard and functions as the
coordinating document for the processes involved in the EVMS. It also
serves a purpose of communicating the process within the contractor's
organization.

The document should comprehensively, present the contractor's approach
and internal activities demonstrating that the system meets the criteria
in the standard. The description should include the contractor's plan
for implementation of any activities leading up to an evaluation by the
government. Contractor format is acceptable. Changes as a result of a
review should be incorporated by change page or complete reissue.

Upon award of the task order, contract or other authorizing mechanism,
the earned value management system description will be the basis upon
which the contractor will demonstrate its application in planning and
controlling the work. The government will rely on the contractors'
systems when they have been accepted by another federal agency and will
not impose duplicative planning and control systems. Contractors having
systems that were previously accepted are encouraged to maintain and
improve the essential elements and disciplines of the systems. The
proposed system description should describe the contractor's management
processes as they relate to the criteria. A sample outline is contained
in Appendix A.

Federal managers should recognize that there many ways for the
contractor to effectively manage and often the contractor may determine
that it needs to manage by organization and activity rather than
products. Contractors must recognize that the government has a need for
product-oriented information. Differences arising from these divergent
needs, such as the level of reporting detail required, should be
discussed during negotiations. While the criteria are not subject to
negotiation, many problems concerning timing of Earned Value Management
implementation and related reporting requirements can be mitigated
through effective negotiation.

# PART II DEPARTMENT OF ENERGY EARNED VALUE MANAGEMENT PROGRAM

## REQUIREMENT FOR Earned value management

The Department's policy on Earned Value Management can be found in DOE
Order 413-1, Program and Project Management for the Acquisition of
Capital Assets. The policy states that Earned Value Management is to be
applied to all projects with total project cost of greater than \$20
million. The definition of a capital asset can be found in the Office of
Management and Budget Circular, A-11 Part 7, Planning, Budgeting,
Acquisition and Management of Capital Assets. Include information
technology, structures, environmental remediation, land, equipment and
systems, with a useful life of two years or more.

In implementing Earned Value Management, the Department does not make a
distinction by the type of contract, rather by the need for insight into
progress and performance. The need for government insight is the
greatest when the risks, costs, and complexity are high and the
implementation threshold was influenced by those factors.

## SYSTEM CERTIFICATION

The Department is required to verify that their suppliers have
implemented EVMS as required by OMB A-11 and the FAR. This verification
consists of a system capability analysis, which verifies that the system
complies with the standard and a review of a project or projects that
verifies that the system is being used on projects. Upon completion of
the review and correction of non-compliant areas, the Department will
certify that the contractor is in compliance with the standard. The
Defense Contract Management Agency (DCMA) under a memorandum of
agreement with DOE leads the certification process. The review process
is discussed in detail later in this guide.

## CERTIFICATION THrESHOLD 

The Department recognizes that projects with a cost near the lower end
of the threshold (\$20M) are likely to be completed much sooner than
much larger projects. As a result, the benefit of reviewing compliance
with the standard may not justify the cost of the effort unless there
are some overriding considerations. Consequently, the Department will
assess the maturity of the contractor's EVMS and determine whether there
is a cause for review. If no cause exists, the Department intends to not
require demonstration of compliance by the contractor. In the absence of
a review, a certification by the Department cannot be provided.

## Corporate Earned Value Management Policy

When a corporation or entity has a contract with the Department and
employs their corporate system that has been formally accepted by
another government agency as compliant with the standard, the DOE will
also recognize the system as compliant. Though the system may be deemed
compliant, it remains the responsibility of the Department to verify and
the company's responsibility to demonstrate that the system is being
used. This verification and demonstration may be accomplished in many
ways and depends on the company or entity, the characteristics of the
project and the past performance of company in EVM. While many
corporations have a corporate EVM policy the implementation within all
business units is not always complete or often does not comply with
corporate policy. The Department's acceptance of the system for other
projects will be highly dependent upon the entity's surveillance policy
and process. Because management systems are dynamic due to personnel and
other changes, surveillance plays a key role in ensuring the continued
compliance of the system. Without an effective surveillance policy and
process, the Department may not unconditionally accept the system.

## CORPORATE PARTNERSHIPS AND EVMS CERTIFICATION

When a corporate entity enters into a partnership with another
organization to provide services to DOE, it is the partnership that must
be compliant with the standard rather than each corporate entity.
However, when the partnership chooses to employ one of the corporate
partners EVMS and implements the system, the Department is prepared to
accept the partnerships statement that the system they are or intend to
use is compliant when the corporate system has previously been determine
to be compliant. For example, organizations A and B enter into a limited
liability arrangement (LLC) and have decided to implement the
organization B's EVMS. If B's EVMS was previously certified, the
Department will accept the system as compliant and it remains only for
the LLC to demonstrate that it is using the corporate system.

## contractor SELF-ASSESSMENTS

Regardless of the efficiency of the process, for non-major system
projects below \$50 Million the time and effort required to plan and
conduct compliance reviews may be greater than the benefit gained. The
government's interests are better served when it is focused on high
risk, complex and expensive projects and smaller projects. Smaller
projects usually have lower risk and many can be accomplished in short
span of time. When some or all of these conditions are present,
self-assessments with government oversight are preferred as the means to
gain confidence in the contractor's EVMS implementation. The form of
self-assessment employed by the contractor should be tailored to the
type of project, the risks, and the organizational EVM maturity. When
the contractor's organizational EVM maturity is high, the contractor may
elect to perform a self-assessment using its own internal resources.
When their EVM maturity is low, the contractor should consider external
resources that have the expertise to assess the system and its use by
the contractor. Whether outside or in-house resources are employed for
such a purpose, the contractor should ensure that the assessment team is
free to objectively assess the contractor's system to eliminate the
possibility of bias in the assessment process. Self-assessments have
credibility only when it is evident that the team was unconstrained in
both their approach and their conclusions.

In performing a self-assessment, there is no specific template, process
or structure. The contractor is free to design a process that supports
the primary objective of obtaining confidence in their EVMS using a
credible system. While EVMS standard and its criteria is the foundation
for the system, the basis for a self-assessment is the [NDIA ANSI 748
Intent
Guide](http://www.ndia.org/Content/ContentGroups/Divisions1/Procurement/PDFs10/ANSI_EIA_748_IntentGuide.pdf.pdf),
which should be employed by both the contractor in implementing an EVMS
and the review in assessing that implementation.

Even though the government may have had some oversight role, the EVMS
may not be recognized by the government as a certified system because
the review was not accomplished by a government process which is
consistent and repeatable. The government may recognize and have some
confidence in the contractor's EVMS. However, this recognition will not
automatically extend to other projects and efforts by the contractor.
Only the formal certification process will result in a formal government
acceptance and certification of a contractor's EVMS.

## Compliance Review process

The DOE will conduct EVMS compliance reviews on programs and projects
when the contractor does not already have a system in place and being
used that has been previously accepted by a Federal agency. The reviews
are joint reviews and include the contractor when the contractor desires
to participate. Compliance reviews will assess the management systems
integration and its application. The compliance review does not
determine the adequacy of the CWBS and its relationship to the
requirements. Rather it assesses the capability of the management system
and use of that system by the contractor.

### INTEGRATED PROJECT TEAM

The IPT for a review will typically be comprised of DCMA, who leads the
team, the Contractor, OECM, the DOE program office, DOE project office.
The contractor team members should not be members from the specific
programs or projects involved in the review. The contractor's team
members may come from another location, division, or business unit. The
level of experience of all the team members must be commensurate with
the need. For some projects or programs, the complexity of the effort or
it's size will require not only a larger team, but also a team that has
greater depth in EVMS than other teams on a project that has little
complexity or cost. Each team is selected specifically for each review
with consideration of these factors. The selection also considers the
level to which each criterion must be reviewed or is applicable. For
example, when the contractor complies with the Cost Accounting Standards
and the disclosure requirements, a team member who is familiar both with
the CAS and the contractor's disclosure statement as well as the
contractors accounting system may be necessary. Since the contractor
complies with the CAS a review in depth of this area may not be as
necessary as it would be for other criteria.

### Review Process.

The detailed process used to conduct a compliance review will vary by
the scope of project(s), the scope of the review, the team, the location
and other factors. While there is a common framework, each review is
planned specifically for that event. The process may tailored, however,
the conduct of the review is consistent and repeatable. The process
follows.

1.  The necessity for a review is identified by direction, request or
    other means.

2.  An initial planning session is conduct at the performing location.
    The purpose of the planning session is to identify the DOE, DCMA,
    and contractor organizations; understand the project, program or
    area of interest; team members/participants; and develop a planning
    schedule for completing the review.

3.  The contractor will typically prepare a dollarized responsibility
    assignment matrix (RAM), the system description (or equivalent
    documentation), project(s) description and compliance map
    (Appendices A, B and C). These items are generally submitted during
    the planning meeting for the review. This initial set of products
    facilitates the review planning.

4.  DCMA determines (in conjunction with the contractor and the team,
    the documentation necessary to conduct the review. The contractor
    delivers the documentation to DCMA who then provides the
    documentation to the team for review.

5.  The team is finalized and allocated to one of the five areas of the
    standard by DCMA. The team, led by DCMA, will be composed of DCMA,
    DOE, contractor personnel (if desired by the contractor), and other
    Federal Government personnel as necessary. Team members from the
    Government or contractor performing organizations should be avoided
    not only to ensure independence but because the contractor personnel
    are the operators and users of the system under review.

6.  The team reviews the documents to gain an understanding of the
    program or project, the methodologies and processes which comprise
    the contractors EVMS and to determine logical areas of examination.
    These areas are identified to the contractor and related
    documentation is requested (see Appendix B)

7.  The team is trained by DCMA to conduct the review. Training is
    conducted prior to every review. Training provides the means to
    build a team and to understand the scope of the review as well as
    reviewing the standard and its application.

8.  The review is conducted at the performing location and is structured
    as a series of interviews followed by team discussion and
    resolution. The team is broken into sub teams and assigned specific
    areas for which to interview Control Account Managers, Project
    Managers and other contractor project personnel. The contractor's
    work does not stop during the review as it is conducted on a
    non-interference basis. Interviews are conducted with individuals
    (and sometimes with one or two other individuals simultaneously).
    Each sub-team may be conducting an interview at the same time as the
    other sub-teams. At the end of each day, the entire team meets
    together to share observations and conclusions.

9.  During the review Corrective Action Requests (CARs) and Continuous
    Improvement Opportunities (CIOs) are generated. A CAR is used when
    the team has determined that the system does not compliance with a
    specific criterion in the standard. CIOs are employed when the team
    identifies that a specific practice could be improved to be more
    effective. CARs are further categorized as major and minor.

    a.  Major Corrective Action Requests are CARs, which are identified
        as systemic non-compliances, or has major impact upon the
        baseline, the data or other aspects of the project.

    b.  Minor Corrective Action Requests are CARs, which are identified
        as non-systemic and of little impact to the project.

10. The results of the review are presented to the contractor. The
    results will include the CARs and CIOs identified by the team. The
    contractor must respond to DCMA with a corrective action plan for
    each CAR. The contractor may choose to respond to CIOs as desired.
    DCMA reviews and accepts the corrective action plan. The contractor
    takes action as identified in the corrective action plan and the
    corrective actions are verified by DCMA.

11. DCMA prepares the final report recommends acceptance of the
    contractor's system to the DOE.

12. DOE Chief Acquisition Officer issues a letter to the contractor
    notifying them that the Department has accepted the system.

13. The contractor follows up the review with a surveillance plan to
    maintain the system, conducts and annual assessment of the system
    and issues a status report to the DOE regarding the continued
    maintenance of the system.

### Prior Acceptance 

When a system has been previously accepted, the Department will assess
the surveillance program being used to maintain the system. Reviewing a
surveillance system does not imply a separate review that replaces a
compliance review. A surveillance system assessment may involve
reviewing the appropriation process or system description, the
surveillance plan and the results of the contractor's periodic
assessments. When it is evident that the contractor has maintained the
EVMS, the Department will accept the system.

## System Surveillance.

Having achieved compliance, the contractor is responsible for
implementing and maintaining a surveillance program to ensure the
continued compliance of the system. While achieving certification is a
significant event, maintaining the system is equally critical. For
without a process in place to achieve surveillance, the EVMS will
readily deteriorate. The surveillance process is also critical for
extending EVMS across multiple project types and programs.

The DOE will assess the results of the surveillance program to determine
if additional action is necessary once certification has been achieved.
The DOE accepts the standard industry surveillance approach as
identified by the [*National Defense Industrial Association, Program
Management Systems Subcommittee, Surveillance
Guide*](http://www.ndia.org/Content/ContentGroups/Divisions1/Procurement/PDFs10/NDIA_Surveillance_Guide.pdf)
as the preferred resource for developing and implement a surveillance
program.

If it becomes evident that the contractor's system has not been
maintained, the DOE will require demonstration that the system continues
to remain compliant or that the contractor has brought the system back
in to compliance. Some indications of a system that has become
non-compliant include excessive closing of variances (point adjustments)
or a lengthy period of no variances; excluding parts of the project from
the WBS and EVMS and excessive replanning of work packages. There are
other indications as well that Federal contract managers/administrators
should be watchful for. These indicators are often present when the
system is in place, but not being used.

Even though surveillance follows a system capability review,
surveillance must considered during the process development and the plan
for surveillance immediately following certification.

#   {#section .unnumbered}

# PART III EARNED VALUE MANAGEMENT SYSTEM GUIDELINES

The guidelines are grouped into five areas. Some could easily fit under
more than a single area. However, each criterion is listed only in the
group where it is primarily applicable. This organization is merely a
vehicle used to facilitate understanding. Organization focuses on the
performing organization and integration of the Work Breakdown Structure
and the Organization Breakdown Structure of the project or program.
Planning and Budgeting is concerned about the definition, resources and
scheduling of the work. Accounting Considerations concentrates on budget
and funds management as well the actual costs. Analysis and Management
Reports establishes the processes for performance and status
information, analysis and actions to be taken. Revisions and Data
Maintenance organizes the guidelines, which pertain to controlling
change in the baseline and budgets.

## Organization

-   Define the authorized work elements for the program. A work
    breakdown structure (WBS), tailored for effective internal
    management control, is commonly used in this process.

-   Identify the program organizational structure including the major
    subcontractors responsible for accomplishing the authorized work,
    and define the organizational elements in which work will be planned
    and controlled.

-   Provide for the integration of the company's planning, scheduling,
    budgeting, work authorization and cost accumulation processes with
    each other, and as appropriate, the program work breakdown structure
    and the program organizational structure.

-   Identify the company organization or function responsible for
    controlling overhead (indirect costs).

-   Provide for integration of the program work breakdown structure and
    the program organizational structure in a manner that permits cost
    and schedule performance measurement by elements of either or both
    structures as needed.

## Planning and Budgeting

-   Schedule the authorized work in a manner, which describes the
    sequence of work and identifies significant task interdependencies
    required to meet the requirements of the program.

-   Identify physical products, milestones, technical performance goals,
    or other indicators that will be used to measure progress.

-   Establish and maintain a time-phased budget baseline, at the control
    account level, against which program performance can be measured.
    Budget for far-term efforts may be held in higher level accounts
    until an appropriate time for allocation at the control account
    level. Initial budgets established for performance measurement will
    be based on either internal management goals or the external
    customer negotiated target cost including estimates for authorized
    but undefinitized work. On government contracts, if an over target
    baseline is used for performance measurement reporting purposes,
    prior notification must be provided to the customer.

-   Establish budgets for authorized work with identification of
    significant cost elements (labor, material, etc.) as needed for
    internal management and for control of subcontractors.

-   To the extent it is practical to identify the authorized work in
    discrete work packages, establish budgets for this work in terms of
    dollars, hours, or other measurable units. Where the entire control
    account is not subdivided into work packages, identify the far term
    effort in larger planning packages for budget and scheduling
    purposes.

-   Provide that the sum of all work package budgets plus planning
    package budgets within a control account equals the control account
    budget.

-   Identify and control level of effort activity by time-phased budgets
    established for this purpose. Only that effort which is unmeasurable
    or for which measurement is impractical may be classified as level
    of effort.

-   Establish overhead budgets for each significant organizational
    component of the company for expenses that will become indirect
    costs. Reflect in the program budgets, at the appropriate level, the
    amounts in overhead pools that are planned to be allocated to the
    program as indirect costs.

-   Identify management reserves and undistributed budget.

-   Provide that the program target cost goal is reconciled with the sum
    of all internal program budgets and management reserves.

## Accounting Considerations

-   Record direct costs in a manner consistent with the budgets in a
    formal system controlled by the general books of account.

-   When a work breakdown structure is used, summarize direct costs from
    control accounts into the work breakdown structure without
    allocation of a single control account to two or more work breakdown
    structure elements.

-   Summarize direct costs from the control accounts into the
    contractor's organizational elements without allocation of a single
    control account to two or more organizational elements.

-   Record all indirect costs that will be allocated to the contract.

-   Identify unit costs, equivalent units costs, or lot costs when
    needed.

-   For EVMS, the material accounting system will provide for:

    -   Accurate cost accumulation and assignment of costs to control
        accounts in a manner consistent with the budgets using
        recognized, acceptable, costing techniques.

    -   Cost performance measurement at the point in time most suitable
        for the category of material involved, but no earlier than the
        time of progress payments or actual receipt of material.

    -   Full accountability of all material purchased for the program
        including the residual inventory

## Analysis and Management Reports

-   At least on a monthly basis, generate the following information at
    the control account and other levels as necessary for management
    control using actual cost data from, or reconcilable with, the
    accounting system:

    -   Comparison of the amount of planned budget and the amount of
        budget earned for work accomplished. This comparison provides
        the schedule variance.

    -   Comparison of the amount of the budget earned the actual
        (applied where appropriate) direct costs for the same work. This
        comparison provides the cost variance.

-   Identify, at least monthly, the significant differences between both
    planned and actual schedule performance and planned and actual cost
    performance, and provide the reasons for the variances in the detail
    needed by program management.

-   Identify budgeted and applied (or actual) indirect costs at the
    level and frequency needed by management for effective control,
    along with the reasons for any significant variances.

-   Summarize the data elements and associated variances through the
    program organization and/or work breakdown structure to support
    management needs and any customer reporting specified in the
    contract.

-   Implement managerial actions taken as the result of earned value
    information.

-   Develop revised estimates of cost at completion based on performance
    to date, commitment values for material, and estimates of future
    conditions. Compare this information with the performance
    measurement baseline to identify variances at completion important
    to company management and any applicable customer reporting
    requirements including statements of funding requirements.

## Revisions and Data Maintenance

-   Incorporate authorized changes in a timely manner, recording the
    effects of such changes in budgets and schedules. In the directed
    effort prior to negotiation of a change, base such revisions on the
    amount estimated and budgeted to the program organizations.

-   Reconcile current budgets to prior budgets in terms of changes to
    the authorized work and internal replanning in the detail needed by
    management for effective control.

-   Control retroactive changes to records pertaining to work performed
    that would change previously reported amounts for actual costs,
    earned value, or budgets. Adjustments should be made only for
    correction of errors, routine accounting adjustments, effects of
    customer or management directed changes, or to improve the baseline
    integrity and accuracy of performance measurement data.

-   Prevent revisions to the program budget except for authorized
    changes.

-   Document changes to the performance measurement baseline.

# PART Iv INTERPRETING THE GUIDELINES

The guidelines provided in the previous section established the basic
characteristics of a good Earned Value Management System. This section
is topical and discusses the application of the guidelines. The
organization of this section loosely follows the organization of the
guidelines.

## Organization. 

The organizing process is concerned principally with: ensuring that each
part of the earned value management system is properly established;
defining the work required to be performed; assigning the tasks to
organizations responsible for performing the work, including major
subcontractors; facilitating the collection and development of
information for management purposes; and identifying organizational
resources that facilitate the preparation of accurate and timely
estimates of project cost and schedule completion.

### Work Definition (Work Breakdown Structure)**.**

The statement of work, work authorization, or other form of direction to
the contractor should reflect all the work to be performed. A critical
component in defining the work is to establish organizational
responsibility for segments of the work and to define in-house effort
versus subcontracted effort. The Work Breakdown Structure (WBS) is the
most common manner in which the work is described. The WBS is a
product-oriented decomposition of the end item, product, or outcome.
This decomposition process identifies key components, sub-systems,
assemblies or other complete element of the entire product and continues
until there are no more components that can be identified.

There is a predisposition to create a WBS by describing the activities
necessary to produce the product, such as, *design, engineer, procure,
construct, and develop* or to segment the work by source or type (color)
of funds. While the required effort and resources are important, they
are not a representation of the product and consequently do not belong
in the WBS. What is often defined as the WBS is actually the
Organizational Breakdown Structure (OBS) that is used to assign
responsibility for each element of the WBS. This error produces an
inadequate and non-useable definition of the work. When the prime item
(level 1) is removed or hidden, the viewer should be able to still
identify the end product. This test generally applies to every level of
the WBS. Work Breakdown Structures must always describe deliverables,
which consist of data, products, and services.

The Work Breakdown Structure established for the project should not be
extended to unreasonably low levels, because it may affect management
flexibility. Organizations should be careful that they are describing
the product, end item or outcome in the work breakdown structure and not
the organizations and activities that are assigned to the work package.
Generally, the Work Breakdown Structure has been extended too far when
the definition of an element describes activities or piece parts and
material rather than a component.

When the EVMS requirement is applied to subcontracted efforts the
sub-contract WBS decomposition level is dependent on the needs of
program and project management. The key discriminator for sub-contracts
is the level of insight into progress and performance at the subcontract
level that is necessary. In some subcontracts a single WBS element may
be adequate.

### Responsibility Assignment (Organization Breakdown Structure).

The Organizational Breakdown Structure (OBS) reflects the way the
project is functionally organized. To assign work responsibility to
appropriate organizational elements, any WBS and organizational
structure must be integrated; that is, organizational responsibility
must be established for identified units of work. The assignment of
lower level work segments to responsible lower level managers provides a
key control point for management purposes and cost collection. This is
called the control account (CA). In Figure 1 the project can be defined
both by it is product components (the WBS) and the organizations
responsible for each component (OBS).

Figure 1 -- Relationship between WBS, OBS and Control Accounts

When subcontracts are employed, the subcontractor should be identified
and correlated with the WBS element and the organization responsible for
that element. If the subcontractor functions as a member of the
Integrated Project Team, they must be shown on the OBS.

OBSs should not be used as a substitute for an effective Work Breakdown
Structure. The WBS provides visibility for management on progress and
performance with a focus on the product. The OBS provides a horizontal
view of progress and performance at the organizational level. Both views
are essential for effective management.

#### Control Accounts**.**

The control account is the primary point for planning and control. All
elements of the system come together at this point including budgets,
schedules, work assignments, cost collection, progress assessment,
problem identification, and corrective actions. The control account
levels should be determined by the scope of the tasks. The proper levels
should not simply be an arbitrary determination or the result of a
standard that is applied organization-wide. Control accounts are usually
located at levels consistent with the project's management process and
the necessity for control and insight. Consequently, the control account
in an earned value management system is the lowest level in the
structure at which the comparison of actual costs to planned budgets and
earned value are required. The cost collection point must be at a level
where cost elements and factors contributing to variances can be
identified. Control accounts at too high of a level will not provide
adequate insight into the actual work being performed to be able to
analyze problems and take corrective action. The responsibility and
authority for corrective action should exist at the control account
level. Control account managers must have the ability to make decisions
if they are expected to manage as this level.

## Planning, Scheduling and Budgeting.

Planning, scheduling and budgeting involves organizing the work packages
based on dependencies, interdependencies, constraints and other factors
into a time-phased sequence that will fit within the boundaries
established by mission dates and available budget.

### Integrated Program/Project Schedule.

Effective management requires the integration of the technical,
schedule, and cost elements of the program. Schedules that result from
this integration show the planned time required to accomplish the
technical scope of the contract. The planned time is influenced by the
available resources necessary to execute the work scope, dependencies
upon other work packages, and other factors. Not all work can be
accomplished simultaneously and not all work is being accomplished
serially. Concurrency is inherent in all projects. However, resources
are finite and the same resource cannot execute multiple work packages
simultaneously. Consequently, the schedule will be adjusted by leveling
the resources to conform to the available budget, resource constraints
and capacity of the work site among other factors. Schedules that
presume the unrealistic availability of budget are not executable.

The scheduling system should cover all specified work and incorporate
milestones that are meaningful in terms of the technical requirements of
the contract. The schedule must also be derived from the plan and
contain forecasts of expected future progress. Such schedules should
identify key milestones and activities; incorporate the effects of
resources constraints and interrelationships between work packages. A
key feature of the scheduling system is that it establishes and
maintains the relationship between technical achievement and progress.

The scheduling system should contain a master schedule and related
subordinate schedules that provide a logical sequence from the detail to
the summary level related to and constrained by external milestones
assigned by appropriate authority. Intermediate schedules may be
established if needed to provide a logical sequence from the detail
level schedules to the master program schedule. The scheduling system
must also provide for the identification of interdependencies between
organizations and WBS elements at the level appropriate for efficient
program management. Control Account Managers (CAMs) must be aware of the
inputs and deliverables their work packages need to be executed. These
interdependencies must also be very visible to the program or project
manager, who is the primary resolver of schedule, resources or scope
conflicts. An effective scheduling system will depict the plan to
accomplish the technical scope and the actual technical progress.

The schedule system provides information on progress against the plan,
along with estimates of the time required to complete the remaining
technical scope. The schedule baseline, progress, and estimated time to
complete all should readily integrated with the financial view (budgets,
earned value, and estimated cost to complete) of the technical scope.
The ability to obtain financial data coincident with the schedule data
from a specific period directly affects the currency of the information
and the quality and timeliness of analysis and assessments.
Consequently, scheduling should interface with other elements of the
EVMS to the extent necessary for measurement and evaluation of project
status. The scheduling system should provide current status and
forecasts of completion dates for all authorized work. The summary and
detailed schedules should enable a comparison of planned and actual
status of project accomplishment based on milestones or other indicators
used for control purposes.

### Control Accounts Budgets. 

Since control account budgets and schedules also establish the
constraints required for Performance Measurement Baseline (PMB) control,
care should be exercised in the establishing control account budgets to
ensure the scope and effort necessary to achieve that scope are
correlated and prevent front-loading of the baseline. When establishing
control accounts, factors to consider should include:

-   The natural flow of work and specific management control point;

-   Significant contract events that will be supported by completion of
    the effort within the control account;

-   The need to ensure objective measurement of progress by establishing
    shorter assessment periods

-   The rate structures to be applied to the control account resources.

Each control account must contain resources necessary to complete the
assigned effort and budgets reflecting these resources. Budgets
established at the control account level must be planned by the cost
element not the type or color of funds or other factors.

-   Budgets may be stated either in dollars, hours, or other measurable
    units. Dollars are most often used because it provides a common unit
    of measurement between the system components (actual cost, budgets,
    etc)

-   It is necessary to use rates that will provide a valid performance
    measurement baseline. When there are significant changes in the
    anticipated labor, overhead, or other rates, internal replanning of
    remaining portions of the PMB may be necessary. Replanning of prior
    work in this event is not acceptable because prior work that has not
    been completed cannot be replanned.

-   In general, the budget process should provide for the following:

-   Direct budgets allocated to organizations performing the planned
    work;

-   Indirect budgets allocated to specific organizations having
    responsibility for controlling indirect costs; and

-   Identification of any management reserves or undistributed budget.

Effort contained within a control account is distributed into either
work packages or planning packages. "Work package" is the term used to
identify discrete tasks that have definable results. It may also be used
for defined components of level-of-effort or apportioned effort work.
Work packages should be natural subdivisions of the activities and
effort required to execute the scope that is contained in the work
breakdown structure. Each work package should result in a definable
product or event. Work package descriptions must clearly distinguish one
work package effort from another. A key characteristic of a good work
package is the inclusion of frequent, objective indicators of progress.
When work packages are relatively short, little or no assessment of
work-in-process is required. As work package length increases, progress
measurement becomes more subjective, unless work packages are subdivided
by objective indicators, such as discrete milestones with preassigned
budget values or completion percentages.

![](media/image2.png){width="5.458333333333333in"
height="3.8854166666666665in"}Work for a given control account which
cannot be planned in detail at the outset, should be divided into larger
segments and placed into planning packages within the control account.
Planning packages are aggregates of future tasks and budgets, beyond the
detail plan, which will be divided into work packages at the earliest
practical point in time. Time-phased budgets assigned to planning
packages must be supported by a specified scope of work and this
relationship must be maintained when detailed planning of the effort
occurs.

All control accounts must contain a budget, schedule, and scope of work
and should realistically represent the manner in which work is assigned
and budgeted to the organizational units. In all cases, the value of the
budget assigned to individual work packages and planning packages within
the Control Account must sum to the total value authorized for that
Control Account.

#### Work Packages. 

A work package is a task or job assignment. The work package describes
the work and identifies the resources managed by a specific performing
organization and serves as a vehicle for monitoring and reporting work
progress. Work packages are the natural subdivisions of control accounts
and constitute the basic building blocks used in planning, controlling,
and measuring project performance. Effective control and completion of
the work requires that each work package be assigned to only one
performing organization. Establishing and maintaining control at the
control account level permits flexibility in the management of resources
at the lower detail levels through work package replanning. Work
packages are characterized by the identification of all resources
necessary to execute the work package. Work packages must be realistic.
Resources and work must be fully defined for the package to be
considered a work package. The only scope that should be "earning value"
is scope in work packages. Excessive replanning of work packages should
lead to questions about the level of detail and realism in the work
packages. Work packages should not be artificially constrained. That is,
work packages must be governed by the work necessary to produce a
complete unit or event that has value. Sub-dividing software
development, for example, should result in work packages that contain
complete and useful modules.

#### Planning Packages**.** 

When effort at the control account level cannot be adequately defined
into work packages, the contractor may retain budget and scope in a
planning package. This package must be assigned to an organization for
control and for detail planning into work packages at the earliest
possible time. An excessive number of planning packages compared to work
packages are indicative of an immature project or program. While a
"rolling wave" concept is a tempting methodology it contains significant
risk of both cost and schedule overruns. The progress in identifying
project scope at the work package level is another effective means of
determining the readiness of the project to proceed. Planning packages
do not earn value because the work has not been defined or scheduled and
consequently there is no budgeted cost of the work scheduled

#### Summary Level Planning Packages**.** 

When it is clearly impractical to plan authorized work in control
accounts, budget and work should be identified to a higher Work
Breakdown Structure element and organizational level for subdivision
into control accounts at the earliest opportunity. The budget for this
effort must be identified specifically to the work for which it is
intended, be time-phased, have its value periodically assessed, and have
controls established to ensure this budget is not used in performance of
other work. Eventually, all the work will be planned by specific
organizational elements to the control account level. Planning horizons
can be used to establish reasonable control account level assignments of
work and budget.

Summary level planning is not a substitute for early and definitive
detail planning. Programs and projects that span many years, such as
environmental remediation projects, may only have the near-term work
definitized. The long-term budget may be held in a summary account until
the program is able to define the work to the work package and planning
package level. This has been referred to as the rolling wave planning
and while it remains a legitimate tool, any project with an excessive
number of planning packages compared with work packages is an immature
project, which may not have had an adequate planning window in which to
complete its definition. In these situations, the government and
contractor must be cognizant of the risks that is an inherent component
of insufficient planning and must assess the readiness of the project
for the next phase.

#### Work Authorization**.** 

Before work can proceed, scope and budget must be allocated to the
responsible organizations. The contractor program or project manager
program manager is given authorization to proceed with contract work.
Budgets and work scope are then divided among the organizational
elements. The contractor's internal work authorization processes must be
in place and functioning. No work is authorized without allocated budget
and no work is permitted to exceed the allocated budget scope
authorized. Work on a project that is outside of the contractor's work
authorization process is an early indication of the lack of effective
management and control systems.

#### Resource Control**.** 

Organizations engaged in the performance of the project effort
(execution of work packages) must periodically perform a comprehensive
estimate of costs for the effort remaining. As the project progresses,
these estimates have greater importance and must have greater fidelity.
Project managers must periodically assess the sufficiency of resources
versus the amount of work remaining. Responsibility for resource
assignment to support program objectives must be clearly identified.
Valid schedules are not possible without the allocation of resources to
work packages and the reconciliation of the resource obligation versus
the resource assigned.

### Level-of-Effort (LOE).

For discrete work packages, accomplishment can be measured based on the
completed pieces of work but LOE is work that cannot be measured or
otherwise quantified. As a result, LOE is "measured"' through the
passage of time. LOE activity should be separately identified from
discrete work packages to avoid distorting that which is measurable.
Because LOE has no relationship to physical progress there is no
information content such as trends or other predictive aids to alert
managers. Nor does it support forecasting of costs and EACs. At its
best, LOE is has no impact. At its worse, LOE can offset negative
performance thereby masking the true project performance. Large values
of LOE in a project are another indicator that the planning is
inadequate and the work packages are not well definitized. Some general
guidelines for LOE are:

-   The amount of LOE activity will vary but should be minimized to the
    greatest practical extent.

-   LOE budgets should be separately substantiated and planned as direct
    labor, material/subcontract, or other direct costs. LOE activity
    should be budgeted on a time-phased basis for control and reporting
    purposes.

-   LOE should not be mixed in the same control account if possible.
    Additionally, you should consider isolating LOE into a separate WBS
    as you would with project management.

-   When LOE and discrete effort are mixed within the same control
    account, the control account manager must ensure visibility into the
    performance of the discrete effort.

-   LOE should be limited to cross cutting and support functions that do
    not directly affect project performance.

-   LOE that is assigned to a specific work package should be analyzed
    to determine if it is actually LOE. When a work package has a
    specific and discrete output, it is not LOE.

### Management Reserve (MR).

1.  In most projects, particularly developmental activities, there may
    be considerable uncertainty in the schedule, cost estimate,
    technical scope or other aspects of the project or program. The use
    of management reserve provides the contractor project manager with
    the flexibility to adjust for these uncertainties. Identification
    and control of management reserve is necessary as it would be with
    all assigned budget. Management reserve budget and its use should
    always be accounted for at the total project level. Normally, it is
    retained and controlled at this level. In some more complex
    projects, contractor manager may choose to allocate management
    reserve to specific subsystem managers to increase their
    flexibility. Regardless of the chosen method, management reserve is
    maintained separately from undistributed budget. There is no
    recognition, employment or understanding of the term "negative
    management reserve."

-   Management reserve is not contingency funds, which can or should be
    negotiated.

-   It is not used to absorb the cost of contract changes.

-   The contractor must not be required to use existing management
    reserve to provide budget for authorized, but undefinitized, work or
    other modifications.

-   Management reserve is not an element of expense in a cost estimate
    and is not estimated as it if it were a sub-system, component, or
    specific scope.

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-   Management reserve is derived by establishing cost targets for
    control accounts that are lower than the original estimate. That is,
    management reserve is normally arrived at by establishing realistic
    goals to accomplish work under cost.

### Undistributed Budget (UB).

Budgets applicable to contract effort, which cannot be specifically
identified to the WBS or organizational elements in a timely manner, are
referred to as UB. The establishment of UB may be necessary when project
changes are authorized too late in an accounting month to be distributed
in that month. The budget should be distributed to appropriate WBS or
organizational elements and control accounts as quickly as possible. For
authorized work that has not been negotiated, the project may maintain
budgets in the UB account until negotiations have been concluded,
allocating budget only to that work which will start in the interim.
After negotiations, the remaining budget should be allocated
appropriately. Undistributed Budget is usually distributed within two
accounting periods. Undistributed Budget is not required. It is simply a
type of budget with certain attributes.

### Total Allocated Budget. and the contract budget base

The total allocated budget (TAB) must always represent the contract
budget base (CBB) (or an Over Target Baseline (OTB, if one has been
implemented). The total allocated budget does not necessarily equal the
total project cost. The total allocated budget is simply the budget
allocated to the contract because there often is budget allocated to
non-contract requirements such as payment in lieu of taxes.

The total allocated budget should equal the target cost for the contract
minus profit or fee. Contained within the total allocated budget is all
scope authorized under the contract included negotiated and also
unpriced efforts. The contract budget base (CBB) does not include profit
or fees because progress and performance is never measured based on the
amount of profit or fee earned because profit or fee are not used to
perform work scope.

Unpriced efforts are not part of the contract budget base however,
because they are neither management reserve nor part of the performance
measurement baseline until they have been priced. Neither are they part
of undistributed budget because of the temporary nature of undistributed
budget (see Undistributed Budgets for further information).

### Apportioned Effort.

Apportioned effort are activities that cannot be discretely defined or
measured and are dependent on the progress and performance of other work
packages. Apportioned effort is not readily organized into work packages
because there is no specific outcome or output directly through those
activities. The factors established for the application of apportioned
effort should be documented and applied in a formal, consistent manner.
Apportioned effort should be limited to that which is genuinely related
to discrete effort but cannot be discretely defined or measured. An
example of apportioned effort is required quality assurance inspections
after some portion of work is completed. These efforts earn value as the
tasks to which they are slave earn value. That is, if the production
task had a schedule variance, the apportioned effort activity also has a
schedule variance. While there is a schedule correspondence between the
apportioned effort and the discrete effort, this correspondence does not
extend to the cost. The apportioned effort cost corresponds only to the
cost of the resources for the apportioned effort.

### Earning Value.

At the heart of the system is the methodology employed for earning
value. Each and every work package must have some defined technique of
earning value in relation to the resources expended. The greatest
difficulty in determining value earned is evaluation of in-process work
that has not been completed within a single accounting period. Using
discrete milestones within work packages will significantly reduce this
subjective analysis. The technique used to earned value will largely
depend on the work package content, size, and duration. Earning value
means that a work package has earned the budget assigned for that
portion of work that was planned and then accomplished. This
predetermined amount of budget earned, when the corresponding work is
accomplished. Value is earned in one of the following ways:

-   The work package is either complete or uncompleted. This most often
    applies when a commercial end item is being procured that is
    immediately able to be used without assembly, test, modification or
    installation. It also may be applicable when there is no logical
    incremental milestone that can be discretely measured such as when
    the work scope is so small that it either is complete or incomplete
    and there is no value without the work completed.

-   Completion Ratio or Equal divisions (25/75, 40/60, 50/50). When a
    ratio can be identified where there is value in incremental progress
    or where there are logical steps to the work, such as -- design
    (25), engineering (25) fabrication (25), and test (25). The
    technique is often used for nonrecurring work.

-   Milestones. Milestone events earn 100% of their value when the event
    has occurred when there are no incremental milestones that can be
    divided.

-   Weighted Milestones. Values are assigned to milestones as a function
    of the work required to attain that milestone. That is, the weights
    are correlated with the work packages. It is the close connection to
    the work (packages) that makes Weighted Milestones an accurate
    method of measuring progress.

-   Percent Complete. Unless percent complete is calculated then the
    measure itself is subjective and given to significant error. Even a
    calculate percent complete is prone to inaccuracy because the work
    is not averaged over time. For example. When a project consists of
    significant costs for procurement of material, calculating percent
    complete may provide an erroneous measure because the size of
    procurement would slew the measure towards a greater percent
    complete than is actually true. Percent complete can be effectively
    used when there are no spikes in the planned work that would
    inaccurately convey more progress than was actually completed.
    Percent complete requires well-defined work packages. It also
    requires guidance on assessing percent complete in a consistent
    manner.

-   Completed Units. When the work is of longer duration and repetitive
    such as in a production environment, the project is divided in to
    completed units with the planned value that is based on the cost of
    the units. Earned Value is determined by summing the completed
    units. Completed units are an example of an objective measure.

-   Apportioned Effort. As discussed in the standard and elsewhere in
    this guide, apportioned effort is measured by the value earned for
    the work to which it is related. The schedule variances in the
    apportioned work are normally identical to schedule variances in its
    related work. However, the cost variance is not a function of the
    related work. Rather it is governed by the actual cost of the
    apportioned effort that is applied to the work.

-   Level of Effort (LOE). LOE earns value in accordance with the plan
    (BCWS). That is BCWP = BCWS for LOE regardless of the actual work
    accomplished. LOE is employed only when absolutely necessary because
    a task cannot be broken down into discrete elements. This measure of
    value provides no visibility or accountability. LOE also
    de-sensitizes the EV information much the same way that large
    cumulative values will mask significant trends.

No single technique is appropriate for an entire project and most
projects will utilize several of the above techniques for determining
value. The key is to ensure that the techniques employed are meaningful.

Finally, every effort should be made to discretely identify work and to
objectively assign values to that work and portions of the work.
Projects that define the work in general terms primarily by level of
effort will simply be tracking budget execution without an objective
measure of the value obtained for the cost incurred. Not only does this
not comply with the standard, it also prevents visibility into the
progress and performance resulting in a lack of credible information
that can be used to manage progress, take action and make decisions.

In order to perform effective analysis of variances, earned value must
be objectively assessed using the same basis upon which the budget was
planned and actual costs accumulated. In addition, labor, overhead, and
other rates used to calculate earned value must be the same as for the
associated budget.

A direct relationship between the performance standards established for
the effort and the budget for the associated effort must be established.
The contractor must establish a baseline plan for manufacturing or
production work that includes time-phased budgets that are consistent
with the schedules for the performance of the work. The performance
measurement indicators (milestones, earned value standards, scheduled
output etc.) must be clearly identified and directly related to control
accounts. They must be scheduled in a sequence supporting the
achievement of project and contract objectives. These indicators must
clearly represent the accomplishment of an identifiable quantity of work
within the control account and be assigned a value reflecting the
planned cost of that work. These values must summarize to or reconcile
with the total budget for the control account.

### The Performance Measurement Baseline (PMB).

The work package definition, resource allocation (assignment of budgets)
and subsequent schedule result in a time-phased plan for execution. This
time-phased plan is the Performance Measurement Baseline. Budget At
Completion (BAC) and the PMB are often mistakenly thought of as
equivalent. The difference between the BAC and the PMB is that the PMB
is the time-phased plan, while the BAC is the cumulative budget that
results from the plan. That is, the BAC is a single value, while the PMB
is consists of multiple values over time. The PMB can be thought of as
the curve that results from the cumulative values of the planned work
(Budgeted Cost of the Work Scheduled).

#### Establishing the baseline.

The assignment of budgets to scheduled segments of work produces the
Performance Measurement Baseline (PMB), against which actual performance
can be compared. The establishment, maintenance, and use of the PMB are
indispensable to effective performance measurement. The PMB should be in
place as early as possible in a project or program and should be planned
to project completion. In complex programs and projects the PMB will
consist of work packages containing resources, planning packages
containing budget and some summary level planning packages that also
contain budget. This relationship of individual work tasks with the
time-phased resources necessary to accomplish them is established at the
control account level. All control accounts should be planned, at least
at a summary level, to the end of the project or contract. Any control
accounts that cannot be established in the initial planning effort
should have identified the critical events necessary for planning the
work packages within that control account. Planning packages should be
an item of continuing management interest.

When the greater part of the budget is in planning packages or summary
level planning packages because the project completion is so far in the
future, the maturity of the PMB is questionable. It is likely that many
point adjustments will be necessary to as work is planned and replanned
for future periods. The result will be to invalidated PMB and cause the
EV data to become unreliable. The greater the difference between the
original PMB and the current PMB, the less reliable the information. For
this reason, projects that have a long lifecycle must be broken down
into useful segments for which individual PMBs can be established and
controlled. Projects become more likely to be executed within cost and
schedule when they are divided into the executable segments.

#### Composition of the Performance Measurement Baseline.

The PMB can only contain budget that is identified to a work package,
planning package, or undistributed budget. Work packages and planning
packages only contain work that directly affects the product or outcome.
Work packages and planning packages do not contain budget or resources
that are not required to execute a specific WBS element. Project costs
that are included in the total cost, such as profit, fee,
payment-in-lieu of taxes, management reserve, contingency and other
similar items, do not belong in the PMB. As an example, if the total
project budget were included in the PMB, the Earned Value being measured
for progress and performance would include profit. Essentially the
supplier would be earning value and measuring performance partially
based upon how much fee is earned.

The PMB must be valid for the progress and performance measures to be
valid. When the PMB is summed to arrive at a Budget At Completion (BAC)
and the BAC equals the total project cost (TPC) the validity of the PMB
is suspect and should be analyzed to identify and correct the problem.
The most common error affecting the validity of the PMB is the inclusion
of budget that contains no work in the PMB. Management Reserve and
Contingency cannot be in the PMB because there is no defined work
associated with them. When a work package or planning package is defined
that requires resources, the additional budget may be assigned from
Management Reserve or Contingency. In that event, that budget would no
longer be Management Reserve or Contingency. Figure 2 demonstrates the
relationship of the various elements.

####### 

####### Figure 2, Performance Measurement Baseline Relationships

  ----- ---------------------- -------------------------------------------
        Total Project Cost     Sum of all costs for a given project

        Contract Price         Total price for a specific contract

        Contingency            Budget withheld by the government for
                               management control

        Non-contract costs     Project costs outside the scope of the
                               contract

        Profit/Fees            Self explanatory

  TAB   Total Allocated Budget Sum of all contract budgets (includes MR)

  NCC   Negotiated Contract    Contract price minus profit/fee
        Cost                   

  AUW   Authorized Unpriced    Work contractually approved but not yet
        Work                   definitized

  CBB   Contract Budget Base   Sum of NCC and AUW

        Overrun/Underrun       Sum of recognized budgets \<\> the CBB

  OTB   Over Target Baseline   Sum of recognized overrun and CBB

  UTB   Under Target Baseline  Sum of recognized underrun and CBB

  MR    Management Reserve     Budget withheld by contractor for
                               uncertainty

  CA    Control Account        Lowest CWBS element assigned to single
                               manager for planning and control

  WP    Work Package           Near-term, detail-planned activities within
                               a CA

  PP    Planning Package       Far-term CA activities not yet defined into
                               detail work packages

  SLP   Summary Level Planning Sum of planning packages
        Package                

  PMB   Performance            Contract time-phased, budgeted work plan
        Measurement Baseline   (excludes MR)
  ----- ---------------------- -------------------------------------------

####### 

####### Table 1, Terminology Used In Figure 2

#### Over Target Baselines.

During the life of a project, situations may arise whereby available
budgets for the remaining work are insufficient to reach the projects
objectives. Under these circumstances, a requirement may exist for the
total budget allocated to work to exceed the recognized Contract Budget
Base (CBB). The resulting value is referred to as an Over-target
Baseline (OTB). Establishment of an OTB may entail replanning future
work, replanning in-process work, and/or adjusting variances (cost,
schedule or both). This allows the project to increase the amount of
budget for the remaining work to a more realistic amount to adequately
provide for reasonable budget objectives, work control, and performance
measurement.

A thorough analysis of contract status is necessary before the
implementation of an OTB. The contractor should perform a detailed
estimate of all costs necessary to complete the remaining effort. If the
difference between the estimated cost to complete (ETC) and the
remaining budget is not of value to manage the project, the contractor
will notify the appropriate parties of the need to increase the
remaining budgets. It is imperative that the contractor consult with the
federal mangers prior to implementing an over target baseline. This
consultation should include a discussion regarding project cost,
schedule, funding and technical implications expected as a result of
implementing the proposed OTB.

When the project managers are satisfied that the new PMB represents a
reasonable plan for completing the contract, the new PMB may become the
basis for future performance measurement. However, establishing an OTB
must be formally accomplished within the change control processes
established for the program or project. In implementing an OTB, the
changes to baseline budgets must be fully documented and traceable. If
variances are adjusted, their cumulative values before adjustment will
be retained to ensure traceability. OTBs or changes to OTBs should be
limited to situations where it is needed to improve the quality of
future cost and schedule performance management.

An OTB condition is not a change in the actual amount of work remaining,
nor is it a change in the total cost of the project. An OTB is simply a
PMB whose sum (BAC) exceeds the contract value. Contractor cannot
invoice more than the contract value. However, the contractor can
establish a PMB that exceeds the contract. This situation could arise as
a result of a replanning effort where additional effort is applied to
the project at no cost in order to recover from a problem or variance.

#### Under Target Baselines

A requirement in many contracts is for the contractor to establish
stretch goals for completing the work. These stretch goals are often
heavily incentivized and attempt to focus the contractor on completing
work ahead of schedule or perhaps with greater capability than
originally planned. The contractor's response to these goals and
incentives should be to develop a PMB that less than the negotiated
contract cost to ensure that the goals can be met and the incentives for
meeting the goals are earned. When a PMB is developed that represents a
reasonable (though aggressive) plan, this PMB becomes the basis for
performance measurement and variance analysis. Both the government and
the contractor tend to relate performance against the contractual
agreement. Even so, the plan against which the contractor is working and
measuring performance is the established PMB even when it is under the
target cost. Conceptually, the contractor feels that they should be
"scored" against the contract. The government also has this attitude.
However, the purpose of EVM is not to obtain a score, rather it is to
understand progress and performance and performance must be compared to
the contractors plan. When the contractor's performance against their
plan indicates that there may be problems in either the plan or the
performance, those problems do not disappear or become negated merely
because the PMB is under the target cost.

Variance analysis should always be conducted against the PMB that the
contractor is managing to. The difference between the target cost and
the BAC may be considered management reserve, if held by the contractor
or contingency, if held by the government. In either case, variances in
the actual PMB must be analyzed and not ignored. When reporting against
an under target baseline, variance analysis should focus on the variance
within the PMB. Because there is no validated PMB for the target cost,
there is no purpose or point to analyzing variances for the target cost.
That does not mean neither the contractor or the government ignore the
target. Rather they must not mistakenly measure performance against a
point that is not relevant for work being conducted. See Variance
Analysis later in the guide for further information.

## Managing Material.

This discussion expands on the application of performance measurement to
material that is used in the development, fabrication or production work
packages.

### Material Item Budgets.

The control account budget should include all direct costs for the
authorized work with separate identification of cost elements (labor,
material, other direct costs). Budgets should be based on defined and
expected quantities of material items necessary to meet the requirements
of the project. The bill of material for a project is normally the basis
for establishing material budgets. Material control and budgets become
an important consideration in EVMS when the required material comprises
a significant portion of the project budget.

### Material Items Work PACKAGES.

Establishing material work packages for developmental material and
production material can differ significantly. In a developmental effort,
most of the material is consumed by the development and engineering
organization in the development and testing rather than the completion
of an end item of equipment. For facilities, the material is consumed in
the building process. For Information Technology, the hardware and
software is consumed in the building a network. These work packages
should be established within the same control account as the labor that
will consume the material.

Planning packages should be established for development material when
design work has not progressed sufficiently to permit adequate
definition of the material required. The budgets for these planning
packages should be substantiated and segregated in some manner in order
to ensure that budget designated for material procurement is not
inadvertently used for other requirements.

In a production environment, material work packages may be established
in separate control accounts. These accounts are summarized into the
appropriate WBS and organizational elements that are associated with the
items being produced. The planning of production and material work
packages can be flexible as long as the budgets accurately represents
the manner in which material is planned to be received, accepted,
issued, or consumed. Planning of material budgets for both development
and production should be coincident with the occurrence of events that
show physical progress.

### Material item accounting.

Acceptable costing techniques should be used to fully account for all
material purchased for the project. To ensure effective performance
measurement of material takes place, the contractor's accounting system
should have the following characteristics:

-   An accurate cost accumulation system that assigns material cost to
    appropriate control accounts in a manner consistent with the budget.
    The cost accumulation system must be able to accommodate allocation
    of costs for bulk material purchases that are applicable to more
    than a single work package or project.

-   Actual costs for material items should be reported in the same
    accounting period that earned value is taken for the material to
    facilitate management analysis.

-   Where actual costs are not available in a timely manner, assign
    estimated costs to the material item and make adjustments when
    actuals are recorded in the accounting system. This may be done
    outside of the accounting system as long as the project is able to
    reconcile this value to the accounting system actuals.

-   Account for all material and purchased parts in a manner appropriate
    to their value and significance.

-   When material is contributed in lieu of funding, the agreed upon
    value of the material should be included the Total Authorized
    Budget, assigned to the appropriate work packages, and value earned.
    This ensures that the PMB represents the entire project and that all
    work, material and resources necessary to achieve the desired
    capability has been integrated into the PMB.

### Material Variances.

Budgets should be scheduled in accordance with project events and earned
when a specific event occurs. To avoid distortion, actuals must be
recorded when the budget is earned regardless of the timing, receipt,
and processing of payments. For the program and project manager, Earned
value is primarily concerned with progress and performance and the
currency of this information outweighs the precision necessary in
accounting. Analysis of variances for material accounts should focus on
significant concerns. This may include usage incurred above or below the
normal or exact quantities plus normal attrition amounts, as well as
variances in the expected price of the material.

Material usage variance is an important cost factor on repetitive large
volume, production-type jobs. Acceptable techniques for analyzing and
determining current and projected usage variances provide continuing
internal measurement when the value and nature of the material warrant.
Material systems plan and track material usage. Purchasing material in
excess of requirements is standard practice to allow for scrap,
rejections, unanticipated quantities, differing yield rates, etc. is a
practical necessity, and the project should maintain documentation of
such decisions. The more uncertain the expected usage, the more
important it is to have a good plan and to keep track of performance
against it, particularly for project peculiar materials or materials
which require long procurement lead-times. The identification of excess
usage that is expected to continue for future units is key in validating
project material quantities and requirements. Based on this analysis,
appropriate action should be taken to ensure sufficient material is on
hand/on order to complete contractual requirements.

On production contracts, the evaluation of material usage supports
identification of material requirements necessary to maintain the
production line at optimum capacity to meet requirements.

## Subcontract Management.

This discussion concerns the application of performance measurement to
subcontracted efforts. When the bulk of a program or project is
subcontracted, the design and implementation of the EVM system must be
carefully thought out to ensure that the system provides the intended
benefits. The fact that a subcontract may be fixed price does not reduce
or eliminate the requirement to manage effectively on both the part of
the contractor and subcontractor. When the primary objective becomes the
elimination of cost risk through the use of fixed price, mission
requirements are often compromised. It is essential that the contractor
remember that the subcontractor has a deliverable that is vital to
capability being developed and while the cost risk may be the
responsibility of the subcontractor, the performance risk remains with
the contractor. This is true for the government when they award a
fixed-price contract. Consequently, the design and implementation of the
performance management system for subcontracts has as much importance as
it does for the prime contact.

### Subcontract Management Organizations.

When designating the internal organization responsible for managing
subcontracted efforts, the prime contractor must assign a manager with
sufficient authority and responsibility to be able to ensure the
subcontractor will perform to the terms and conditions of the project.
Regardless of the contractual arrangement with the subcontractor, the
assigned control account manager should have all of the same
responsibilities as other control account managers within the prime
contractor's organization. In cases where there the subcontractor
organization or personnel are integrated with the prime contractor
organization, the control account manager function may be assigned to
the subcontractor personnel.

### Subcontract Budgets.

When a sub contract requires performance rather than merely delivery of
end items, budgets are developed in alignment with the work package
development for prime contact work. This involves identification of the
subcontractor, the establishing the estimated value for the subcontract,
and ultimately, negotiating the scope, schedule and budget. During this
process, the prime contractor establishes a baseline for the effort at
the control account level. Normally during negotiations, the PMB values
(BCWS) will be based on the prime contractor's estimate for the work as
opposed to the subcontractor's proposal values. Once negotiations are
complete, budgets (BCWS) are normally adjusted to reflect the negotiated
value of the subcontract. This is not considered closing a variance. The
prime contractor's estimate is effectively a planning package. Prior to
beginning work, the planning package must be definitized into a work
package. That takes place during the acquisition process that results in
the work being definitized, scheduled, priced (BCWS) fixed through
negotiation.

### Subcontract Work Packages.

Work packages should be established within subcontract cost accounts to
provide for separation of subcontract activities for performance
measurement purposes. The prime contractor must be able to support the
values established within each work package using either subcontractor
supplied information or internal documentation. These work packages must
be related to the plan established by the subcontractor to complete
efforts on the subcontracted items.

### Subcontract Schedules.

Integrating the subcontractor schedule information into the prime
contract schedule should be accomplished so that it accurately depicts
the impact of the subcontractor performance on the project schedules.
That is, the subcontract schedule information must be at a level of
detail that provides adequate actual progress information not merely
contractual compliance.

### Subcontract Actuals Collection and Reporting.

The prime contractor's accounting systems should provide accurate cost
accumulation, which assigns subcontract costs to appropriate control
accounts in a manner consistent with the budget. Actual costs for
subcontract items should be reported in the same accounting period that
earned value is taken. Where actual costs are not available in a timely
manner, assign estimated subcontract costs, which will be adjusted when
actuals are recorded and reconcile the account when actual data becomes
available. The accounting system should also have the ability to account
for all subcontracted items.

### Subcontractor Performance Analysis.

Procedures established by the prime contractor for measuring the
performance of the subcontractor must consider

-   A process whereby the prime contractor evaluates the management
    processes established by the subcontractor to perform the cost,
    schedule and technical requirements of the subcontract when earned
    value reporting is required.

-   The requirement to review the subcontractor's performance report for
    accuracy and adequacy. This includes an analysis of the performance
    measurement information contained in the data formats of the report,
    an evaluation of the variance analysis information contained in the
    report, and an evaluation of management reserve usage, baseline
    changes and manpower changes.

-   The capability to incorporate the subcontractor's management
    information, including analysis of significant variances, into the
    information submitted to the customer.

During the time period between subcontract authorization to proceed and
definitization, the prime contractor must make provisions to perform the
above actions based on best available information.

### subcontract Estimates At Completions.

The procedures relative to subcontract EACs should focus on two aspects.
First, the requirement that the subcontractor will generate an EAC as
necessary to support program requirements and reporting to the customer
and second, the responsibility of the prime contractor to evaluate the
subcontractor's EAC for adequacy and accuracy. Even when the subcontract
is fixed-price there may be a difference in the EAC and the agreed upon
price. When a variance indicates an overrun condition, it should not be
ignored merely because the subcontract is fixed price. Regardless of the
contract type, when a variance exists it indicates that the work will
not be completed as planned and that some action on the part of the
contractor or subcontractor will be necessary to recover either cost or
schedule. For example, if the subcontractor commits to completing the
work at no additional cost, then the Earned Value (BCWP) will eventually
increase to equal the Actual Cost (ACWP). If however, the contractor
claims that the variance is the result of a change on the part of the
customer (contractor), then a change order may be necessary.

### Change orders.

Subcontracts are often fixed price contracts because the work and
deliverables are usually specific, well defined, and easily
quantifiable. For many projects, change orders are anticipated as a
consequence of a lack of definition in the beginning of the subtract
effort. Differing site conditions and other events are often
anticipated, expected or planned. When change orders are an expected
part of the PMB, the BCWS should be developed to include change orders
that may not have been part of the initial negotiated work. However,
excessive change orders may be an indication that the work was not well
defined or that the requirements were not well understood. Both may be
cause for review.

When a subcontractor is required to provide an external performance
measurement report, subcontractor data will be provided to the prime
contractor for performance measurement purposes. If a subcontractor is
not required to provide earned value information to the prime, the prime
contractor should establish procedures that provides accurate and
reliable schedule and technical plans and progress reports as needed for
overall project management.

## 

## Accounting Considerations.

The accounting system structure is defined by the contractor's internal
process descriptions and operating procedures. Similar information is
available in the contractor's Cost Accounting Standards Disclosure
Statement when nature of their contract requires compliance with the
Cost Accounting Standards. The intent of this discussion is to ensure
there is a timely and accurate transfer of actual cost information from
the accounting system into the Earned Value Management System.

### Accruals.

The accounting system must be capable of accounting for all resource
expenditures on an accrual basis (as-used or as-consumed). Actual costs
for direct labor, whose time is routinely recorded daily or weekly, is
readily available in most company accounting systems. Other direct
charges for services, which are rendered or consumed on a per unit
basis, can also be readily measured. There is considerable variation in
accounting for material cost and consumption. This lack of uniformity
may cause difficulty in accounting for material as it is used. Where a
company has a policy on accounting for material, this policy should be
consistently applied to the project or program. Where no company policy
exists, the contractor should define the methodology to be used in the
project and ensure that is it applied consistently. In most cases,
material should earned value and accrue cost as it is consumed. This may
require estimating the actual costs because consumption may not be the
discriminator in the transactions of invoicing and payment. The system
must also account for and allocate properly indirect and apportioned
effort costs.

### Work Breakdown Structure Summarization.

Allowable costs collected within the control account by element of
expense must summarize from the control account level through the WBS
used to the top level without being allocated to two or more
higher-level elements. When it is necessary to allocate control account
costs to more than a single higher WBS element, it is indicative of an
inadequate WBS. A carefully developed WBS and a corresponding cost
collection structure should prevent any single element's data from being
summarized to multiple higher-level elements. This does not preclude the
allocation of costs from a control account which acquires common items
or provides common services to the appropriate using control accounts in
order to make valid comparisons to the plans and budgets.

### Organization Breakdown Structure Summarization.

As costs are summarized within the WBS structure they are also
summarized within the Organization Breakdown Structure. The data
summarization begins at the control account through the project
structure to the highest-level organizational element without costs
being allocated to two or more higher-level elements. This does not
preclude the allocation of costs from a control account acquiring common
items or services to the appropriate using control accounts. A carefully
developed project organization and cost collection structure will ensure
accurate data summarization.

### Unit Costs. 

The contractor may be required to account for the production of material
items in a manner that allows development of unit costs, equivalent unit
costs, or lot costs. This is normally a requirement of contracts where
multiple units are being produced in a manufacturing, processing,
production or production-like environment. Unit cost account may be
found in isotope production or vitrification production where glass logs
are produced. There are acceptable alternatives to unit cost for
specific circumstances unique to the production environment. When
production effort occurs on an accelerated assembly line basis, it may
not be practical to determine the cost of individual units. In such
situations, it is sufficient to accumulate lot costs, where a lot is an
aggregate of a specified and consistent number of units.

### Actual Costs for Variance Analysis. 

It is essential that all actual costs used for variance analysis come
directly from, or be reconcilable with, the accounting system. In some
cases, it may be necessary to use estimated actuals to avoid artificial
variances, which might be created by the time lag of costs being
recognized by the accounting system. This is especially true when the
lag time for acquiring actual cost data is significant. This may often
be the case when other large institutions are involved in an effort and
their accounting process result in a lag of one or more accounting
cycles before actuals are available. This condition may be exacerbated
when there are multiple partners in an effort. When the actual data
becomes available it must reconciled with the estimated actuals and
corrections made to ensure that the Earned Value information remains
accurate and reliable. The use of estimated actuals should be minimized
but should be employed where necessary to ensure the most current
information is being used in managing the effort. If a project has
excessive cases where estimated actuals are required, the accounting
processes should be re-examined to ensure that they are engineered
properly and are capable of performing the intended function.

### Retroactive Changes to Actual Costs.

Retroactive adjustments to costs should only be made for routine
accounting adjustments or for correction of errors such as in the case
of estimated actuals. Any direct or indirect cost adjustments must be
made in a timely manner in accordance with Generally Accepted Accounting
Principles (GAAP). Adjustments to the plan should only be accomplished
for future work. All historical budgeted cost of work scheduled, which
constitutes the plan must remain as first established. That is, history
cannot be modified. All future budgeted cost of work scheduled may be
replanned. Modifying planned work (BCWS) in order to reconcile the plan
with the Earned Value or actual cost is incorrect.

### Indirect Cost Management.

Overhead costs are expenses, which often benefit more than a single
program or project. The accounting process should record all allocable
indirect costs consistent with the provisions of the contractor's
disclosure statement. The contractor's procedures and EVMS description
should specify the level at which indirect cost information will be
allocated to individual contracts and individual projects and programs.
The description should also specify the methodology for rate
determination and the actual indirect rates.

The most current information should is used in preparing indirect rates,
including historic experience, contemplated management improvements,
projected economic escalation, and anticipated business volume. The use
of these rates to generate indirect cost estimates will ensure a valid
projection of project costs. Comparing indirect budgets to estimates of
final indirect costs will reveal where significant differences occur.
These variances must be analyzed to determine the causes and appropriate
corrective actions.

Since indirect costs are normally handled in organizations that are not
project peculiar, there should be some method for assigning the
appropriate values for indirect budgets and actuals to all affected
projects. The contractor establishes an indirect budgeting process that
includes the formal assignment of duties and limits of responsibility, a
description of the indirect system, and policies and procedures
applicable to the establishment and control of indirect costs.
Assignment and control of the indirect resources must be clearly defined
and should be commensurate with the authority to approve or to avoid the
expenditure of resources.

Realistic time-phased budgets and forecasts for indirect costs must be
established by organization. The contractor should apply the most
appropriate indirect rates so that a valid PMB can be established.
Indirect budgets should be reviewed at least annually or when major
changes are identified in factors affecting indirect costs. These
budgets must be included in the PMB (control account budgets, Summary
Level Planning Packages (SLPP) budgets, or Undistributed Budget (UB)).
When assigning these budgets an average is often used to spread the
indirects equally across the applicable control accounts. Care must be
taken to ensure that indirects are not burden for those work packages,
which do not employ the services represented by the indirect budget.
Indirects must not be spread equally merely because it is convenient.
Just as in Level of Effort work, indirect costs can distort Earned Value
data and should be subtracted out from the reported performance measures
when analysis has shown that distortion occurs.

The contractor establishes controls to ensure actual indirect costs are
compared to indirect budgets and this information should be shared with
all affected programs. Specific control procedures should be implemented
to ensure variances are identified, reported, and addressed by the
appropriate level of management. Such controls increase the likelihood
that potentially significant variances are communicated and considered
in the development of the project Estimate At Completion (EAC). Because
indirect costs are overhead, variances may indicate accruing debt to the
project or excessive indirect allocations to the contract or project.

### Cost Accounting Standards Considerations for Earned Value Management. 

Accounting is a key element in all Earned Value Management Systems. At
its most basic level, accounting provides the information necessary to
determine actual versus planned cost. Accounting provides the capability
to accumulate costs at the control account level, allocate indirect
costs, and account for material among other functions. Consequently,
cost accounting practices are a consideration when implementing EVMS and
evaluating conformance with the standard. Public Law 100-679 (41 U.S.C.
422) requires certain government contractors and subcontractors to
comply with Cost Accounting Standards (CAS) that are promulgated by the
Cost Accounting Standards Board (CASB). Note that compliance with the
Cost Accounting Standards does not depend on a requirement to implement
EVMS and the costs of complying with the CAS cannot be attributed to an
EVMS requirement.

Certain contracts and subcontract types are exempt from Cost Accounting
Standards such as contracts and subcontracts with foreign governments.
Exemptions may present a challenge when implementing EVMS. However,
there are methods of structuring the system without creating a burden
where there would otherwise be none. Negotiated contracts not exempt may
be subject to full, modified or other types of CAS coverage.

When a contractor or supplier is not required to comply with Cost
Accounting Standards, the application of Earned Value Management
requires consideration of the guidelines in context of the availability
of actual data. Work must still be apportioned and values must still be
assigned to the work and an understanding of the resources necessary to
execute the work is required to be able to develop a coherent integrated
schedule. Suppliers must still develop an integrated schedule based on
the required sequence of work and their associated interdependencies.
This schedule and its defined values must also be related to the
government Work Breakdown Structure. If the government Work Breakdown
Structure defines a product being developed (not the project
activities), then the relationships between the WBS, the schedule and
values assigned permit the measuring of progress and performance.

## Analysis, Reporting and Management.

Reporting is the mechanism employed to communicate Earned Value
information to managers. Analysis is activity performed by managers to
understand, evaluate and assess the project and its performance and
progress. Management action should be an outcome of the analysis
function. As corrective actions are implemented, their impact is
reflected in performance causing a resultant change in the cost and
schedule. This in turn causes a change in the data set, which is then
analyzed and acted upon. This feedback and control loop continues
throughout the life of the project.

### Variance Analysis.

In every project and program the PMB represents the agreed to execution
plan for the project or program. The team's objective is to execute the
plan precisely as defined in PMB. Because we understand that neither
plan (PMB) nor the execution will be perfect, variances will develop.
The objective therefore, is not to prevent variances rather it is to
expect them and act on them when they do appear. Analysis of the
variances begins at the control account level of the Contract Work
Breakdown Structure and needs to address mitigation until all the
impacts. Variance analysis focuses on three key areas in which to gain
insight.

-   Cause and effect - How and why did the variance happen?

-   Consequence - What is the impact to this control account, work
    packages and summary WBS elements, other controls accounts and their
    respective WBS elements?

-   Correction - Is it possible to recover? What is the recovery
    mechanism? Do other control accounts have to be dealt with to
    mitigate the impact? If it is not possible to recover and get back
    on plan, what must be done to replan the effort?

While summary level analysis is performed on small insignificant
variances, detailed analysis must be performed for all significant
variances. How do you know when a variance is significant? When it
exceeds a threshold that must be reported to higher authority or an
external organization or when it has an impact on another WBS or other
control accounts. The cascading affects of a variance must be resolved
expeditiously to avoid multiplying the effect a variance.

#### Schedule Variance (SV).

Comparing the value of work completed (Budget Cost of Work
Performed)(Earned Value) to the value of work scheduled (Budgeted Cost
of Work Scheduled) during a given period of time provides a valuable
indication of progress in dollars worth of work accomplished. This
variance does not clearly indicate whether or not scheduled milestones
are being met since some work may have been performed out of sequence or
ahead of schedule. Schedule variance also does not indicate whether a
completed activity is a critical event or if delays in an activity's
completion will affect the completion date of the contract. Therefore, a
formal time-phased scheduling system is used to provide the means of
determining the status of specific activities, milestones, and critical
events.

#### Translating Schedule Variance To Time.

A schedule variance does not translate to an absolute value of time
behind schedule because the planned work (BCWS) normally is not a
constant from month to month. There are methods that provide managers
with the ability to arrive at an approximation of the delay. The most
common method is to divide the schedule variance (SV) by the average
monthly budgeted cost of work scheduled (BCWS). This is only an
approximation because recovering the schedule may require different
methods or working arrangements to perform both the work that is behind
as well as the current and future work. Because of the inherent
inaccuracy in calculation using averages, schedule variance should be
treated as a performance indicator rather than a multiplier or divisor.
To determine the schedule to recover from a variance, the work must be
replanned. Scheduling the work is part of the replanning process and not
a result of calculations. A schedule variance may also be written as an
index that is effectively a performance index. Managers should not
expect a project to sustain performance efficiency greater than recent
experience in order to recover schedule. That is, if an organization is
working at less than 1.0 efficiency a variance will result. To eliminate
the variance, the organization must now work at an efficiency greater
than 1.0 for the period of time necessary to do the work that is behind
schedule, as well as performing the current work, on schedule.
Organizations that propose to work for extended periods of time at
efficiencies greater than their recent history, should examine the
underlying assumptions that lead them to assert that they will work to
that level.

#### Cost Variance.

The Comparison of the cost of completed work (Actual Cost of Work
Performed) with the value planned for that work provides a cost
variance. Analysis of this differences reveals the factors contributing
to the variances. Examples include poor initial estimate for the task,
technology issues that required additional resources, the cost of labor
or materials different than planned, differences between planned and
actual rates, and personnel efficiency different than planned.

#### Variance at Completion.

Comparisons of the total budget with the Estimate At Completion (EAC) at
the control account level provide a variance expected at the completion
(Variance At Completion) of the control account. Authority and
responsibility for corrective action should exist at the control account
level, within the bounds of the total budget for that specific control
account.

### Required Analysis.

Analysis of these variances is required at the control account level.
Budgeting, measuring performance, and collecting costs by element of
cost facilitates reporting and analysis of the reasons for significant
variances in both the progress reviews and in the narrative portion of
the external performance measurement variance analysis report. The
analysis provides the stimulus for management action. Significant
variances are those that if not understood and mitigated would keep the
project from returning to the plan. Thresholds should be carefully
established by the various levels in the organization, with lower level
organizations setting thresholds that are more stringent than higher
threshold. Reasonable thresholds should be defined to ensure proper
analysis of all significant problems and not cause an excessive burden
on the control account and mid-level managers. Other project data should
be employed to support the analysis.

### Technical Progress.

Because technical issues often cause unfavorable cost or schedule
conditions, technical performance status should be presented in
quantifiable terms, when possible, in narrative reports. The adequacy
and quality of the work performed is assessed through inspections,
tests, or other types of technical measurements. When the results are
satisfactory, no corrective action is required. If deficiencies are
found, consider alternatives for corrective action; for example,
redesign, scrap and remake, rework, etc. When considering these
alternatives, the impact on cost and schedule must be weighed in
addition to the technical considerations. After an alternative is
selected, it may become necessary to plan the additional work in terms
of new work packages or additions to existing unopened work packages and
to change the schedules affected. In some cases the project manager may
choose to provide additional budget to the responsible organization.
Thus, there is a close relationship between technical achievement and
its impact on cost and schedule.

### Summarize Performance Data for Management Evaluation.

Performance measurement information should be summarized directly at the
control account or below to provide both project status and
organizational performance at all levels of management. This process
supports an overall capability for managers to analyze available
information and identify problem areas in sufficient time to take
action. Because favorable variances in some areas are offset by
unfavorable variances in other areas, senior managers would normally see
only the most significant variances at their level. The accumulation of
many small variances that may add up to a large overall cost problem not
attributable to any single major difficulty will also be evident.
Summarization is not means to mask significant variances, which must
always be identified to senior management.

### Effective Management Action as a Result of Analysis.

Performance measurement is only one of the management tools available to
project managers. Many major problems are disclosed through methods
other than monthly performance measurement reports. The project's
internal reports and the reports forwarded to their customer, however,
should indicate the overall cost and schedule impacts of such problems
on the project. Because of this, the data produced by the earned value
management system must be available to managers on a timely basis and
must be of sufficient quality to ensure that effective management
decisions can be made as a result of its analysis. Procedures should
exist to monitor decisions to the point of resolution including the
impact on risk management plans and other program plans.

### Periodic Estimates At Completion.

Periodically develop a comprehensive Estimate At Completion at the
control account level using all available information to arrive at the
best possible estimate. All of the following should be employed to
derive the Estimate At Completion.

A.  Evaluating the efficiency achieved by performing organizations for
    completed work and comparing it to remaining budgets

B.  Establishing a schedule forecast that reflects the expected
    time-frame for completing the remaining work

C.  Considering all remaining risk areas on the project versus cost
    avoidance possibilities

D.  Ensuring the most current direct and indirect rate structure is used
    to value the projected resources

E.  Applying this analysis to future efforts to derive the most accurate
    estimate.

Comparisons of this estimate to the budgets authorized for the
associated effort must be made frequently enough for management to
ensure project performance and resource availability will not be
adversely impacted. Monthly maintenance of the Control Account level EAC
by the control account manager ensures that the EAC continuously
reflects a valid projection of project costs. Applying the current cost
performance factor to the remaining work has been shown to provide the
more accurate results than other methods because performance is not
likely to improve significantly for the remaining work. However, the
formulas employed must chosen because they best represent the project.
Developing estimates at completion should involve multiple methods. No
single method consistently provides the "best answer." Some of the more
common formulas for EACs are presented in the appendices.

## Revisions and Data Maintenance.

Changes in major projects are inevitable. This discussion addresses the
controlled process whereby projects incorporate formal changes, conduct
internal replanning, and adjust past, present and future information to
accommodate changes. Close control must be exercised to minimize changes
to prior periods. The only acceptable retroactive changes are those that
correct errors, make routine accounting adjustments, or improve the
accuracy of the performance measurement data and all such changes must
be documented, justified, and explained. Retroactive changes are
generally not allowed and are made only where the validity of the data
is compromised. The primary reason for this prohibition is to avoid a
moving or "rubber" baseline. The only measures that provide the
essential performance measures that can be used to take action by
managers is that which is compared to fixed point -- a set baseline.
When the so-called fixed point is constantly moving, no measures based
on this moving point have any validity.

### Directed Changes.

Directed changes to the project will impact virtually all aspects of the
internal planning and control system, including organization structures,
work authorizations, budgets, schedules, and EACs. Directed changes are
most often the result of budgetary pressures causing a project to
stretch out, impacting both cost and schedule. The incorporation of
authorized changes should be made in a timely manner and strictly
controlled. This will ensure the PMB can be accurately maintained. When
directed change is a result of requirements changes the impact is often
much greater in that future work packages may have to be reaccomplished
and new work packages may be required to execute the rework or new work
that is caused by the requirement change. The change control process
must be able to accommodate both the routine changes and changes of more
significant impact. The Contract Budget Base, established based on the
agreed-to value of authorized work, must be strictly controlled in order
to maintain a valid basis for project performance. Changes to the CBB
may only be made as a result of contractual changes. Procedures should
ensure controls are in place to prevent inadvertent implementation of a
baseline in excess of contract value. When contracts with broad
responsibilities are in place, the CBB is established through
development of work authorizations and contract modifications. While
contractual changes may not be consistently employed, agreements must be
established through some mechanism to delineate the CBB.

### Traceability of Changes

It is absolutely paramount to maintain the validity of the PMB. Without
discipline the meaningfulness of the performance measures is
significantly reduced and even eliminated. This discipline must be
applied, throughout the organization, particularly in controlling the
budget. Internal procedures should clearly delineate acceptable and
unacceptable budget practices. These should include:

-   Budgets are assigned to specific segments of work.

-   Work responsibility should not be transferred without transferring
    the associated budget.

-   A budget assigned to a future specific task should not be used to
    perform another task.

-   When management reserve is used, records should clearly indicate
    when and where it is applied.

-   When undistributed budgets exist, records should clearly identify
    their amount, purpose, and to which efforts budgets are issued.

-   Budgets that are assigned to work packages should not be changed
    once effort is started unless the scope of work is affected by
    contractual change or project internal adjustments that enhance
    management of the effort.

-   Retroactive changes to budgets or costs for completed work or to
    schedules are not made except for correction of errors, normal
    accounting adjustments, revisions to budgets to reflect the formal
    negotiated value of completed tasks, or to improve the integrity and
    accuracy of the baseline.

The original budget established for the project should constitute a
traceable basis against which project growth can be measured. The
starting point or base on which these original budgets are built is the
project contract target cost. This value increases or decreases only as
a result of authorized changes. The target cost may not necessarily
represent the entire appropriated budget for the project, but the target
cost for a specific contract. For definitized changes, the target cost
changes by the negotiated amount. For authorized work that has not been
negotiated, the target cost increases by the amount of cost estimated
for that effort. Where a specified Not-to-Exceed (NTE) amount has been
established, the target cost will only increase by this amount unless
both parties mutually agree to a different amount for performance
measurement purposes. After negotiations, the target cost is adjusted to
reflect the negotiation results. Adequate records of all changes should
be maintained to provide the basis for reconciliation back to the
original budgets assigned during the baselining process.

### Rubber Performance Measurement Baselines (RUBBER Baseline).

Plans, which articulate the original baseline, will always be influenced
by changes in budget as well requirements. It will be necessary realign
scope, schedule, or budget to accommodate these changes. Some examples
of appropriate replanning (i.e., within the project target cost or
approved total allocated budget) include:

-   Changes resulting from a design reviews that modify requirements;

-   A major shift to the resource profile to accomplish the remaining
    effort;

-   Funding restrictions or modifications that affect future resource
    availability;

-   Rate changes (including overhead rates) that are significant enough
    to warrant replanning.

Replanning is intended for in-scope changes to future budgets. The
objective of replanning is to reflect a revised project plan. Changes to
near term effort (scheduled to start in the next accounting period) must
be minimized. When the objective becomes to eliminate a variance or
attain a specific index, the EVMS has lost its value for performance
measurement in that performance measurement becomes subjective rather
than objective. A rubber baseline can exist even in an EVMS that
complies with the standard when the DOE directs (or authorizes) the
contractor to make changes that result in the loss of information and
credible performance information. An EVMS that exhibits evidence of a
rubber baseline will lose its status as a compliant system. Excessive
replanning is evidence of inadequate planning. This is often a symptom
of projects where planning packages are masquerading as work packages. A
constantly shifting PMB is also evidence of inadequate baseline
definition at the work package level during planning. Extreme care must
be taken that work packages are adequately definitized. Measuring
progress against a package that has no detail is not only incorrect, but
also pointless.

### Single Point Adjustments.

A Single Point Adjustment (SPA) (also known as Point Adjustment) is the
elimination of cumulative variances at the control account or work
package level. The single purpose of an SPA is to improve the value of
the performance information generated by the system. The usual cause for
an SPA is the current plan against which performance is measured is no
longer valid and a new plan is either required or essentially in effect.
A plan is essentially in effect when the original plan is no longer
realistic and the work is continuing to be accomplished. Regardless of
whether this is due to performance against plan thus far or because
conditions have changed which cause the plan to no longer be realistic,
it remains that all work must be planned and the plans must be
realistic. The obvious risk of working without a plan is the loss of
management insight and control over the work. Large cumulative variances
can also inhibit effective insight into recent performance. However,
SPA's are not routine and are not to be accomplished to simply to
improve performance measures. Improving the performance measures is
merely a side effect of the need to develop an executable plan and gain
better insight.

The two conditions, which must be present to consider performing an
adjustment.

#### **COST AND/OR SCHEDULE CANNOT BE RECOVERED**.

**and**

**THE VARIANCE IS SO GREAT THAT MANAGEMENT INSIGHT IS INHIBITED**.

Point adjustments can eliminate schedule variance or both cost and
schedule variance. The elimination of the schedule variance may be done
to move budget, which has not been earned, to a new work package during
replanning. When a point adjust is performed on the schedule variance,
the cost variance is retained. The net result is that the plan for the
work is now realistic and can be executed, but the cost performance
information is retained. Elimination of both cost and schedule variances
is allowed when existing variances are very large and inhibit management
efforts to effectively use EVM information to manage the project.

Point adjustments are accomplished at the Control Account level, NOT at
the CWBS Level 1 or the PWBS Level 1. A single point adjustment is
generally performed as follows:

1.  Close the work package(s) and control account(s) with variances

2.  To close the schedule variance only: Set the BCWS equal to the BCWP

3.  To close both schedule and cost variances: Set BCWS and BCWP equal
    to the ACWP.

4.  Transfer the remaining work (and budget if any) to a new work
    package and plan the work package. Management reserve budget can be
    used to replan the remaining work.

The following table provides some context for the process of
accomplishing a point adjustment and the consequences that result from
it. Note that consequences included the loss of information on
performance and progress. When routine point adjustments are performed,
at the project's end it would appear that the project performed
flawlessly. Valuable information for future projects of the same type
will have been lost. The potential for using the performance information
to create more accurate cost and schedule estimates will be erased.

+-----------+-------------------+------------------+------------------+
| *         | **Management      | **Result**       | **Impact on      |
| *Variance | Action**          |                  | Overall PMB and  |
| Type**    |                   |                  | EV Metrics**     |
+-----------+-------------------+------------------+------------------+
| Schedule  | Replan to recover | Schedule         | Overall schedule |
| (Rec      | within current    | variance         | performance      |
| overable) | PMB cost and      | decreases to     | improves.        |
|           | schedule          | zero as recovery |                  |
|           |                   | proceeds.        |                  |
|           |                   |                  |                  |
|           |                   | Cost remains     |                  |
|           |                   | within original  |                  |
|           |                   | PMB.             |                  |
+-----------+-------------------+------------------+------------------+
| Schedule  | Close             | Schedule         | BAC may          |
| (Non-rec  | non-recoverable   | variance is      | increase.        |
| overable) | work package.     | zeroed (BCWS is  |                  |
|           |                   | set equal to     | Overall schedule |
|           | Open new work     | BCWP).           | variance is      |
|           | package and plan  |                  | reduced.         |
|           | remaining work.   | Cost variance    |                  |
|           |                   | for closed work  | Overall cost     |
|           | Add sufficient    | package is       | variance remains |
|           | budget to execute | retained.        | could be         |
|           | the work if       |                  | increased or     |
|           | required.         | Cost variance    | reduced          |
|           |                   | for the new work | depending on     |
|           |                   | package is       | performance      |
|           |                   | indeterminate    | under new work   |
|           |                   | (depends on      | package.         |
|           |                   | performance).    |                  |
|           |                   |                  | False indication |
|           |                   |                  | of schedule      |
|           |                   |                  | improvement.     |
+-----------+-------------------+------------------+------------------+
| Cost      | Replan to recover | Cost variance    | Overall cost     |
| (Rec      | within current    | decreases to     | performance      |
| overable) | PMB cost and      | zero as recovery | improves.        |
|           | schedule          | proceeds.        |                  |
|           |                   |                  |                  |
|           |                   | Schedule remains |                  |
|           |                   | within existing  |                  |
|           |                   | PMB.             |                  |
+-----------+-------------------+------------------+------------------+
| Cost      | Cost              | Schedule         | BAC increases.   |
| (Non-rec  | non-recoverable   | variance is      |                  |
| overable) | work package.     | zeroed (BCWS is  | Overall cost and |
|           |                   | set equal to     | schedule         |
|           | Open new work     | ACWP, BCWP is    | variance is      |
|           | package and plan  | set equal to     | reduced.         |
|           | with remaining    | ACWP)            |                  |
|           | work and budget.  |                  | False indication |
|           |                   |                  | of cost          |
|           | Add sufficient    |                  | performance      |
|           | budget to execute |                  | improvement.     |
|           | the work.         |                  |                  |
+-----------+-------------------+------------------+------------------+

Table 3 - Impact of PMB Adjustments

It is often difficult to accomplish a point adjustment within a single
accounting period. Typical SPAs will usually take two accounting period
to complete. During this period, the data from the affected control
accounts (and WBS levels of which the affected control accounts are
components) will be invalid. Adequate time must be allowed for the
adjustment process to be completed.

There are other methods that provide good insight into performance
without accomplishing an SPA. So called, 'rolling 6 months' or 'rolling
3 months where the earned value is measured using the most current six
months or three months of data is one method. These methods should be
considered as effective alternatives to point adjustments. In any event,
the changes at the work package level must be tracked from the original
plan to the latest revised plan.

Why allow point adjustments when the negative effects would suggest that
it is not a wise action to take? Because point adjusts are sometimes
necessary and can improve the performance information. However, point
adjusts must be accomplished in a thoughtful, controlled manner with
full appreciation that the act will degrade the utility and validity of
the performance information.

### Control Account Replanning.

Replanning of work packages within control accounts is sometimes
necessary to compensate for internal conditions that affect the planning
and scheduling of remaining work. Such replanning should be accomplished
within the constraints of the previously established control account
schedule and budget. When more extensive replanning of future work is
necessary and the total control account budget must be changed,
management reserve may be used to increase or decrease the control
account budgets. If replanning requires that work and associated budget
be transferred between control accounts, this transfer must also be
controlled. Work that has already taken place cannot be replanned. This
is true regardless of whether the work package remains open or is
closed. Only future work can be replanned.

Replanning actions designed to reduce costs, improve or reflect improved
efficiency of operations, or otherwise enhance the completion of the
project, are encouraged. Internal replanning may involve changes to
work-in-process. The replanning of open work packages or Level of Effort
should be accomplished in such a way to maintain valid performance
measurement information while minimizing the administrative burden.
Except for correction of errors and accounting adjustments, no
retroactive changes will be made to budgets for completed work even when
the work package remains open because work still remains to be
accomplished.

### Production Work Package Replanning.

A certain amount of rescheduling of open production work packages is
appropriate and acceptable providing procedures exist which prevent the
inadvertent invalidation of baseline schedules and budgets. The
substance of such procedures should be to limit the range of
rescheduling so as to maintain consistency with key production schedule
dates. Key production schedule dates define the required completion
dates for key elements of the manufacturing plan and are normally found
on internal production schedules.

# APPENDICES

## Appendix A Sample Contractor's System Description Document 

The EVM System Description provides a description of the system and the
contractor's comprehensive plan for meeting the criteria in ANSI/EIA
748-1998.

The EVM System Description provides an understanding of each activity
required to meet the EVMS standard. The document should briefly, but
comprehensively, present the contractor's approach and schedule of
internal activities to demonstrating that the system meets the criteria
in the standard. The description should include the contractor's plan
for implementation of and activities leading up to a demonstration
review by DCMA. Contractor format is acceptable. Changes should be
incorporated by change page or complete reissue.

Because system descriptions encompass information on internal company
processes, the descriptions are usually not released for general public
use. The following is an outline that has been used by a large
government contractor with mature processes in place. This format or any
other format may be employed. There is no preferred format or content
list.

Table of Contents

1.  Executive Summary

2.  Proposal preparation

3.  Organizing for Program Management.

    a.  Establishing the Work Breakdown Structure.

    b.  Assigning program organizational responsibility.

    c.  Identifying/Distributing the Scope of Work.

    d.  Integrating subsidiary processes.

    e.  Modify the program for major changes.

4.  Establishing and Maintaining an Integrated Schedule for Program
    Management.

    a.  Identifying Master Schedule contents/requirements.

    b.  Integrating schedules with the WBS and company control systems.

    c.  Structuring schedules for progress statusing and forecasting.

    d.  Adjusting schedules for program changes.

5.  Authorizing Program Work Scope, Schedule, and Resources.

    a.  Authorizing scope and resources to the working level.

    b.  Scheduling resources in the control account.

    c.  Providing schedule and resources for future effort.

    d.  Establishing objective measures of work progress.

    e.  Maintaining control of the performance measurement baseline.

6.  Interfacing the PMCS with Actual Cost Processes.

    a.  Ensuring that actual costs are comparable to program budgets.

    b.  Establishing a cost collection structure to support management
        requirements.

    c.  Providing appropriate allocation of indirect costs to programs.

7.  Managing using Program Performance Information.

    a.  Providing performance and cost variances for program analysis.

    b.  Preparing summarized information for management evaluation.

    c.  Determining and implementing appropriate corrective actions.

    d.  Evaluating and Updating estimates of program costs.

8.  Incorporating Approved Changes to Program Information.

    a.  Ensuring documentation reflects the impact of scope, schedule,
        and resource changes.

    b.  Maintaining correlation to approved program values.

    c.  Establishing procedures for baseline values in excess of program
        cost.

9.  Managing Program Material And Subcontracted Items.

    a.  Identifying all material and subcontract items required to
        execute the SOW.

    b.  Scheduling material requirements.

    c.  Establishing budget values for procured items.

    d.  Ensuring accounting system interface supports program management
        needs.

    e.  Providing performance and cost variances for program analysis.

    f.  Preparing summarized information for management evaluation.

    g.  Determining and implementing appropriate corrective actions.

    h.  Evaluating and updating estimates of program costs for material
        and subcontracts.

10. PMCS Maintenance.

    a.  Implementation Responsibilities.

    b.  Continuing Surveillance.

    c.  PMCS Training.

    d.  Subcontractor Surveillance.

    e.  PMCS Improvement Initiatives and Implementation.

> APPENDICES

11. Compliance Matrix

12. Acronyms and Definitions

13. Mandatory Directives

## Appendix B Typical Documentation Used In EVMS Certification Reviews

This list is not intended to be a minimum or maximum list. It is merely
typical. Other documentation can and does serve similar purposes. Many
times the documentation may be combined into a program or project plan.
This list merely serves as a starting point for the contractor and the
review team to consider what is relevant.

These 3 documents are the typically provided in initial stages of
planning for a compliance review

> 32 Guidelines cross reference to EVMS description (compliance map)
>
> Dollarized Responsibility Assignment Matrix (Dollarized RAM)
>
> System Description or EV procedures/regulations

The following are typically provided during the final stages of the
planning for the review.

> Contract and changes/modifications
>
> Data Item Descriptions (DID)
>
> Cost Performance Reports (CPR)
>
> Contract Data Requirements List (CDRL)
>
> Contract Funds Status Report (CFSR)
>
> Control Account Manager Notebooks
>
> Organizational Chart & Organizational Breakdown Structure
>
> Contract Work Breakdown Structure (CWBS)
>
> CWBS Dictionary
>
> Control Account Plans (specify)
>
> Program Schedules
>
> Variance Analysis Reports (specify)
>
> Variance Analysis Corrective Action Log
>
> Management Reserve Log
>
> Undistributed Budget Log
>
> Baseline Change Log
>
> Estimates At Completion Procedures and Supporting Document
>
> Bill of Materials
>
> Material Requirement Reports
>
> Overhead Budget Policies and Procedures
>
> Indirect Cost Pool Listing
>
> Charge Number Structure Explanation
>
> Rate Tables, Rationale for Projected Rates
>
> Accounting Manual
>
> Disclosure Statement
>
> Copies of any DCAA, IG or other Audit Reports
>
> List of Subcontractors
>
> Subcontractor Scope of Work
>
> Subcontractor Program Schedule
>
> Subcontractor Control Account Plans
>
> Subcontractor EAC Procedures and Supporting Document
>
> Other Supplier Internal EV Reports
>
> Cost Accounting Standards Disclosure Statement

## Appendix C Compliance map template

This template is a tool that contractors may employ in assessing the
implementation of EVMS. The value of the template lies in identification
of gaps in the system. The template is not intended to determine whether
the policies and procedures comply with the standard, only that they
exist. Compliance with the standard requires further assessment
(review).

  ------------------------------------------------------------------------
  ANSI/EIA-748-A Guidelines    **Implementing Policies &   **Applicable
                               Procedures**                Sections**
  ---------------------------- --------------------------- ---------------
  **ORGANIZATION**                                         

  **Guideline 1:** Define the                              
  authorized work elements for                             
  the program. A Work                                      
  Breakdown Structure (WBS),                               
  tailored for effective                                   
  internal management control,                             
  is commonly used in this                                 
  process.                                                 

  **Guideline 2:** Identify                                
  the program organizational                               
  structure including the                                  
  major subcontractors                                     
  responsible for                                          
  accomplishing the authorized                             
  work, and define the                                     
  organizational elements in                               
  which work will be planned                               
  and controlled.                                          

  **Guideline 3:** Provide for                             
  the integration of the                                   
  company's planning,                                      
  scheduling, budgeting, work                              
  authorization and cost                                   
  accumulation processes with                              
  each other, and as                                       
  appropriate, the program                                 
  work breakdown structure and                             
  the program organizational                               
  structure.                                               

  **Guideline 4:** Identify                                
  the company organization or                              
  function responsible for                                 
  controlling overhead                                     
  (indirect costs).                                        

  **Guideline 5:** Provide for                             
  integration of the program                               
  work breakdown structure and                             
  the program organizational                               
  structure in a manner that                               
  permits cost and schedule                                
  performance measurement by                               
  elements of either or both                               
  structures, as needed.                                   
  ------------------------------------------------------------------------

  ---------------------------- --------------------------- ---------------
  **PLANNING & BUDGETING**                                 

  **Guideline 6:** Schedule                                
  the authorized work in a                                 
  manner, which describes the                              
  sequence of work and                                     
  identifies significant task                              
  interdependencies required                               
  to meet the requirements of                              
  the program.                                             

  **Guideline 7:** Identify                                
  physical products,                                       
  milestones, technical                                    
  performance goals, or other                              
  indicators that will be used                             
  to measure progress.                                     

  **Guideline 8:** Establish                               
  and maintain a time-phased                               
  budget baseline, at the                                  
  control account level,                                   
  against which program                                    
  performance can be measured.                             
  Budget for far-term efforts                              
  may be held in higher-level                              
  accounts until an                                        
  appropriate time for                                     
  allocation at the control                                
  account level. Initial                                   
  budgets established for                                  
  performance measurement will                             
  be based on either internal                              
  management goals or the                                  
  external customer negotiated                             
  target cost including                                    
  estimates for authorized but                             
  undefinitized work. On                                   
  government contracts, if an                              
  over target baseline is used                             
  for performance measurement                              
  reporting purposes, prior                                
  notification must be                                     
  provided to the customer.                                

  **Guideline 9:** Establish                               
  budgets for authorized work                              
  with identification of                                   
  significant cost elements                                
  (labor, material, etc.) as                               
  needed for internal                                      
  management and for control                               
  of subcontractors.                                       

  **Guideline 10:** To the                                 
  extent it is practical to                                
  identify the authorized work                             
  in discrete work packages,                               
  establish budgets for this                               
  work in terms of dollars,                                
  hours, or other measurable                               
  units. Where the entire                                  
  control account is not                                   
  subdivided into work                                     
  packages, identify the far                               
  term effort in larger                                    
  planning packages for budget                             
  and scheduling purposes.                                 

  **Guideline 11:** Provide                                
  that the sum of all work                                 
  package budgets plus                                     
  planning package budgets                                 
  within a control account                                 
  equals the control account                               
  budget.                                                  

  **Guideline 12:** Identify                               
  and control level of effort                              
  activity by time-phased                                  
  budgets established for this                             
  purpose. Only that effort                                
  which is unmeasurable or for                             
  which measurement is                                     
  impractical may be                                       
  classified as level of                                   
  effort.                                                  

  **Guideline 13:** Establish                              
  overhead budgets for each                                
  significant organizational                               
  component of the company for                             
  expenses, which will become                              
  indirect costs. Reflect in                               
  the program budgets, at the                              
  appropriate level, the                                   
  amounts in overhead pools                                
  that are planned to be                                   
  allocated to the program as                              
  indirect costs.                                          

  **Guideline 14:** Identify                               
  management reserves and                                  
  undistributed budget.                                    

  **Guideline 15:** Provide    []{.mark}                   []{.mark}
  that the program target cost                             
  goal is reconciled with the                              
  sum of all internal program                              
  budgets and management                                   
  reserves.                                                
  ---------------------------- --------------------------- ---------------

+---------------------------+--------------------------+--------------+
| **ACCOUNTING              |                          |              |
| CONSIDERATIONS**          |                          |              |
+---------------------------+--------------------------+--------------+
| **Guideline 16:** Record  | []{.mark}                | []{.mark}    |
| direct costs in a manner  |                          |              |
| consistent with the       |                          |              |
| budgets in a formal       |                          |              |
| system controlled by the  |                          |              |
| general books of account. |                          |              |
+---------------------------+--------------------------+--------------+
| **Guideline 17:** *(When  |                          |              |
| a work breakdown          |                          |              |
| structure is used)*       |                          |              |
| Summarize direct costs    |                          |              |
| from control accounts     |                          |              |
| into the work breakdown   |                          |              |
| structure without         |                          |              |
| allocation of a single    |                          |              |
| control account to two or |                          |              |
| more work breakdown       |                          |              |
| structure elements.       |                          |              |
+---------------------------+--------------------------+--------------+
| **Guideline 18:**         |                          |              |
| Summarize direct costs    |                          |              |
| from the control accounts |                          |              |
| into the contractor's     |                          |              |
| organizational elements   |                          |              |
| without allocation of a   |                          |              |
| single control account to |                          |              |
| two or more               |                          |              |
| organizational elements.  |                          |              |
+---------------------------+--------------------------+--------------+
| **Guideline 19:** Record  |                          |              |
| all indirect costs, which |                          |              |
| will be allocated to the  |                          |              |
| contract.                 |                          |              |
+---------------------------+--------------------------+--------------+
| **Guideline 21:** For     |                          |              |
| EVMS, the material        |                          |              |
| accounting system will    |                          |              |
| provide for:              |                          |              |
|                           |                          |              |
| 1.  Accurate cost         |                          |              |
|     accumulation and      |                          |              |
|     assignment of costs   |                          |              |
|     to control accounts   |                          |              |
|     in a manner           |                          |              |
|     consistent with the   |                          |              |
|     budgets using         |                          |              |
|     recognized,           |                          |              |
|     acceptable, costing   |                          |              |
|     techniques.           |                          |              |
|                           |                          |              |
| 2.  Cost performance      |                          |              |
|     measurement at the    |                          |              |
|     point in time most    |                          |              |
|     suitable for the      |                          |              |
|     category of material  |                          |              |
|     involved, but no      |                          |              |
|     earlier than the time |                          |              |
|     of progress payments  |                          |              |
|     or actual receipt of  |                          |              |
|     material.             |                          |              |
|                           |                          |              |
| 3.  Full accountability   |                          |              |
|     of all material       |                          |              |
|     purchased for the     |                          |              |
|     program including the |                          |              |
|     residual inventory.   |                          |              |
+---------------------------+--------------------------+--------------+

+----------------------+-------------------------------+--------------+
| **ANALYSIS &         |                               |              |
| MANAGEMENT**         |                               |              |
+----------------------+-------------------------------+--------------+
| **Guideline 22:** At |                               |              |
| least on a monthly   |                               |              |
| basis, generate the  |                               |              |
| following            |                               |              |
| information at the   |                               |              |
| control account and  |                               |              |
| other levels as      |                               |              |
| necessary for        |                               |              |
| management control   |                               |              |
| using actual cost    |                               |              |
| data from, or        |                               |              |
| reconcilable with,   |                               |              |
| the accounting       |                               |              |
| system:              |                               |              |
|                      |                               |              |
| (1) Comparison of    |                               |              |
|     the amount of    |                               |              |
|     planned budget   |                               |              |
|     and the amount   |                               |              |
|     of budget earned |                               |              |
|     for work         |                               |              |
|     accomplished.    |                               |              |
|     This comparison  |                               |              |
|     provides the     |                               |              |
|     schedule         |                               |              |
|     variance.        |                               |              |
|                      |                               |              |
| (2) Comparison of    |                               |              |
|     the amount of    |                               |              |
|     the budget       |                               |              |
|     earned the       |                               |              |
|     actual (applied  |                               |              |
|     where            |                               |              |
|     appropriate)     |                               |              |
|     direct costs for |                               |              |
|     the same work.   |                               |              |
|     This comparison  |                               |              |
|     provides the     |                               |              |
|     cost variance.   |                               |              |
+----------------------+-------------------------------+--------------+
| **Guideline 23:**    |                               |              |
| Identify, at least   |                               |              |
| monthly, the         |                               |              |
| significant          |                               |              |
| differences between  |                               |              |
| both planned and     |                               |              |
| actual schedule      |                               |              |
| performance and      |                               |              |
| planned and actual   |                               |              |
| cost performance,    |                               |              |
| and provide the      |                               |              |
| reasons for the      |                               |              |
| variances in the     |                               |              |
| detail needed by     |                               |              |
| program management.  |                               |              |
+----------------------+-------------------------------+--------------+
| **Guideline 24:**    |                               |              |
| Identify budgeted    |                               |              |
| and applied (or      |                               |              |
| actual) Indirect     |                               |              |
| costs at the level   |                               |              |
| and frequency needed |                               |              |
| by management for    |                               |              |
| effective control,   |                               |              |
| along with the       |                               |              |
| reasons for any      |                               |              |
| significant          |                               |              |
| variances.           |                               |              |
+----------------------+-------------------------------+--------------+
| **Guideline 25:**    |                               |              |
| Summarize the data   |                               |              |
| elements and         |                               |              |
| associated variances |                               |              |
| through the program  |                               |              |
| organization and/or  |                               |              |
| work breakdown       |                               |              |
| structure to support |                               |              |
| management needs and |                               |              |
| any customer         |                               |              |
| reporting specified  |                               |              |
| in the contract.     |                               |              |
+----------------------+-------------------------------+--------------+
| **Guideline 26:**    |                               |              |
| Implement managerial |                               |              |
| actions taken as the |                               |              |
| result of earned     |                               |              |
| value information.   |                               |              |
+----------------------+-------------------------------+--------------+
| **Guideline 27:**    |                               |              |
| Develop revised      |                               |              |
| estimates of cost at |                               |              |
| completion based on  |                               |              |
| performance to date, |                               |              |
| commitment values    |                               |              |
| for material, and    |                               |              |
| estimates of future  |                               |              |
| conditions. Compare  |                               |              |
| this information     |                               |              |
| with the performance |                               |              |
| measurement baseline |                               |              |
| to identify          |                               |              |
| variances at         |                               |              |
| completion important |                               |              |
| to company           |                               |              |
| management and any   |                               |              |
| applicable customer  |                               |              |
| reporting            |                               |              |
| requirements         |                               |              |
| including statements |                               |              |
| of funding           |                               |              |
| requirements.        |                               |              |
+----------------------+-------------------------------+--------------+

  ----------------------- -------------------------------- ---------------
  **REVISIONS & DATA                                       
  MANAGEMENT**                                             

  **Guideline 28:**                                        
  Incorporate authorized                                   
  changes in a timely                                      
  manner, recording the                                    
  effects of such changes                                  
  in budgets and                                           
  schedules. In the                                        
  directed effort prior                                    
  to negotiation of a                                      
  change, base such                                        
  revisions on the amount                                  
  estimated and budgeted                                   
  to the program                                           
  organizations.                                           

  **Guideline 29:**                                        
  Reconcile current                                        
  budgets to prior                                         
  budgets in terms of                                      
  changes to the                                           
  authorized work and                                      
  internal re-planning in                                  
  the detail needed by                                     
  management for                                           
  effective control.                                       

  **Guideline 30:**                                        
  Control retroactive                                      
  changes to records                                       
  pertaining to work                                       
  performed that would                                     
  change previously                                        
  reported amounts for                                     
  actual costs, earned                                     
  value, or budgets.                                       
  Adjustments should be                                    
  made only for                                            
  correction of errors,                                    
  routine accounting                                       
  adjustments, effects of                                  
  customer or management                                   
  directed changes, or to                                  
  improve the baseline                                     
  integrity and accuracy                                   
  of performance                                           
  measurement data.                                        

  **Guideline 31:**                                        
  Prevent revisions to                                     
  the program budget                                       
  except for authorized                                    
  changes.                                                 

  **Guideline 32:**                                        
  Document changes to the                                  
  performance measurement                                  
  baseline.                                                
  ----------------------- -------------------------------- ---------------

## APPENDIX D Draft far Clause To Require Implementation of Earned Value

When information on contract performance status is needed, contracting
officers should require contractors to submit contract performance
reports to report Earned Value information. When compliance with the
standard is required, contracting officers should use a clause
substantially like the following clause in solicitations.

####### NOTICE OF EARNED VALUE MANAGEMENT SYSTEM

The offeror shall provide documentation that the cognizant
Administrative Contracting Officer (ACO) or a Federal Department or
Agency has recognized that the proposed earned value management system
(EVMS) complies with the EVMS criteria in ANSI/EIA Standard -- 748 -- A
-- 1998, as reaffirmed.

If the offeror proposes to use a system that does not meet the
requirements of paragraph (a) of this provision, the offeror shall
submit a comprehensive plan for compliance with the EVMS criteria.

The plan shall --

Describe the EVMS the offeror intends to use in performance of the
contracts;

Distinguish between the offeror's existing management system and
modifications proposed to meet the guidelines ;

Describe the management system and its application in terms of the 32
EVMS guidelines;

Describe the proposed procedure for administration of the guidelines, as
applied to subcontractors: and

Provide documentation describing the process and results of any
independent party or self-evaluation of the system's compliance with the
EVMS guidelines.

The offeror shall provide information and assistance as required by the
Contracting officer to support review of the plan.

The Government will review the offeror's plan for EVMS before contract
award.

Offerors shall identify the major subcontractors, or major subcontracted
effort if major subcontractors have not been selected, planned for
application of the guidelines. The prime contractor and the Government
shall agree to subcontractors selected for application of the EVMS
guidelines.

(End of provision)

As prescribed in 42.1107©(2), use the following clause:

####### EARNED VALUE MANAGEMENT SYSTEM

"Earned Value Management (EVM) as used in this clause, means a project
management system used by the contractor that effectively integrates the
project technical scope of work with schedule and cost elements for
optimum project planning and control. The qualities and operating
characteristics of earned value management systems are described in
American National Standards Institute (ANSI)/Electronic Industries
Alliance (EIA) Standard-748- A-1998, *Earned Value Management Systems,
approved: May 19, 1998, Reaffirmed: August 28, 2002.* A copy of the
standard is available from Global Engineering Documents
(1-800-854-7179).

In the performance of this contract the contractor shall use an earned
value management system (EVMS) to manage the contract that --

\(1\) At the time of contract award has been recognized by the
contracting officer or her/his authorized representative as compliant
with the guidelines in ANSI/EIA Standard -748-A. If, at the time of
award, the contractor's EVMS has not been recognized by the Contracting
Officer as complying with EVMS guidelines, the contractor shall apply
the system to the contract and shall be prepared to demonstrate to the
contracting officer that the EVMS complies with the EVMS guidelines
referenced in paragraph (a) of this clause

\(2\) Provides, in a format prescribed by the Contracting Officer, (XML,
direct on-line access, or other) on a monthly basis, or more often as
negotiated by the contracting officer, the following project status
information at WBS level 3, with capability to report at any lower level
at the request of the Contracting Officer:

\(a\) Budgeted (planned) cost for work scheduled (BCWS); = Planned Value

\(b\) Budgeted cost for work performed (BCWP); = Earned Value

\(c\) Actual cost of work performed (ACWP); = Actual Cost,

\(d\) Budget at completion (BAC);

\(e\) Estimate at completion (EAC): and

\(f\) Provide a performance curve graph plotting cumulative BCWS, BCWP,
and ACWP on a monthly basis from inception of the contract, with BCWS
plotted to completion and projecting the ACWP curve to the estimate at
completion (EAC) value.

\(g\) In addition, provide the following EVMS variance analysis:

Cost variance = (BCWP minus ACWP);

Cost Variance % = (CV/BCWP X 100%);

Cost Performance Index (CPI) = (BCWP/ACWP);

Schedule Variance = (BCWP minus BCWS);

Schedule Variance % = (SV/BCWS X 100%);

Schedule Performance Index (SPI) = (BCWP/BCWS);

Two independent Estimates at Completion (EAC);

ACWP cum + 1/CPI X (BAC minus BCWP cum);

ACWP cum + 1/CPI X SPI X (BAC minus BCWP cum):

Variance at Completion (VAC) = (BAC minus EAC) for the EAC and both
independent EACs above;

Variance at Completion % = (VAC/BAC X 100%) for both the EAC and both
independent EAC's above; and

Expected Completion Date.

\(3\) Explain the reasons for all variances that exceed the statutory
threshold of 10 percent or a lower threshold specified in the contract.

\(4\) Define technical performance variance. Explain, based on work
accomplished as of the date of the report, whether the performance goals
will be achieved, and the impact to the cost and schedule goals.

\(5\) Discuss the contractor EAC and the differences with the two
independent EAC's calculated as above.

\(6\) Discuss the corrective actions that will be taken to mitigate all
variances identified, the risk associated with the actions, and how
close these actions will bring the project to the original baseline.
Define proposed baseline changes, if necessary.

\(c\) The Government may require an integrated baseline review (IBR) at
(1) contract award, (2) exercise of significant options, or (3)
incorporation of major modifications. Such reviews will normally be
scheduled before award of the contract action. If the contracting
officer determines that the urgency of the award does not allow time to
conduct the IBR before award, the IBR shall be scheduled as early as
practicable, but not later than 180 days after the award action. The
objective of the integrated baseline review is for the Government and
the Contractor to jointly assess technical areas, such as the
Contractor's planning, to ensure complete coverage of the statement of
work, logical scheduling of the work activities, adequate resources,
methodologies for claiming BCWP, and identification of inherent risks.

\(d\) Contractor-proposed EVMS changes require approval of the
contracting officer prior to implementation. The Contracting Officer
shall advise the contractor of the acceptability of such chances within
30 calendar days after receipt of the notice of proposed changes from
the contractor.

\(e\) The Contractor agrees to provide access to all pertinent records
and data requested by the contracting officer or a duly authorized
representative. Access is to permit Government surveillance to ensure
that the EVMS conforms, and continues to conform, with the performance
criteria referenced in paragraph (a) of this clause.

\(f\) The contractor shall require the subcontractors specified below to
comply with the performance criteria of this clause, and allow an
authorized representative of the Contracting Officer to perform
surveillance and monitor monthly EV performance. The contractor shall
conduct IBR's with government participation for the subcontractors
specifically identified. (Insert list of applicable subcontractors).

(End of Clause)

## APPENDIX E A CONTRACT PERFORMANCE REPORT DESCRIPTION

1.0 Description and Purpose.

This report consists of five formats containing data for measuring
contractors' cost and schedule performance on Department of Energy
acquisitions projects and programs. Format 1 (Sample Format 1) provides
data to measure cost and schedule performance by summary level
product-oriented Work Breakdown Structure (WBS) elements, the hardware,
software and services the Government is buying. Format 2 (Sample Format
2) provides the same data by the contractor's organization. Format 3
(Sample Format 3) provides the budget baseline plan against which
performance is measured. Format 4 (Sample Format 4) provides staffing
forecasts for correlation with the budget plan and cost estimates.
Format 5 (Sample Format 5) is a narrative report used to explain
significant cost and schedule variances and other identified contract
problems and topics.

CPR data is used by DOE managers to: (a) integrate cost and schedule
performance data with technical performance measures, (b) identify the
magnitude and impact of actual and potential problem areas causing
significant cost and schedule variances, and (c) provide valid, timely
program status information to higher management.

The CPR is a management report. It should provide timely, reliable
summary-level data with which to assess current and projected contract
performance. The CPR's primary value to government program management is
its ability to reasonably reflect current contract status. If the CPR
contains excessively detailed or outdated information, management's
ability to make informed, timely decisions may be impaired. It is
important that the CPR be as accurate as possible so it can be used for
its intended purpose. It should be used by the DOE staff, including
program managers, engineers, cost estimators and financial management
personnel, to confirm, quantify and track known or emerging contract
problems and as a basis for communicating with the contractor. The
contractor should ensure that CPR data accurately reflect how work is
being performed and is consistent with the actual contract status.

This description contains the format and content preparation
instructions for the data product generated by the specific and discrete
task requirements as delineated in the contract. The CPR should be used
in conjunction with the Integrated Master Schedule, Contract Funds
Status Report, Contract Work Breakdown Structure, Cost Data Summary
Report and Functional Cost-Hour and.

The CPR is used to obtain cost and schedule performance information on
contracts requiring compliance with the American National Standards
Institute/Electronic Industries Alliance (ANSI/EIA) Standard 748 Earned
Value Management Systems. The CPR data elements shall reflect the output
of the contractor's ANSI/EIA Standard 748 compliant integrated
management system.

2.0 Frequency

Unless otherwise provided in the contract, the CPR is required on a
monthly basis. Formats 1, 2, 3 and 4 should be submitted to the
government activity no later than 8 calendar days following the
reporting cutoff date and Format 5 should be submitted no later than 15
calendar days following the reporting cutoff date. Reports may reflect
data either as of the end of the calendar month or as of the
contractor's accounting period cutoff date, provided it is consistent
with the Integrated Master Schedule. (Note: An alternative to requiring
Formats 1, 2, 3 and 4 to be submitted is for the contractor to provide
the procuring activity with online access to the Format 1, 2, 3 and 4
data. This will provide the procuring activity with immediate access as
of the reporting cutoff date. Under this approach, the contractor will
be required to notify the procuring activity that a validity (i.e.
accuracy) check of the Format 1, 2, 3 and 4 data has been conducted and
errors corrected, no later than 8 calendar days following the reporting
cutoff date. Format 5 will still need to be submitted no later than 15
days following the reporting cutoff date).

Unless otherwise provided in the contract, data reported in the CPR will
pertain to all authorized contract work, including both priced and
unpriced effort.

3.  Scope of Submission

Submission of Format 1 using a product-oriented WBS. The level of detail
to be reported on Format 1 normally will be at level three of the
Contract WBS, but lower levels may be specified for high-cost or -risk
items. The Government and the contractor should periodically review and
adjust as necessary WBS reporting levels on Format 1 to ensure they
continue to provide appropriate visibility without requiring excessive
information. If there is a significant problem at a lower level,
detailed reporting for that WBS element may be required until the
problem is resolved.

The formats that are specified for regular reporting. The Government and
the contractor may agree to exclude formats 2 to 5 from regular
reporting, but a Format 1 is required. Formats 2 to 5 may be deleted
entirely, or they may be submitted on a less frequent basis. If the
contractor is organized by product, Format 2 may not be required because
it may resemble Format 1. The decision to exclude a format(s) should be
based on an assessment of minimum management information needs. The
Government should require only the information it plans to use.

The variance analysis thresholds, which, if exceeded, require problem
analysis and narrative explanations in Format 5. If the contract does
not specify variance analysis thresholds, the contractor will provide
appropriate variance analyses. Variance analysis thresholds should be
reviewed periodically and adjusted as necessary to ensure they continue
to provide appropriate visibility.

The reporting provisions which apply to the Cost of Money line on
Formats 1 and 2.

Organizational categories for Format 4, if different from Format 2. The
Government may request that different organizational categories be used
for reporting staffing in Format 4. If so, the Government and the
contractor will negotiate the Format 4 categories. The Format 2
categories shall reflect the contractor's internal organization being
used to perform the contract at hand.

The CPR may be tailored to obtain the level of information necessary to
manage the program or project. Tailoring is not defined as requiring
more information in the CPR than specified in this appendix.

4.0 Forms.

Sample forms are available and will be used to submit (or provide online
access to) required formats as follows:

[CPR Format]{.underline} [Sample Format No.]{.underline}

Work Breakdown Structure 1

Organizational Categories 2

Baseline 3

Staffing 4

Explanations and Problem Analyses 5

A schema for the Extensible Markup Language (XML) data exchange is
currently under development. Once this schema is finalized it will be
used for data exchange. Until it is finalized, the American National
Standards Institute (ANSI) X12 standards (transaction sets 839 for cost
and 806 for schedule), or the United Nations Electronic Data Interchange
for Administration, Commerce and Transport (EDIFACT) equivalent, will be
used for Electronic Data Interchange. Where Formats 1 to 4 require
information that are not catered for in current EDI standards (i.e.
Blocks 3.c, 5.i and Column 12(b) of Block 8 of Format 1; Block 9 and
Columns 10 to 14 of Block 6 of Format 3; and Columns 10 to 14 of Block 5
of Format 4), that information will be required to be reported in Format
5 (or an attachment to Format 5). (Note: This interim approach is
required because current policy is not to modify current EDI standards,
but rather to develop a schema for XML data exchange as soon as
possible.) All formats must be in a readable digital format (i.e. pdf
files are not acceptable).

5.  [Format]{.underline}. The Contract Performance Report should be
    prepared and submitted using the relevant forms as shown at the end
    of this appendix and should contain the following content

5.1 [Heading Information - Formats 1 - 5]{.underline}. Preparation
instructions for Heading Information (Blocks 1 through 4) apply to
Formats 1 through 5.

5.1.1 [Contractor]{.underline}. Enter in Block 1.a the contractor's name
and division, if applicable. Enter in Block 1.b the plant location and
mailing address of the reporting contractor.

5.1.2 [Contract]{.underline}. Enter the contract name in Block 2.a, the
contract number in Block 2.b, the contract type in Block 2.c and the
contract share ratio, if applicable, in Block 2.d.

5.1.3 [Program]{.underline}. Enter in Block 3.a the program name,
number, acronym and/or type, model, and series, or other designation of
the prime item(s) purchased under the contract. Indicate the program
phase, RDT&E or Procurement/O&M, in Block 3.b. Indicate whether the
contractor EVMS is currently validated or not, in Block 3.c.

5.1.4 [Report Period]{.underline}. Enter the beginning date in Block 4.a
and the ending date in Block 4.b of the period covered by the report.

5.1.5 [Security Classification]{.underline}. Enter the appropriate
security classification at the top and bottom of each page. (Continued
on page 3)

5.1.6 [Dollars in \_\_\_\_\_\_\_\_\_]{.underline}. If reported dollar
amounts have been factored down by a thousand, a million or a billion,
enter the factor at the top of each page.

5.2 Format 1 - Work Breakdown Structure.

5.2.1 Contract Data.

5.2.1.1 [Quantity]{.underline}. Enter in Block 5.a the number of prime
items to be procured on this contract.

5.2.1.2 [Negotiated Cost]{.underline}. Enter in Block 5.b the dollar
value (excluding fee or profit) on which contractual agreement has been
reached as of the cutoff date of the report. For an incentive contract,
enter the definitized contract target cost. Amounts for changes will not
be included in this item until they have been priced and incorporated in
the contract through contract change order or supplemental agreement.
For a cost plus fixed fee or award fee contract, enter the estimated
cost negotiated. Changes to the estimated cost will consist only of
amounts for changes in the contract scope of work, not for cost growth
("overrun") from the original estimated cost.

5.2.1.3 [Estimated Cost of Authorized, Unpriced Work]{.underline}. Enter
in Block 5.c the amount (excluding fee or profit) estimated for that
work for which written authorization has been received, but for which
definitized contract prices have not been incorporated in the contract
through contract change order or supplemental agreement.

5.2.1.4 [Target Profit/Fee]{.underline}. Enter in Block 5.d the fee or
percentage of profit which will apply if the negotiated cost of the
contract (see 5.2.1.2, above) is met.

5.2.1.5 [Target Price]{.underline}. Enter in Block 5.e the target price
(negotiated contract cost plus profit/fee) applicable to the definitized
contract effort.

5.2.1.6 [Estimated Price]{.underline}. Based on the most likely estimate
of cost at completion for all authorized contract work and the
appropriate profit/fee, incentive, and cost sharing provisions, enter in
Block 5.f the estimated final contract price (total estimated cost to
the Government). This number will be based on the most likely management
estimate at completion in Block 6.c.1 and normally will change whenever
the management estimate or the contract is revised.

5.2.1.7 [Contract Ceiling]{.underline}. Enter in Block 5.g the contract
ceiling price applicable to the definitized effort.

5.2.1.8 [Estimated Contract Ceiling]{.underline}. Enter in Block 5.h the
estimated ceiling price applicable to all authorized contract effort
including both definitized and undefinitized effort.

5.2.1.9 [Over Target Baseline]{.underline}. Enter in Block 5.i the date
the last over target baseline was implemented (if applicable).

5.2.2 [Estimated Cost at Completion]{.underline}. These blocks will
present the contractor's range of estimated costs at completion. The
range of estimates is intended to allow contractor management
flexibility to express possible cost outcomes. Contractors will provide
the most accurate EACs possible through program-level assessments of
factors that may affect the cost, schedule or technical outcome of the
contract. Such program-level assessments will include consideration of
known or anticipated risk areas, and planned risk reductions or cost
containment measures. EACs will be reported without regard to contract
ceiling, if applicable.

5.2.2.1 [Management Estimate at Completion - Best Case]{.underline}.
Enter in Block 6.a.1 the contractor's best case estimate at completion.
The best case estimate is the one that results in the lowest cost to the
Government. This estimate should be based on the outcome of the most
favorable set of circumstances. If this estimate is different from the
most likely estimate at completion (Block 6.c.1), the assumptions,
conditions and methodology underlying this estimate will be explained
briefly in Format 5. This estimate is for informational purposes only;
it is not an official company estimate. There is no requirement for the
contractor to prepare and maintain backup data beyond the explanation
provided in Format 5.

5.2.2.2 [Management Estimate at Completion - Worst Case]{.underline}.
Enter in Block 6.b.1 the contractor's worst case estimate at completion.
The worst case estimate is the one that results in the highest cost to
the Government. This estimate should be based on the outcome of the
least favorable set of circumstances. If this estimate is different from
the most likely estimate at completion (Block 6.c.1), the assumptions,
conditions and methodology underlying this estimate will be explained
briefly in Format 5. This estimate is for informational purposes only;
it is not an official company estimate. There is no requirement for the
contractor to prepare and maintain backup data beyond the explanation
provided in Format 5.

5.2.2.3 [Management Estimate at Completion - Most Likely]{.underline}.
Enter in Block 6.c.1 the contractor's most likely estimate at
completion. This estimate is the contractor's official contract EAC and,
as such, takes precedence over the estimates presented in Column (15) of
Formats 1 and 2 and Blocks 6.a.1 and 6.b.1. This EAC is the value that
the contractor's management believes is the most likely outcome based on
a knowledgeable estimate of all authorized work, known risks and
probable future conditions. This value need not agree with the total of
Column (15) (Block 8.e). However, any difference will be explained in
Format 5 in such terms as risk, use of management reserve, or higher
management knowledge of current or future contract conditions. The
assumptions, conditions and methodology underlying this estimate will be
explained briefly in Format 5. This EAC need not agree with EACs
contained in the contractor's internal data, but must be reconcilable to
them. The most likely EAC also will be reconcilable to the contractor's
latest statement of funds required as reported in the Contract Funds
Status Report, or its equivalent, if this report is a contractual
requirement.

5.2.2.4 [Contract Budget Base]{.underline}. Enter in Block 6.c.2 the
total of negotiated cost (Block 5.b) and estimated cost of authorized,
unpriced work (5.c).

5.2.2.5 [Variance]{.underline}. Enter in Block 6.c.3 the Contract Budget
Base (Block 6.c.2) minus the most likely estimate at complete (Block
6.c.1). This value will be explained in Format 5 according to applicable
contractual requirements.

5.2.3 [Authorized Contractor Representative]{.underline}. Enter in Block
7.a the name of the authorized person signing the report. Enter that
person's title in Block 7.b. The authorized person will sign in Block
7.c. Enter the date signed in Block 7.d.

5.2.4 Performance Data.

5.2.4.1 [Work Breakdown Structure Element]{.underline}. Enter in Column
(1) of Block 8.a the noun description of the WBS items for which cost
information is being reported. WBS items or levels reported will be
those specified in the contract. (See 7.6.1 above.)

5.2.4.2 [Cost of Money]{.underline}. Enter in Columns (2) through (16)
of Block 8.b the Facilities Capital Cost of Money applicable to the
contract.

5.2.4.3 [General and Administrative (G&A)]{.underline}. Enter in Columns
(2) through (16) of Block 8.c the appropriate G&A costs. G&A must not be
included in the total costs reported in Block 8.a above. G&A will be
shown as an add entry on this line. If a G&A classification is not used,
no entry will be made other than an appropriate notation to that effect.

5.2.4.4 [Undistributed Budget]{.underline}. Enter the amount of budget
applicable to contract effort which has not yet been identified to WBS
elements at or below the reporting level. For example, contract changes
which were authorized late in the reporting period should have received
a total budget; however, assignment of work and allocation of budgets to
individual WBS elements may not have been accomplished as of the end of
the period. Budgets which can be identified to WBS elements at or below
the specified reporting level will be included in the total budgets
shown for the WBS elements in Block 8.a and will not be shown as
undistributed budget. Enter in Column (15) of Block 8.d the estimate at
completion for the scope of work represented by the undistributed budget
in Column (14) of Block 8.d. Enter in Column (16) of Block 8.d the
variance, if any, and fully explain it in Format 5. All undistributed
budget will be fully explained in Format 5.

5.2.4.4.1 [Use of Undistributed Budget]{.underline}. The provisions made
in this report for undistributed budget are primarily to accommodate
temporary situations where time constraints prevent adequate budget
planning or where contract effort can only be defined in very general
terms. Undistributed budget will not be used as a substitute for
adequate contract planning. Formal budgets should be allocated to
contract effort and responsible organizations at the earliest possible
time, preferably within the next reporting period.

5.2.4.5 [Subtotal (Performance Measurement Baseline)]{.underline}. Enter
the sum of the direct, indirect, Cost of Money, and G&A costs and
budgets in Columns (2) through (16) of Block 8.a through e. This
subtotal is also referred to as the Performance Measurement Baseline
because it represents the allocated budget baseline (less management
reserve) against which performance is actually measured.

5.2.4.6 [Management Reserve]{.underline}. Management reserve is an
amount of the overall contract budget withheld for management control
purposes rather than for the accomplishment of a specific task or set of
tasks. It is not a contingency fund, and may not be eliminated from
contract prices by the Government during subsequent negotiations nor
used to absorb the cost of contract changes. In Column (14) of Block 8.f
enter the total amount of budget identified as management reserve as of
the end of the current reporting period. The amounts shown as management
reserve in Formats 1, 2 and 3 will agree. Amounts of management reserve
applied to WBS elements during the reporting period will be listed in
Block 6.b of Format 3 and explained in Format 5.

5.2.4.6.1 [Negative Management Reserve]{.underline}. Negative entries
will not be made in Management Reserve (Column (14) of Block 8.f). There
is no such thing as "negative management reserve." If the contract is
budgeted in excess of the Contract Budget Base (the negotiated contract
cost plus the estimated cost for authorized, unpriced work), the
provisions applicable to formal reprogramming and the instructions in
paragraphs 5.2.5.1, 5.2.6.6, 5.2.6.7 and 5.4.1.7 apply.

5.2.4.7 [Total]{.underline}. Enter the sum of all direct, indirect, Cost
of Money, G&A cost, undistributed budgets and management reserves, if
applicable, in Columns (2) through (14) of Block 8.g. The Total lines of
Format 1 (Block 8.g) and Format 2 (Block 5.g) will agree. The total of
Column (14), Block 8.g, will equal the Total Allocated Budget shown in
Block 5.f on Format 3.

5.2.5 Reconciliation to Contract Budget Base.

5.2.5.1 [Formal Reprogramming]{.underline}. In exceptional cases, the
procuring agency may authorize the contractor to establish performance
measurement budgets that in total exceed the Contract Budget Base. This
process is called formal reprogramming. The contractor and the
Government will agree on how the results of a formal reprogramming will
be reported in the Contract Performance Report before the formal
reprogramming is initiated. This agreement and any other pertinent
details on the reporting of the formal reprogramming will be included in
Format 5. Blocks 9.a and 9.b provide the contractor the opportunity to
reconcile the higher performance measurement budgets, also called an
"Over Target Baseline," to the Contract Budget Base. (See 5.2.6.6,
5.2.6.7, 5.4.1.7, and 5.6.5 below for more information on reporting Over
Target Baselines.)

5.2.5.2 [Variance Adjustment]{.underline}. In reporting the results of a
formal reprogramming (Over Target Baseline) the contractor may 1) apply
the additional budget to completed work, thereby eliminating some or all
of the existing cost or schedule variances, 2) apply the additional
budget to remaining work, 3) apply some of the additional budget to
completed work and some to remaining work, or 4) apply some of the
additional budget to management reserve. If the contractor uses a
portion of the additional budget to eliminate variances applicable to
completed work, the total adjustments made to the cost and schedule
variances will be shown in Columns (10) and (11) of Block 9.a. The total
cost variance adjustment entered in Column (11) of Block 9.a will be the
sum of the individual cost variance adjustments shown in Column (12) of
Blocks 8.a through g.

5.2.5.3 [Total Contract Variance]{.underline}. In Columns (10) and (11)
of Block 9.b, enter the sum of the cost and schedule variances shown on
the Total line (Block 8.g) and on the Variance Adjustment line (Block
9.a). In Column (14) enter the Contract Budget Base from Block 6.c.2. In
Column (15) enter the management estimate at completion from Block
6.c.1. In Column (16) of Block 9.b enter the difference between Columns
(14) and (15) of Block 9.b.

5.2.6 [Columns (2) Through (16)]{.underline}. When compliance with the
ANSI/EIA Standard 748 is contractually required, the data in Columns (2)
through (16) shall reflect the output of the contractor's ANSI/EIA
Standard 748 compliant integrated management system (refer to DFARS
252.234-7001).

5.2.6.1 [Column (2) and Column (7) - Budgeted Cost - Work
Scheduled]{.underline}. For the time period indicated, enter the
Budgeted Cost for Work Scheduled (BCWS) in these columns.

5.2.6.2 [Column (3) and Column (8) - Budgeted Cost - Work
Performed]{.underline}. For the time period indicated, enter the
Budgeted Cost for Work Performed (BCWP) in these columns.

5.2.6.3 [Column (4) and Column (9) - Actual Cost - Work Performed
(ACWP)]{.underline}. For the time period indicated, enter the Actual
Cost of Work Performed without regard to ceiling. In all cases, costs
and budgets will be reported on a comparable basis.

5.2.6.4 [Column (5) and Column (10) - Variance - Schedule]{.underline}.
For the time period indicated, these columns reflect the differences
between BCWS and BCWP. For the current period, Column (5) (schedule
variance) is derived by subtracting Column (2) (BCWS) from Column (3)
(BCWP). For the cumulative to date, Column (10) (schedule variance) is
derived by subtracting Column (7) (BCWS) from Column (8) (BCWP). A
positive figure indicates a favorable variance. A negative figure
(indicated by parentheses) indicates an unfavorable variance.
Significant variances as specified in the contract will be fully
explained in Format 5. If the contract does not specify variance
analysis thresholds, the contractor will provide appropriate variance
analyses. (See 5.6.3.2.4 below.)

5.2.6.5 [Column (6) and Column (11) - Variance - Cost]{.underline}. For
the time period indicated, these columns reflect the difference between
BCWP and ACWP. For the current period, Column (6) (cost variance) is
derived by subtracting Column (4) (ACWP) from Column (3) (BCWP). For
cumulative to date, Column (11) (cost variance) is derived by
subtracting Column (9) (ACWP) from Column (8) (BCWP). A positive figure
indicates a favorable variance. A negative figure (indicated by
parentheses) indicates an unfavorable variance. Significant variances as
specified in the contract will be fully explained in Format 5. If the
contract does not specify variance analysis thresholds, the contractor
will provide appropriate variance analyses. (See 5.6.3.2.4 below.)

5.2.6.6 [Column (12a) and Column (12b) Reprogramming Adjustments - Cost
Variance and Schedule Variance]{.underline}. Formal reprogramming (Over
Target Baseline) results in budget allocations in excess of the Contract
Budget Base and, in some instances, adjustments to previously reported
variances. If previously reported variances are being adjusted, the
adjustment applicable to each reporting line item affected will be
entered in Column (12a) and Column (12b). The total of Column (12a) and
Column (12b) will equal the amount shown on the Variance Adjustment line
(Block 9.a) in Column (10) and Column (11).

5.2.6.7 [Column (13) Reprogramming Adjustments - Budget.]{.underline}
Enter the total amounts added to the budget for each reporting line item
as the result of formal reprogramming (Over Target Baseline). The
amounts shown will consist of the sum of the budgets used to adjust cost
variances (Column (12)) plus the additional budget added to the WBS
element for remaining work. Enter the amount of budget added to
management reserve in the space provided on the management reserve line
(Block 8.f). The total of Column (13) will equal the amount the Total
Allocated Budget has been budgeted in excess of the Contract Budget Base
as shown in Block 5.g of Format 3. An explanation of the reprogramming
will be provided in Format 5.

5.2.6.7.1 [Formal Reprogramming Reporting]{.underline}. Columns (12) and
(13) are intended for use only in situations involving formal
reprogramming (Over Target Baseline). Internal replanning actions within
the Contract Budget Base do not require entries in these columns. Where
contractors are submitting CPR data directly from automated systems, the
addition of Columns (12) and (13) as shown may not be practical due to
computer reprogramming problems or space limitations. In such cases, the
information may be provided on a separate sheet and attached as Format
la to each subsequent report. Contractors will not be required to
abandon or modify existing automated reporting systems to include
Columns (12) and (13) if significant costs will be associated with such
change. Nor will contractors be required to prepare the report manually
solely to include this information.

5.2.6.7.2. [Formal Reprogramming Timeliness]{.underline}. Formal
reprogramming (Over Target Baseline) can be a significant undertaking
that may require more than a month to implement. To preclude a
disruption of management visibility caused by a reporting hiatus, the
contractor should implement the formal reprogramming expeditiously. If a
reporting hiatus is needed, the contractor and the Government will agree
on the date and duration of the hiatus before the formal reprogramming
is initiated.

5.2.6.8 [Column (14) - At Completion - Budgeted]{.underline}. Enter the
budgeted cost at completion for the items listed in Column (1). This
entry will consist of the sum of the original budgets plus or minus
budget changes resulting from contract changes, internal replanning, and
application of management reserves. The total (Block 8.g) will equal the
Total Allocated Budget shown in Block 5.f on Format 3.

5.2.6.9 [Column (15) - At Completion - Estimated]{.underline}. Enter the
latest revised estimate of cost at completion including estimated
overrun/underrun for all authorized work. If the subtotal (Block 8.e)
does not agree with the most likely management estimate at completion
(Block 6.c.1), the difference will be explained in Format 5. (See
5.2.2.3 above.)

5.2.6.10 [Column (16) - At Completion - Variance]{.underline}. Enter the
difference between the Budgeted - At Completion (Column (14)) and the
Estimated - At Completion (Column (15)) by subtracting Column (15) from
Column (14). A negative figure (indicated by parentheses) reflects an
unfavorable variance. Significant variances as specified in the contract
will be fully explained in Format 5. If the contract does not specify
variance analysis thresholds, the contractor will provide appropriate
variance analyses. (See 5.6.3.2.4 below.)

5.3 Format 2 - Organizational Categories.

5.3.1 Performance Data.

5.3.1.1 [Column (1) - Organizational Category]{.underline}. In Block 5.a
list the organizational categories which reflect the contractor's
internal management structure. This format will be used to collect
organizational cost information at the total contract level rather than
for individual WBS elements. The structure shall identify each major
subcontractor separately as an add item. Except for material included in
the add item for each major subcontractor, the structure shall also
identify material separately as an add item. The level of detail to be
reported will normally be limited to the organizational level
immediately under the operating head of the facility. The contractor
shall be given flexibility to report this information according to its
own internal management structure. If the contractor is organized by
product teams, this format may not be needed because it may resemble
Format 1.

5.3.1.2 [Cost of Money]{.underline}. Enter in Columns (2) through (16)
of Block 5.b the Facilities Capital Cost of Money applicable to the
contract.

5.3.1.3 [General and Administrative]{.underline}. Enter in Columns (2)
through (16) of Block 5.c the appropriate G&A costs. G&A must not be
included in the total costs reported in Block 5.a above. G&A will be
shown as an add entry on this line. If a G&A classification is not used,
no entry will be made other than an appropriate notation to that effect.
(See 5.2.4.3 above.)

5.3.1.4 [Undistributed Budget]{.underline}. Enter in Column (14) of
Block 5.d the budget applicable to contract effort which cannot be
planned in sufficient detail to be assigned to a responsible
organizational area at the reporting level. The amount shown on this
format may exceed the amount shown as undistributed budget on Format 1
if budget is identified to a task at or below the WBS reporting level
but organizational identification has not been made; or may be less than
the amount on Format 1 where budgets have been assigned to organizations
but not to WBS elements. Enter in Column (15) of Block 5.d the estimate
at completion for the scope of work represented by the undistributed
budget in Column (14) of Block 5.d. Enter in Column (16) of Block 5.d
the variance, if any, and fully explain it in Format 5. (See 5.2.4.4
above.)

5.3.1.5 [Subtotal (Performance Measurement Baseline)]{.underline}. Enter
the sum of the direct, indirect, Cost of Money, and G&A costs and
budgets in Columns (2) through (16) of Block 5.a through e. (See 5.2.4.5
above.)

5.3.1.6 [Management Reserve]{.underline}. In Column (14) of Block 5.f
enter the amount of budget identified as management reserve. The
Management Reserve entry will agree with the amounts shown in Format 1
and 3. (See 5.2.4.6 above.)

5.3.1.7 [Total]{.underline}. Enter the sum of all direct, indirect, Cost
of Money, and G&A costs and budgets, undistributed budgets and
management reserves, if applicable, in Columns (2) through (14) of Block
5.g. The totals on this page will equal the Total line on Format 1. The
total of Column (14) will equal the Total Allocated Budget shown in
Block 5.f on Format 3.

5.3.2 [Columns (2) Through (16)]{.underline}. The instructions
applicable to these columns are the same as the instructions for
corresponding columns on Format 1. (See 5.2.6 and 5.2.6.1 through
5.2.6.10 above.)

5.4 Format 3 - Baseline.

5.4.1 Contract Data.

5.4.1.1 [Original Negotiated Cost]{.underline}. Enter in Block 5.a the
dollar value (excluding fee or profit) negotiated in the original
contract. For a cost plus fixed fee or award fee contract, enter the
estimated cost negotiated. For an incentive contract, enter the
definitized contract target cost.

5.4.1.2 [Negotiated Contract Changes]{.underline}. Enter in Block 5.b
the cumulative cost (excluding fee or profit) applicable to definitized
contract changes which have occurred since the beginning of the
contract.

5.4.1.3 [Current Negotiated Cost]{.underline}. Enter in Block 5.c the
sum of Blocks 5.a and 5.b. The amount shown should equal the current
dollar value (excluding fee or profit) on which contractual agreement
has been reached and should be the same as the amount in Negotiated Cost
(Block 5.b) on Format 1.

5.4.1.4 [Estimated Cost of Authorized, Unpriced Work]{.underline}. Enter
in Block 5.d the estimated cost (excluding fee or profit) for contract
changes for which written authorizations have been received, but for
which contract prices have not been incorporated in the contract, as
shown in Block 5.c of Format 1.

5.4.1.5 [Contract Budget Base]{.underline}. Enter in Block 5.e the sum
of Blocks 5.c and 5.d.

5.4.1.6 [Total Allocated Budget]{.underline}. Enter in Block 5.f the sum
of all budgets allocated to the performance of the contractual effort.
The amount shown will include all management reserves and undistributed
budgets. This amount will be the same as that shown on the Total line in
Column (14) on Format 1 (Block 8.g) and Format 2 (Block 5.g).

5.4.1.7 [Difference]{.underline}. Enter in Block 5.g the difference
between Blocks 5.e and 5.f. In most cases, the amounts shown in Blocks
5.e and 5.f will be identical. If the amount shown in Blocks 5.f exceeds
that shown in Block 5.e, it usually is an indication of a formal
reprogramming (Over Target Baseline). The difference will be explained
in Format 5 at the time the negative value appears and subsequently for
any change in the value.

5.4.1.8 [Contract Start Date]{.underline}. Enter in Block 5.h the date
the contractor was authorized to start work on the contract, regardless
of the date of contract definitization. (Long lead procurement efforts
authorized under prior contracts are not to be considered.)

5.4.1.9 [Contract Definitization Date]{.underline}. Enter in Block 5.i
the date the contract was definitized.

5.4.1.10 [Planned Completion Date]{.underline}. Enter in Block 5.j the
completion date to which the budgets allocated in the Performance
Measurement Baseline have been planned. This date should represent the
planned completion of all significant effort on the contract. The cost
associated with the schedule from which this date is taken is the Total
Allocated Budget (Block 5.f of Format 3).

5.4.1.10.1 [Performance Measurement Schedule Inconsistent With
Contractual Schedule]{.underline}. In exceptional cases, the contractor
may determine that the existing contract schedule cannot be achieved and
no longer represents a reasonable basis for management control. With
Government approval, the contractor may rephase its performance
measurement schedule to new dates which exceed the contractual
milestones, a condition known as "Over Target Schedule." These new dates
are for performance measurement purposes only and do not represent an
agreement to modify the contract terms and conditions. The Government
and the contractor will agree on the new performance measurement
schedule prior to reporting it in the Contract Performance Report. The
contractor will provide pertinent information in Format 5 on any
schedule milestones that are inconsistent with contractual milestones,
beginning the month the schedule is implemented and each month
thereafter.

5.4.1.10.2 [Indicators of a Performance Measurement Schedule
Inconsistent With the Contractual Schedule]{.underline}. Formal
reprogramming or internal replanning may result in performance
measurement milestones that are inconsistent with the contractual
milestones (Over Target Schedule). A difference between the planned
completion date (Block 5.j) and the contract completion date (Block 5.k)
indicates that some or all of the performance measurement milestones are
inconsistent with the contractual milestones. However, some performance
measurement milestones may be inconsistent with contractual milestones
even if these dates are the same.

5.4.1.11 [Contract Completion Date]{.underline}. Enter in Block 5.k the
contract scheduled completion date in accordance with the latest
contract modification. The cost associated with the schedule from which
this date is taken is the Contract Budget Base (Block 5.e of Format 3).

5.4.1.12 [Estimated Completion Date]{.underline}. Enter the contractor's
latest revised estimated completion date. This date should represent the
estimated completion of all significant effort on the contract. The cost
associated with the schedule from which this date is taken is the most
likely management estimate at completion (Block 6.c.1 of Format 1).

5.4.2 Column (1) - Item.

5.4.2.1 [Performance Measurement Baseline (Beginning of
Period)]{.underline}. Enter in Block 6.a the time-phased Performance
Measurement Baseline (PMB) (including G&A) which existed at the
beginning of the current reporting period. Most of the entries on this
line are taken directly from the PMB (End of Period) line on the
previous report. For example, the number in Column (4) on the PMB (End
of Period) line from last month's report becomes the number in Column
(3) on the PMB (Beginning of Period) line on this report. The number in
Column (5) (end of period) last report becomes Column (4) (beginning of
period) on this report, etc.

5.4.2.2 [Baseline Changes]{.underline}. List by number in Block 6.b, the
contract changes and supplemental agreements authorized during the
reporting period. All authorized baseline changes should be listed
whether priced or unpriced. The amount of management reserve applied
during the period should also be listed.

5.4.2.3 [Performance Measurement Baseline (End of Period)]{.underline}.
Enter in Block 6.c the time-phased PMB as it exists at the end of the
reporting period. The difference between this line and the PMB
(Beginning of Period) should represent the effects of the authorized
changes and allocations of management reserves made during the period.
Significant differences will be explained in Format 5 in terms of
reasons for necessary changes to time-phasing due to internal replanning
or formal reprogramming, and reasons for the application of management
reserve.

5.4.2.4 [Management Reserve]{.underline}. Enter in Block 7 the total
amount of management reserve remaining as of the end of the reporting
period. This figure will agree with the amounts shown as management
reserve in Formats 1 and 2.

5.4.2.5 [Total]{.underline}. Enter in Column (16) of Block 8 the sum of
Column (16) of Block 6.c (PMB (End of Period)) and Column (16) of Block
7 (Management Reserve). This amount should be the same as that shown on
the Total line (Block 8.g) in Column (14) on Format 1.

5.4.2.6 Estimate at Completion. Enter in Block 9 the time-phased
estimate at completion as it exists at the end of the reporting period.
Significant differences from the previous CPR will be explained in
Format 5 in terms of reasons for changes to time-phasing. The total
value in Column (16) should agree with the total of Column (15) of Block
8.e of Format 1.

5.4.3 [Column (2) - BCWS - Cum To Date]{.underline}. On the PMB
(Beginning of Period) line (Block 6.a), enter the cumulative BCWS as of
the first day of the reporting period. This should be the same number
reported as BCWS - Cum To Date on the Total line (Column (7) of Block
8.g) of Format 1 of the previous CPR. On the PMB (End of Period) line
(Block 6.c), enter the cumulative BCWS as of the last day of the
reporting period. This should be the same number reported as BCWS - Cum
to Date on the Total line (Column (7) of Block 8.g) of Format 1 for this
CPR.

5.4.4 [Column (3) - BCWS For Report Period]{.underline}. On the PMB
(Beginning of Period) line (Block 6.a), enter the BCWS planned for the
reporting period. This should be the number in Column (4) on the PMB
(End of Period) line (Block 6.c) on the preceding month's report.

5.4.5 Columns (4) Through (14). (Note: For the purposes of illustration,
Sample Format 3 has Columns (4) through (14) for reporting BCWS. The
actual number of columns will vary from contract to contract.) Enter the
names of the months in the headings of Columns (4) through (14) of Block
6. In the PMB (Beginning of Period) line (Block 6.a), enter the BCWS
projection reported in the previous CPR as PMB (End of Period) (Block
6.c). In the PMB (End of Period) line (Block 6.c) of this report, enter
the projected BCWS by month for the remainder of the contract. The
time-phasing of each item listed in Column (1) of Block 6.b need not be
shown in Columns (4) through (14).

5.4.6 [Column (15) - Undistributed Budget]{.underline}. On the PMB
(Beginning of Period) line (Block 6.a), enter the number from Column
(15) on the PMB (End of Period) line (Block 6.c) from the preceding
report. On the PMB (End of Period) line, enter the undistributed budget
shown in Column (14) of Block 8.d on Format 1 of this report.

5.4.7 [Column (16) - Total Budget]{.underline}. On the PMB (Beginning of
Period) line (Block 6.a) enter the number from Column (16) on the PMB
(End of Period) line (Block 6.c) from the preceding report. In the
section where baseline changes that occurred during the period are
listed (Column (1) of Block 6.b), enter the amount of each of the
changes listed. On the PMB (End of Period) line (Block 6.c), enter the
sum of the amounts in the preceding columns on this line. On the
Management Reserve line (Block 7), enter the amount of management
reserve available at the end of the period. On the Total line (Block 8)
enter the sum of the amounts in this column on the PMB (End of Period)
line and the Management Reserve line. (This should equal the amount in
Block 5.f on this format and also the amount of the Total line in Column
(14), Block 8.g, of Format 1.)

5.5 Format 4 - Staffing.

5.5.1 [Performance Data]{.underline}. For those organizational
categories shown in Column (1) of Block 5, equivalent months will be
indicated for the current reporting period, cumulative through the
current period, and forecast to completion. Direct equivalent months
will be shown for each organizational category for the contract. An
equivalent month is defined as the effort equal to that of one person
for one month. Figures should be reported in whole numbers. (Partial
months, .5 and above, will be rounded to 1; below .5 to 0.) When the
Government and the contractor agree, staffing may be reported in
equivalent days or hours.

5.5.1.1 [Organizational Category]{.underline}. List the organizational
categories that reflect the contractor's internal management structure
in Block 5. Format 4 categories may differ from those reported in Format
2. If the Government needs different categories in Formats 2 and 4, the
Format 4 categories will be addressed during negotiations. (See 7.6.5
above.)

5.5.1.2 [Total Direct]{.underline}. In Block 6, Columns (2) through
(15), enter the sum of all direct equivalent months for the
organizational categories shown in Column (1).

5.5.2 [Column (2) - Actual - Current Period]{.underline}. Enter the
actual equivalent months incurred during the current reporting period.

5.5.3 [Column (3) - Actual End of Current Period (Cum)]{.underline}.
Enter the actual equivalent months incurred to date (cumulative) as of
the end of the report period.

5.5.4 Columns (4) Through (14) - Forecast (Non Cumulative). (Note: For
the purposes of illustration, Sample Format 4 has Columns (4) through
(14) for reporting staffing forecast. The actual number of columns will
vary from contract to contract.) Enter the names of the months in the
headings of Columns (4) through (14) of Block 5. Enter a staffing
forecast by month for the remainder of the contract. The forecast will
be updated at least quarterly unless a major revision to the plan or
schedule has taken place, in which case forecasts will be changed in the
report submitted at the end of the month in which the change occurred.

5.5.5 [Column (15) - Forecast at Completion]{.underline}. Enter the
estimate of equivalent months necessary for the total contract in Column
(15) by organizational category. This estimate should be consistent with
the most likely management estimate at completion shown in Column (15)
of Block 8.e of Format 1. Any significant change in the total number of
equivalent months at completion of the contract (i.e., Column (15)
Total) will be explained in Format 5.

5.6 Format 5 - Explanations and Problem Analyses.

5.6.1 [General]{.underline}. Format 5, Explanations and Problem
Analyses, is a narrative report prepared to supplement the other CPR
formats. Format 5 will normally address 1) contractually required cost,
schedule and estimate at completion variance analyses, 2) management
reserve changes and usage, 3) undistributed budget contents, 4)
differences between the best case, worst case, and most likely
management estimate at completion, if any, 5) the difference between the
most likely management estimate at completion and the estimate in Block
8.e of Column (15), if any, 6) significant differences between beginning
of period PMB time phasing and end of period PMB time phasing in Format
3, 7) performance measurement milestones that are inconsistent with
contractual milestones (Over Target Schedule), 8) formal reprogramming
(Over Target Baseline) implementation details, and 9) significant
staffing estimate changes in Format 4. However, any topic relevant to
contract cost, schedule or technical performance can be addressed in
this format.

5.6.2 [Total Contract]{.underline}. Provide a summary analysis,
identifying significant problems affecting performance. Indicate
corrective actions required, including Government action where
applicable. Significant changes since the previous report should be
highlighted. Discuss any other issues affecting successful attainment of
contract cost, schedule or technical objectives which the contractor
deems significant or noteworthy. This section should be brief, normally
one page.

3.  [Cost and Schedule Variances]{.underline}. Explain all variances
    which exceed specified variance thresholds. Explanations of
    variances must clearly identify the nature of the problem,
    significant reasons for cost or schedule variance, effect on the
    immediate task, impact on the total contract, the corrective action
    taken or planned, and the expected outcome of the corrective action.
    Explanations of cost variances should identify amounts attributable
    to rate changes separately from amounts applicable to hours worked;
    amounts attributable to material price changes separately from
    amounts applicable to material usage; and amounts attributable to
    overhead rate changes separately from amounts applicable to overhead
    base changes or changes in the overhead allocation basis. To reduce
    the volume of variance analysis, the Government may allow the
    contractor to refer to a prior CPR's variance analysis explanations
    if the explanation for the current CPR's variance has not changed
    significantly. Explanations of schedule variances and the impact to
    the contract must be informed by the schedule analysis of the
    Integrated Master Schedule (IMS).

5.6.3.1 [Setting Variance Analysis Thresholds]{.underline}. The
Government should require the minimum amount of variance analysis in
Format 5 which satisfies its management information needs. Excessive
variance analysis is burdensome and costly, and detracts from the CPR's
usefulness, while too little information is equally undesirable. The
contract should include a provision to review cost and schedule variance
analysis thresholds periodically, normally semiannually, to determine if
they continue to meet the Government's information needs. If they do
not, the thresholds should be changed at no cost to the Government.

5.6.3.2 [Identifying Significant Variances]{.underline}. There is no
prescribed basis for identifying which cost and schedule variances are
to be explained in Format 5. The Government may specify any one of
several ways to identify such variances, including, but not limited to
the following:

5.6.3.2.1 [Fixed Number of Variances]{.underline}. Specify a number of
significant variances. These variances can be either current month,
cumulative, or at‑completion. Any number of significant variances may be
selected, but the Government should be careful to select only the number
that it feels are necessary.

5.6.3.2.2 [Percentage or Dollar Thresholds]{.underline}. Select
variances based on percentage or dollar thresholds. Significant schedule
variances are identified based on their size or percentage to Budgeted
Cost for Work Scheduled, and significant cost variances are identified
based on their size or percentage to Budgeted Cost for Work Performed.
For example, all current month, cumulative or at-completion variances
greater than 10% or \$500K may be selected for analysis. This method
usually results in a larger number of variances requiring reporting.
Consequently, the thresholds should be reviewed periodically to ensure
they continue to provide a reasonable amount of useful information.
(Note: A variation to this method is to select variances based on
percentage and dollar thresholds. For example, all current month,
cumulative or at-completion variances greater than 10% and \$500K may be
selected for analysis).

5.6.3.2.3 [Specific Variances]{.underline}. Select variances for
analysis only after reviewing Formats 1 or 2. Under this method, the CPR
is delivered promptly after the contractor's accounting period ends with
all required information in Formats 1 through 5 except variance
analyses. Once the Government has reviewed this performance data, it
selects specific variances for analysis. This method may be the most
efficient in that the Government can pinpoint areas to be analyzed. It
is also the most flexible because there may be some months where a
review of the performance data yields few or no variance analysis
candidates. However, this method should only be used if the Government
is certain it has sufficient resources to review the CPR early and
select variances each month.

5.6.3.2.4 [No Variance Analysis Thresholds Specified]{.underline}. If
the contract does not specify variance analysis thresholds, the
contractor will determine what significant variance explanations are
reported. These explanations should focus on 1) areas where the
Government should be informed of developing issues or problems, 2) areas
of identified program risk or management interest, or 3) areas of
significantly unfavorable cost or schedule performance.

5.6.4 [Other Analyses]{.underline}. In addition to variance
explanations, the following analyses are mandatory:

5.6.4.1. [Management Estimate at Completion]{.underline}. If the best or
worst case management estimates at completion differ from the most
likely estimate, the contractor must provide a brief explanation of the
difference. Also, if the most likely management estimate at completion
differs from the total entered in Column 15 of Format 1 or 2, the
contractor must explain the difference. The explanations should focus on
such areas as a knowledgeable, realistic risk assessment; projected use
of management reserve; estimate for undistributed budget; and higher
management knowledge of current or future contract conditions. The
assumptions, conditions and methodology underlying all management
estimates at completion must be explained. (See 5.2.2 to 5.2.2.3,
5.2.2.5, 5.2.6.9 and 5.2.6.10 above.) The contractor must also explain
the reasons for significant shifts in time-phasing of the estimate at
completion. (See 5.4.2.6 above.)

5.6.4.2 [Undistributed Budget]{.underline}. Identify the effort to which
the undistributed budget applies. Also, explain any variance between the
undistributed budget and the estimate for undistributed budget in
Formats 1 and 2. (See 5.2.4.4 and 5.3.1.4 above.)

5.6.4.3 [Management Reserve Changes]{.underline}. Identify the sources
and uses of management reserve changes during the reporting period. For
management reserve uses, identify the WBS and organizational elements to
which applied, and the reasons for application. (See 5.2.4.6 above.)

5.6.4.4 [Baseline Changes]{.underline}. Explain reasons for significant
shifts in time-phasing of the PMB shown on Format 3. (See 5.4.2.3
above.)

5.6.4.5 [Staffing Level Changes]{.underline}. Explain significant
changes in the total staffing estimate at completion shown on Format 4.
Also, explain reasons for significant shifts in time-phasing of planned
staffing. (See 5.5.5 above.)

5.6.5 [Formal Reprogramming (Over Target Baseline)]{.underline}. If the
difference shown in Block 5.g on Format 3 becomes a negative value or
changes in value, provide information on the following:

5.6.5.1 [Authorization]{.underline}. Procuring activity authorization
for the baseline change which resulted in negative value or change.

5.6.5.2 [Reason]{.underline}. A discussion of the reason(s) for the
change.

5.6.5.3 [CPR Reporting]{.underline}. A discussion of how the change
affected CPR reporting (i.e., amount allocated to management reserve,
adjustments to cost or schedule variances, etc.).

(See 5.4.1.7, 5.2.5.1 and 5.2.6.7 above.)

5.6.5.4 [Schedule]{.underline}. Indicate whether the contract schedule
was retained for performance measurement or was replaced with a schedule
that exceeds the contractual schedule (Over Target Schedule).

5.6.6 [Over Target Schedule]{.underline}. If a performance measurement
schedule exceeding the contractual schedule (Over Target Schedule) has
been implemented, provide a discussion of the pertinent information,
such as authorization, reasons and significant dates.

(See 5.4.1.10.1 above.)

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