Meeting Customer Expectations with Variance Analysis Reporting

What is the value of variance analysis reporting (VAR) from the perspective of the customer? How will the customer assess the quality of the VAR? This is an important component to consider.

In previous posts, we talked about the significance of and reasons for writing a monthly VAR.  We also discussed the components of a quality VAR and considerations for the contractor control account manager (CAM) to contemplate in preparing the VAR.

Those of us who have been in EVMS business for many years know that no matter how hard you try and or how much time you devote to preparing CAMs,  VARs are going to take a “hit.” A corrective action request (CAR) or an opportunity for improvement is certain to surface.

The VAR analysis process is somewhat subjective. Not every customer analyst will view the VAR data the same way. However, there are specific areas that the customer analyst will focus on.

Here we explore those areas to provide some guidance on how to successfully produce a quality VAR that is acceptable to the customer.

Most government agencies require their vendors to use the CPR/IPMR Format 5 [refer to DI-MGMT-81861 A] in preparing and submitting their VARs. The major components of the VAR are clearly identified in the IPMR Format 5 – Variance Explanations.

Avoid Common Data Issues

VAR problems generally arise because the data:

  • Are not clear or concise
  • Are not precise enough to explain the situation to the customer (e.g., root cause analysis, impact statements or corrective action plans)
  • Are not recorded in the location as prescribed in the IPMR Format 5 instructions
  • Are totally omitted

Attention to detail on the part of the contractor CAM and the project control staff will alleviate many of these problems.

Establish Reasonable Control Account Values

VARs are required any time a cost or schedule variance (current or cumulative) or variance at completion (VAC) exceeds established thresholds. These thresholds are typically established by the contractor in conjunction with the customer.

Since the total dollar value of a project’s control accounts varies, it is best to use both a fixed dollar value and a percentage of the control account value in establishing thresholds, such as +/- 10% AND +/-$200K. The goal should be to explain at least 80% of control account variance dollar value.

In addition, the customer may impose a limit to reportable variances.  For example, the top 15, cost, schedule and/or variance-at-completion.  This limits the number of VAR submissions to the customer.

Carefully Detail Root Causes

The customer will also typically focus their analysis of the VAR on the contractor’s assessment of the root cause of any variances. In many cases, the contractor will identify a symptom of the variance instead of the root cause. Effective corrective actions cannot be implemented unless the true root cause is correctly identified.

A Six Sigma process utilizing the “5 Whys” technique in conjunction with Ishikawa’s Fishbone Diagram and brain storming techniques typically helps to identify the root cause. This is particularly true in cases where the control account and the issues surrounding the variances are complex.

Outline Impacts and Corrective Action

The customer will also focus on assessing the VAR impact statement. They want to know:

  • The cost and schedule impact, positive or negative, that reported variances are having, or will have, on the control account
  • Associated control accounts
  • The critical path
  • The total program estimate at completion (EAC).

All the above should be clearly stated in the VAR Impact Section of Format 5.

As discussed above, identifying the root cause(s) of the control account variances is a critical step in identifying an effective corrective action. The contractor should clearly discuss what needs to be implemented, when the implementation will be completed, and who is responsible for managing the corrective action. Likewise, a discussion of the expected outcome as a result of the corrective action implementation should be provided.

Detail the Estimate at Completion (EAC)

The contractor’s reported EAC will be highly scrutinized. The customer will want to know the reasons for changes in the monthly EAC. This should be explained in the VAR.

Likewise, the customer will be particularly concerned about the realism of the EAC. Are future work scope and associated risks taken into consideration?

Validity checks of the EAC using TCPIeac vs CPIcum should be discussed. This is particularly true if the difference between the two metrics is .10% or greater. In addition, a discussion of the program manager’s EAC compared to the Independent EACs (IEACS’) Best Case, Worst Case, and Most Likely should be provided.

Pull Essential VAR Components Together

Writing an effective and accurate VAR can be a time-consuming challenge. As customer requirements or expectations increase, the challenge to meet VAR submittal requirements will increase as well. The posts in this series should arm you with the essential tools to successfully meet customer expectations.

Writing an Effective Variance Analysis Report (VAR) – Part 2

Last month we provided an overview of variance analysis as well as a discussion of items to consider when preparing to write the monthly variance analysis report (VAR). This month we expand on the topic and look at the elements of an effective variance analysis report.

It is imperative that the Control Account Manager (CAM) write a clear, precise, and accurate VAR to inform internal management of issues affecting project performance.

Keys to an Effective Variance Analysis Report

A well-written VAR provides this critical information for external customers to understand the current status and future projections of the project. The goal is to write a quality VAR, one that clearly explains the issues that are causing schedule and cost variances and what steps are being taken to correct those issues.

A VAR is required when the established thresholds for deviations from cost, schedule and at-completion objectives are exceeded. However, since the VAR is an excellent communication tool, the project manager may want to consider also having VARs developed for account variances just below these thresholds.

An analysis of the trends, especially those that are negative, may indicate the potential for future problems. This proactive “getting ahead of the game” approach will save time and avoid playing catch up once an issue arises.

When developing the monthly VAR, both the current period data as well as the cumulative data (i.e., since contract start) will be reviewed. Typically, the current data will show greater fluctuations from period to period than the cumulative data. This is normal. The cumulative data tends to smooth out these large fluctuations over time and thus presents a more useful trend line.

Cost, schedule and at-completion variances, assuming they exceed the established thresholds, are addressed each month for both current and cumulative data. VAR thresholds vary from project to project, are developed in conjunction with the customer, and are expressed in a fixed dollar amount and/or a percentage of the control account value.

A typical VAR form (CPR/IMPR Format 5) clearly identifies these three separate areas. (Refer to DI-MGMT-81861 A) On most projects, the contractor will use a VAR checklist to provide guidance to the CAM as to what data to address.

Major components of the VAR (Format 5)

  1. Define the issue(s)/problem(s) – Identify what happened. Is there a cost variance, schedule variance, or both? Are the identified variances for the current period, the cumulative date, or both? Cost variances are expressed in terms of a dollar amount and/or percentage. Schedule variances should be expressed in both dollar impact and duration expressed in days, weeks, or months.
  2. Define the root cause(s) – Identify why the issues happened. Depending on the complexity of the project, identifying the root cause(s) can be a daunting task. It is critical that the root cause(s) are accurately identified. A six-sigma process, using the “5 Whys” technique in conjunction with Ishikawa Fishbone Diagrams have proven to be very effective to identify the true root cause(s). Misidentified root cause(s) will result in ineffective corrective action plans. Thus, cost/schedule variance issues will continue.
  3. Articulate the impact – The impact of variances, depending on the severity, may affect the control account, related control accounts, the project or the entire program. The CAM must be aware of the situation with his/her control account and of the situation with related control accounts. Likewise, the CAM must be aware of his/her role within the project and how control account issues may affect the entire project.
  4. Define an implementation plan for correction(s) – Once the root cause(s) have been correctly identified, the next step is to develop an implementation plan that will address the what, who, and when. Identify what needs to be done to eliminate or mitigate the root cause. Identify who is the responsible party for managing the what to completion Clearly identify a time line and date for when the corrective action is expected to be completed. At this point, the what, who, and when are recorded in the corrective action log.
  5. Address the status of outstanding corrective action(s) – As long as the corrective action is still outstanding, the CAM must report the status of that item in the monthly VAR. An outstanding corrective action for several reporting periods is a good indication that the root cause(s) were incorrectly identified or the corrective action was not properly implemented.At this point, the CAM will evaluate the implementation process to determine if it is working properly. Additionally, with concurrence from the project manager, the CAM will re-evaluate the root cause(s) (Step 2 above) to correctly identify the issues and what needs to be done to correct them. Thus, a new root cause will be developed.

The State of the EVMS Standard

Earned Value Management requirements in the federal space are typically imposed on contractors via either FAR 52.234-4 Earned Value Management System or, for defense contracts, DFARS 252.234-7002 Earned Value Management System (EVMS).

The two clauses are slightly different. The FAR directs contractors to use an EVM system compliant with the guidelines in the EIA-748 standard. The DFARS clause mandates the use of an EVMS compliant with ANSI/EIA-748. Why the difference, and does this mean that there are two different standards?

A Little History

  • May 1998: The first American National Standards Institute (ANSI) Standard for Earned Value Management Systems approved through the Electronic Industries Alliance (EIA), an ANSI partner focused on standards for electronic components. The standard was drafted by the National Defense Industrial Association (NDIA) Program Management Systems Committee (PMSC) and released as ANSI/EIA-748-1998.
  • 2007: EIA announced that it would be devolved into its constituent sectors, one of which was the Government Electronics and Information Technology Association (GEIA). With the dissolution of EIA the standards were to be managed by their respective sectors.
  • 2008: GEIA merged with the Information Technology Association of America (ITAA), and the new organization changed its name to TechAmerica in 2009.
  • 2013: TechAmerica sold their standards program to the Society of Automotive Engineers (SAE) International. It was at this time that ANSI dropped the EIA-748 standard.

Throughout this history, NDIA has continued to be the author and steward of the 748 standard.

Today the EIA-748 standard is maintained by the SAE G-47 Systems Engineering Committee and was most recently revised on January 8, 2019 to EIA748D. The rationale for the change includes the following note:
“NDIA Integrated Program Management Division (IPMD) is the author of and the steward for the EIA 748 Standard for Earned Value Management Systems.

IPMD has a large active base of EVM system users and maintains ongoing contacts with the US Department of Defense and other federal agencies regarding the implementation and use of EVMS. More information can be found at http://www.ndia.org/divisions/ipmd.

Is There an ANSI Standard?

Currently, ANSI has no definitive standard for EVM. It does, however, have PMI FS-PMBOK-2017 A Guide to the Project Management Body of Knowledge (PMBOK Guide), which includes ANSI/PMI 99-001-2017 The Standard for Project Management.

The Project Management Institute (PM) has also published a PMI PSF-EVM-2011 Practice Standard for Earned Value Management – Second Edition. This practice standard is not an ANSI standard. As stated in the preface it is designed “…to expand upon the concept of EVM as presented in the PMBOK Guide in a way that allows for easy understanding and implementation.&rdquo

The Project Management Institute (PM) is an ANSI accredited Standards Developing Organization in the area of project management. PMI is currently in the process of developing a Standard for Earned Value Management, which when approved would become a new ANSI Standard.

What About ISO?

Funny you should ask! The International Organization for Standardization (ISO) recently published ISO 21508:2018 Earned value management in project and programme management.

The ISO standard describes 11 process steps required to implement EVM and is designed to complement ISO 21500: Guidance on project management and ISO 21503, Project, programme and portfolio management — Guidance on programme management.

Where Does That Leave Us?

There are two active EVMS standards today which could be relevant to practitioners in the United States: EIA748D, and ISO 21508:2018.

  • EIA-748 is maintained by the NDIA IPMD on behalf of the Society of Automotive Engineers, and this standard is the one that is referred to by both the FAR and the DFARS.
  • ISO 21508:2018 is maintained by ISO Technical Committee 258. Interestingly, the Secretariat of ISO/TC 258 is currently chaired by ANSI, representing the United States.

ANSI, through PMI, is in the process of developing a new Standard for Earned Value Management. The public comment period for this Standard should open during 2019.

DOE Project Management News, Feb. 2019

The February edition of the DOE Project Management Newsletter is shared here as a must read for anyone involved in an Earned Value Management System (EVMS) project or planning to start one.

This issue continues a series on GAO Scheduling Best Practices with the 7th article in the series, this one on “float.” A second article on GAO Cost Estimating Best Practices is also presented. Also get dates for upcoming workshops and training.

NDIA Integrated Program Management Division Meeting Update

Rooms are now available for the 2019 Spring Integrated Program Management Division Meeting. To secure our group rate at the Hyatt Regency Dulles in Dulles, VA, you must make a reservation before Friday, April 5, 2019. Book online or call the hotel directly at 703-713-1234 and request the NDIA IPMD rate.

The NDIA Integrated Program Management Division Meeting, held April 30 – May 1, 2019, is THE forum for exchanging views and information to promote and communicate integrated program management best practices. it is a great opportunity to interact with government policy makers, broaden your professional network, and contribute to industry guides, white papers, and working groups.

Integrated Program Management Division Meeting Coming April 30

Save the Date! The 2019 Spring Integrated Program Management Division Meeting will take place on April 30 – May 1, 2019 at the Hyatt Regency Dulles in Dulles Virginia.

The NDIA Integrated Program Management Division Meeting is a forum for exchanging views and information to promote and communicate integrated program management best practices.

Visit the event page for details. Registration and the agenda will be available soon.

EVM World 2019

EVM World 2019 Coming May 22-24

Mark your calendar for EVM World 2019. College of Performance Management (CPM) is hosting the 35th Annual EVM World at the Westin Ft. Lauderdale Beach Resort, Fort Lauderdale, Florida on May 22-24.

The title of the conference is “Maximizing Program & Performance Management Through Collaboration.” For more conference information go to the College of Performance Management website.

How to Write a Variance Analysis Report for DoD contracts with an Earned Value Management System Reporting Requirement

Part 1 – Preparing for Variance Analysis Reporting

Variance analysis is a critical component of an Earned Value Management System (EVMS) project. It is important to understand the value of the analysis from the contractor’s perspective to properly conduct variance analysis.

First, we will tackle how to prepare for variance analysis reporting.

There is typically a requirement for variance analysis reporting via the EIA-748 EVM Guidelines and contract. The analysis provides the contractor with a wealth of information regarding the status of the project as well as valuable information regarding the contractor’s EVMS implementation.

As a result of the analysis, the contractor can make appropriate adjustments to improve the system’s implementation and/or corrections to improve the project’s performance.

Assessing Variances During Project Execution

During the execution of the project, the contractor will periodically, typically monthly, assess progress in achieving cost and schedule objectives agreed to by the customer.

  • Cost variances occur when the actual costs of achieving an approved work plan are more, or less, than that agreed to in the original plan.
  • Schedule variances occur as a result of the actual work accomplished being more, or less, than the approved plan.

Variances can be either positive, indicating that the project is under costs and/or ahead of schedule, or negative, indicating that the project is over costs and/or behind schedule.

If variances are significant, that is, they exceed the established thresholds (i.e., a fixed dollar amount and/or percentage of the control account value) than a formal variance analysis report (VAR) is required. This is typically accomplished by completing the CPR/IPMR Format 5 and submitting the report monthly. We’ll discuss the Format 5 in subsequent articles.

Conducting Variance Analysis

Variance analysis should be conducted for both the current period data and on a cumulative basis. Both provide useful information for management.

The cumulative data is particularly important in identifying trends in the data, either positive or negative. The data may also indicate on-going problems that have not been corrected, and thus need extra attention, or that the EVMS implementation is inadequate in producing accurate and timely performance results.

In addition to monthly data analysis, the contractor should review the data that generates the forecasted completion costs of the contract: the estimate at completion (EAC) and the variance at completion (VAC).  It is critical that the contractor know the current performance status and also what impact the current performance will have on future outcomes.

Preparing to Write the VAR

The submission of the CPR/IPMR, including Format 5, is driven by contractual requirements for end of month reporting. So, it is to the benefit of the contractor to prepare in advance to avoid the last-minute crunch to meet the submission deadline. Proper preparation for writing the VAR will enhance the contractor’s ability to write an effective, meaningful report as well meet the submission requirements.

Often, due to the limited time available between month end closeout and report submission requirements, the contractor is faced with the challenging dilemma of VAR quality versus contract submission requirements. Which is worse: getting written-up for the VAR’s poor quality or failure to meet the contractual requirements? Usually the contractual requirements, i.e., the submission date, wins that debate.

Creating a Quality Report, on Time

Perhaps there is a better mean for the contractor to meet both requirements. Let’s explore the possibilities.

The Control Account Manager (CAM) with assistance from the project controls team is responsible for writing the VAR. A central question associated with this process is when to start the writing process.

Contractors have well defined process timelines (a monthly business calendar), but these may not be adequate to meet the VAR submission requirements. All the pertinent data needs to be available, but that information becomes available at different times.

Typically, the schedule performance data is available (assuming the schedule is statused weekly) before the cost data which lags because of end of month close out. If the CAM is monitoring the control account performance information weekly, technical issues resulting in scheduling issues would be known.

At this point, the CAM can make significant headway in completing the Format 5 by writing to the known technical/schedule issues that are causing the variance. The cost data associated with these issues can be incorporated and written to later when they become available. By adopting this methodology, the CAM may gain additional time to devote to writing a more accurate VAR.

Preparation is a critical component to the VAR process. The writing of the VAR can be improved by giving some consideration to the following:

CAM/Project Control Actions

  1. Prior to month-end close out
    1. Enter estimated actuals and validate accruals
    2. Ensure BCR packages are submitted for management approval
    3. Perform schedule realism; ensure schedule status is up to date
    4. Perform material and subcontracting analysis
  2. After month-end close out; prior to VAR development
    1. Finalize schedule performance and “earned value” calculations
    2. Finalize forecast dates
    3. Review/Update ETCs as required
    4. Run cost and schedule health metrics
  3. CAM reviews all pertinent EVM Reports generated by the Project Controls staff
    1. Applies to both current period and historical data (looking for trends)
    2. Understand the control account situation and potential impacts to the program

If the CAM role is performed properly there should be no surprises. The CAM should be completely aware of concerns and potential issues and may have already taken the appropriate corrective actions prior to the submission of the IPMR Format 5.

The key to understanding the program big picture so that VARs – and all reports – are accurate and as insightful as possible is to communicate with other CAMs to be aware of what they are involved with regardless of whether there is a direct impact.

Next month in part 2 of this series we will look at how to write an effective variance analysis report that will provide useful management information to both the contractor and the government customer.

 

Understanding FAR Earned Value Management System (EVMS) Reporting Requirements

Understanding FAR Earned Value Management System (EVMS) Reporting Requirements

In today’s federal market, responding to government solicitations in a timely and complaint manner is ever-more challenging.  Many small or medium size federal contractors who are responding to federal solicitations may have another obstacle: how to comply with Earned Value Management System RFP (Request for Proposal) requirements.

Simply said, Earned Value Management (EVM) is an integrated project management methodology that utilizes a set of integrated core project management principles (e.g., scope, schedule and budget) to assess and measure project performance.

For those companies that have not implemented EVMS as part of their project management process framework , FAR 52.234-3, Post-award Integrated Baseline Review allows a company that has not been determined to be in compliance (e.g., by a cognizant federal Agency or DCMA) with the Electronic Industries Alliance Standard 748 (EIA-748) to submit a comprehensive EVMS plan with the 32 EVMS guidelines as part of their RFP submission.

For example, FAR 52.234-3, states the following:

“Offerors shall not be eliminated from consideration for contract award because they do not have an EVMS that complies with these standards.”

The plan shall:

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

(ii) Distinguish between the offeror’s existing management system and modifications proposed to meet the guidelines;

(iii) Describe the management system and its application in terms of the EVMS guidelines;

(iv) Describe the proposed procedure for administration of the guidelines, as applied to subcontractors; and

(v) Provide documentation describing the process and results of any third-party or self-evaluation of the system’s compliance with the EVMS guidelines.

To learn more about how to write a compliant RFP EVMS Plan, call Basil Soutos, CEO of Samos Advisors LLC, at 703-409-5941 or email  [email protected] 

Winter NDIA Integrated Program Management Division Meeting Scheduled for February 6-7, 2019

Mark your calendar for the next NDIA Integrated Program Management Division (IPMD) quarterly meeting, Feb. 6-7, 2019. These highly beneficial events feature presentations by EVMS experts and end users, expert panel discussions and NDIA EVMS working groups.

NDIA IPMD meetings provide industry EVMS focal points, EVMS practitioners and project managers opportunities to learn about the latest government EVMS policies and practices. They are also an effective forum for exchanging EVMS best practices.

Location
HTC Conference Center
1395 Troutman Blvd. Northeast
Palm Bay, FL 32905

The NDIA IPM Division meetings address the following:

  • Leadership of integrated program management topics
  • Stewardship of the Earned Value Management Standard (EVMS) and guidance
  • Industry interface with government leaders on policy and practices
  • Best practice and implementation guidance
  • Working group sessions on Clearinghouse, Program Management, Planning & Scheduling, Agile & EVM, Prime/Subcontractor, Contracts, CSDR, Surveillance Guide Update

Visit the IPMD Meeting event page to register and for more information.