Replanning, Reprogramming, and Single Point Adjustments July 2013 NAVY CEVM Welcome to CEVM training for Replanning, Reprogramming, and Single Point Adjustments

Outline Definitions and theory Models to examine the effects Impacts and recommendations Post-OTB/SPA reporting This training discusses contract rebaseline options and attempts to demonstrate the impacts of these options on program reporting. We will look at models both with and without single point adjustments and with and without OTBs. We will discuss the impacts and make recommendations. Finally, we’ll quickly address some modified reporting metrics and formats that become useful after an OTB/SPA.

Acronyms and Basic Definitions BCWS – Budgeted Cost of Work Scheduled, time phased budget BCWP – Budgeted Cost of Work Performed, earned value ACWP – Actual Cost of Work Performed, actuals BAC – Budget at Complete (sum of all BCWS) EAC – Estimate at Complete VAC – Variance at Complete (BAC-EAC) ETC – Estimate to Complete, time phased estimate of future cost Basic EVM acronyms and definitions.

Rebaselining? Be More Specific Rebaseline – a general term that refers to a major realignment of the performance measurement baseline performed to improve the correlation between the work plan and the baseline budget, scope, and schedule may be performed against limited WBS elements, limited Contract Line Items (CLINs), or against the total contract/program. For the purpose of this training we assume a total contract/program level rebaseline. Replanning and Reprogramming are two types of rebaselines and are defined in the following charts Single point adjustment refers specifically to the treatment of incurred variances within the rebaseline transaction. Even experienced EVM professionals often incorrectly use the term rebaseline as if it is synonymous with other terms like Replan, Reprogram, Single Point Adjustment (SPA), or Over Target Baseline (OTB), but understanding the differences between these terms can be important to understanding reporting data. Rebaseline is a general term referring to any major realignment of the performance measurement baseline that is performed to improve the correlation between the work plan and the baseline budget, scope, and schedule. A rebaseline can be performed against limited WBS elements, limited CLINs or against a total contract. For the purposes of this training, we’ll be discussing rebaselining of the total contract. Replanning, Reprogramming, SPAs and OTBs are all different types or aspects of Rebaseline transactions. The next few charts attempt to sort out the different meanings.

What is Replanning? Replanning - refers to a realignment of the schedule baseline and a reallocation of the budget baseline for remaining effort (rebaseline) where the revised plan falls within the existing cost and schedule constraints of the contract Rebaseline No increase to CBB No extension of period of performance The term replanning refers specifically to a rebaseline where the revised cost and schedule baselines are within the existing cost and period of performance constraints of the contract. In a replanning, there can be no increase to the CBB or extension of the period of performance barring a separate, unrelated contract modification.

What is Reprogramming? Reprogramming - refers to realignment of the schedule baseline and a reallocation of budget baseline for remaining effort (rebaseline), but it differs in that it results in one or both of the following scenarios: Over Target Baseline (OTB) - A performance measurement baseline (PMB) where additional BCWS is added such that the total allocated budget (TAB) exceeds the negotiated contract budget base (CBB) Over Target Schedule (OTS) - A schedule with baseline dates that exceed the contract milestones A reprogramming is different from a replanning in that it is not subject to the same cost and period of performance constraints. A reprogramming is a rebaseline transaction that results in either an Over Target Baseline (OTB) or an Over Target Schedule (OTS). In the case of an OTB, BCWS is added to the baseline such that TAB exceeds the CBB. In the case of an over target schedule, the revised baseline dates are allowed to extend past the contractual milestone dates.

What is a Single Point Adjustment? Single Point Adjustment (SPA) refers specifically to the elimination of historical performance variance as a part of a rebaseline transaction (via current month adjustment). There are several types, but the most common SPA types are: Cost & Schedule – BCWS and BCWP are set equal to ACWP, thereby eliminating both cost and schedule variances. Schedule only – BCWS is set equal to BCWP, eliminating the schedule variance. Cost performance metrics are left intact. Because one or both of the variance metrics is reset, an SPA is often simply referred to as a “Reset”. Simply put, a Single Point Adjustment is the elimination of schedule and/or cost variances. A Cost and Schedule SPA involves setting both Budgeted Cost for Work Performed (BCWP) and Budgeted Cost for Work Scheduled (BCWS) equal to Actual Cost of Work Performed (ACWP) thereby eliminating both schedule and cost variances. By contrast, a schedule-only SPA simply eliminates schedule variance by setting BCWS equal to BCWP. While a cost only SPA can be performed by setting BCWP to ACWP, it is not recommended since it creates an artificial schedule variance.

What factors drive OTBs, OTSs and SPAs? Improper baseline control Pressure to improve EV metrics may influence contractor or government program management to inappropriately suggest an SPA. Legitimate justifications Significant changes to scope Significant changes to the technical approach to effort Variances become so large that usefulness of metrics as a path forward is questionable Unfortunately, Replanning, Reprogramming and SPA transactions occur all too frequently. In part, this is driven by the fact that both contractors and government offices may feel pressure to eliminate variances in order to improve their metrics. There are of course several very legitimate reasons for using these transactions. Specifically, they may be justified based upon significant changes to scope, significant changes to the technical approach, or the accumulation of variances so large that usefulness of the metrics against the current baseline as a path forward is seriously compromised.

Examples To Show Impacts For the next 5 slides, consider the following contract: Month 4 has just ended Status SV=(12), CV=(32) Work remaining = $80 - $28 = $52 Contractor revises EAC to project a 100% overrun For each scenario, assume contractor achieves the EAC cost and schedule projection. Cat 1 2 3 4 5 6 7 8 9 10 Total BCWS/BAC 80 BCWP 28 ACWP 15 60 ETC/EAC 20 160 The next five slides demonstrate use of some of the most common rebaseline approaches in order to show the impact of each on program reporting metrics. Each example is based upon the same 8 month contract with a linear BCWS spread. For each, assume period four (4) has just closed and the contractor is reporting a revised ETC with an EAC of $160, representing a projected Variance at Completion of $160-$80 or $80. In order to best demonstrate the impact of the reporting options, for this model we assume that the revised forward plan is successful and that the contractor achieves the reported EAC value upon contract completion. Two of the scenarios will examine the impact without OTB, and three will examine the impact with an OTB. Note: Columns 1-10 in the table above reflect current month data; cumulative evaluations must be summed. Through period 4, SV = BCWP- BCWS or 28-40 = (12). Cost Variance equals BCWP-ACWP or 28-60 = (32).

No SPA Replan, No OTB CV degradation continues at pace Cat 1 2 3 4 5 6 7 8 9 10 Total BCWS/BAC 80 BCWP 10.4 7.8 ACWP 15 20 160 EAC/ETC CV degradation continues at pace CPI settles into the average program cost efficiency Schedule metrics inevitably improve as the contract closes The first and most basic scenario demonstrates the impact of a decision to simply execute against the revised ETC without utilizing an SPA or OTB. For the sake of simplicity, assume that ACWP was incurred as forecast by the ETC, and that BCWP was achieved proportionally. As you can tell, cost degradation continues for the life of the contract and CPI naturally stabilizes around the contractor’s average cost performance to a final value of .5 (BAC 80/ EAC 160). The schedule variance eventually shows positive trends as every schedule variance recovers over time.

Cost & Schedule SPA, No OTB/OTS Cat 1 2 3 4 5 6 7 8 9 10 Total BCWS/BAC 30 80 BCWP 37 ACWP 15 20 160 EAC/ETC By reducing future budget to cover incurred overruns, the rate of future CV and CPI degradation inherently increases and the same final VAC is reached This second scenario demonstrates the impact of implementing a cost and schedule SPA without an OTB/OTS. By definition, the variances are eliminated. Based on the BCWP claimed to date, the equivalent of $52 of budgeted work would have remained unperformed against the old baseline, but the cost component of the SPA forces a reduction in budget for this scope from $52 to $20 in order to eliminate the incurred $32 cost variance from period 4. The adjustment is reflected in the chart by the upward artificial improvement in that month. Given our assumption that the ETC is performed as planned, SV and SPI metrics remain healthy going forward; however, lower future BCWS allocations result in lower BCWP claimed against ACWP, and therefore the rate of future unfavorable cost variance increases significantly. Ultimately, the VAC is no better than it would have been if the SPA had not been performed. Schedule metrics were reset and experience some minor delays but inevitably recover as the contract closes

Cost & Schedule SPA, OTB/OTS Cat 1 2 3 4 5 6 7 8 9 10 Total Revised BCWS/BAC 30 20 15 160 BCWP 37 ACWP EAC/ETC Since both incurred variances and the ETC were covered by OTB budget, future cost variances are minimized or avoided This third scenario demonstrates the impact of implementing both an OTB/OTS and an SPA for cost and schedule. As in the prior example, period 4 data is adjusted to eliminate the incurred cost and schedule variances, and remaining effort is rephased; however, in this case, future BCWS is set = ETC for months 5-10, and BAC is therefore effectively set equal to EAC at $160. Accordingly, the VAC post-OTB is now $0 since future metrics are measured against the revised higher cost baseline. Schedule metrics were reset and progress occurs as expected against the revised plan. Note the adjustment in month 4 sets BCWS = ACWP

Schedule Only SPA, OTB/OTS Cat 1 2 3 4 5 6 7 8 9 10 Total Revised BCWS/BAC -2 20 15 128 BCWP ACWP 160 EAC/ETC Since incomplete effort is re-phased but only the ETC is covered by OTB budget, CV stops growing and CPI improves. This fourth scenario demonstrates the impact of an OTB/OTS executed with a schedule only SPA. This time, the BCWS only is adjusted in period 4 from $10 to -$2 to eliminate the $12 incurred schedule variance, but like the prior example, future BCWS is set = ETC for months 5-10. This effectively increases the BAC by a net $48, from $80 to $128. Since the cumulative CV is not eliminated and current cost efficiency is 1.0 for each future month, cumulative CPI shows a positive trend and tops out at 0.8 at the end of the contract (BAC/ACWP = 128/160 = 0.8). Schedule metrics were reset and progress occurs as expected against the revised plan Note the adjustment in month 4 simply reduces the cumulative BCWP for incomplete effort replanned forward

OTB/OTS with Limited/No SPA Cat 1 2 3 4 5 6 7 8 9 10 Total Revised BCWS/BAC 20 15 124 BCWP 16 ACWP 160 EAC/ETC In this example, only un-started tasks are rebaselined at their ETC cost. A portion of period 5/6 ETC cost represents recovery of late tasking, and won’t receive OTB budget. This final scenario demonstrates the impact of an OTB/OTS with no (or a very limited) SPA adjustment. Because in progress tasking is not rebaselined and receives no additional budget, the overall amount of the OTB will be less than it would be in other OTB scenarios with SPAs. You’ll notice that period 5 BCWS is limited reflecting the fact that the new baselines for many of the future tasks are being pushed out by the forecast completion of the in-progress tasking. As work proceeds, in-progress tasks close by the end of period 6, and the rebaselined activities proceed according to plan. The impact to metrics is similar to that of an OTB with schedule only SPA; however, the recovery of SV is not immediate. In reality, there are likely to be unstarted activities with BCWS in prior periods that the contractor will want to rebaseline, so an OTB with no SPA at all is very rare. In reality, minor SPA adjustments are likely to be necessary Schedule for in-progress tasking recovers by period 6 Future efforts proceed as rebaselined

Take-aways A Single Point Adjustment by itself does not “fix” a program with an unfavorable cost variance Don’t assume that an OTB with SPA is the best solution. If an OTB/OTS is deemed necessary, carefully consider what will/will not be replanned, and whether or not a reset of variances is necessary or even desirable From a Government perspective ,a contract should never implement an SPA without an OTB The key is to have an executable plan for the future Having gone through these different scenarios, lets review a few points. An SPA by itself does not fix a program with an unfavorable cost variance. Using an SPA to eliminate cost variance without also using an OTB simply sets up the program for more significant unfavorable current period variances going forward. If future budget is determined to be grossly inadequate for the associated scope, an OTB may be advisable, but a simple replan without a single point adjustment may suffice. Further, if the baseline schedule is still accurate and useful, simply executing against the original baseline and incurring the forecast cost overrun may be the most cost effective approach. Don’t forget that these transactions can be administratively burdensome and costly. If an OTB/OTS is deemed appropriate, remember that the optimal decision regarding SPA & SPA type may vary by program. On one program, a complete and total elimination of variance may be the best solution. On another program where in-progress effort is extremely complicated and nearing completion, excluding it from the rebaseline may be a more reasonable and cost effective choice. Each situation is different, but from a Government perspective a contract should never implement an SPA without also implementing an OTB The key is to have an executable plan for the future. See the OSD OTB/OTS Guide for further information about what to consider and how to implement a successful OTB/OTS.

Reporting Performance After an OTB with SPA After an OTB with SPA has been processed, simple cumulative metrics will be artificially favorable/unfavorable. Alternate, revised cumulative metrics should be reported from the adjustment date forward to evaluate post-OTB/SPA performance. The following revised formulas are used: CVotb = (BCWPcum - BCWPotb) - (ACWPcum - ACWPotb) SVotb = (BCWPcum - BCWPotb) - (BCWScum - BCWSotb) CPIotb = (BCWPcum - BCWPotb) / (ACWPcum - ACWPotb) SPIotb = (BCWPcum - BCWPotb) / (BCWScum - BCWSotb) In these formulas, the OTB subscript for BCWS, BCWP, and ACWP indicates the metric value when the OTB was implemented. Once a contract has performed an OTB with SPA, additional and/or alternative reporting metrics become useful. CV, SV, SPI, and CPI formulas can be adjusted to calculate from the point of reset. Post-OTB indices are provided here. Although the standard cumulative metrics may be skewed, they may still be beneficial.

OTB Variance Trends 10% Variance Thresholds OTB Amount Overrun to Original Baseline OTB Implementation Date Overrun to New Baseline This graphic illustrates reporting variances after an OTB. When historical variances are artificially eliminated by an SPA, trend analysis becomes even more significant. Most tools support the calculation of 10% bands (shown as dashed lines from the point of reset implementation) as a means of showing when variances to the revised plan are significant. Variances to OTB Baseline

Additional Resources For Additional information on OTB and OTS implementations, refer to the Over Target Baseline and Over Target Schedule Guide released by OUSD AT&L (PARCA) on December 5, 2012.

Navy Center for Earned Value Management Point of Contact Navy Center for Earned Value Management (703) 695-0510 http://acquisition.navy.mil/acquisition_one_source/cevm