Department’s Implementation of Supplier Earned Value Management System (EVMS) for Weapon System Acquisitions Presented To: NDIA Presented By: Mr Robert Keysar Business Lead, DCMA EVM Center Federal Business Division August 2008

DCMA Role & Responsibilities  December 1995: OUSD(AT&L) Paul G. Kaminski policy memorandum designates the DCMC (DCMA) as the Department of Defense Executive Agent for Earned Value Management Systems  October 1996: OUSD(AT&L) Paul G. Kaminski policy memorandum gives DCMA responsibility for EVMS compliance reviews › Initial compliance evaluations › Post acceptance reviews › Reviews required due to identified deficiencies  48 CFR Part › Designates DCMA as the DoD Executive Agency for EVMS compliance reviews  DFAR Subpart (41) › Assigns the Contract Administration Office (CAO) function for EVMS to the DCMA, including the responsibility for reviewing EVMS plans and verifying initial and continuing compliance with DoD EVMS criteria 2

 July 2007: OSD(AT&L) Kenneth Krieg policy memorandum addresses Naval Audit Service (NAS) recommendation to document DoD EVM roles and responsibilities › Reaffirms DCMA’s function as the DoD subject matter expert for EVMS ▫ Conduct EVMS reviews (initial validation reviews and post acceptance reviews for cause) to verify initial and continuing compliance of supplier management systems ▫ Review EVMS plans to determine adequacy ▫ Conduct periodic surveillance of EVMS to determine continuing compliance of supplier management systems ▫ Determine when a supplier EVMS validation should be suspended or withdrawn ▫ Provide contractual notification to the procuring activity DCMA Role & Responsibilities 3

SUBPART – Earned Value Management System (Added April 23, 2008) Policy. (1) DoD applies the earned value management system requirement as follows: (i) For cost or incentive contracts and subcontracts valued at $20,000,000 or more, the earned value management system shall comply with the guidelines in the American National Standards Institute/Electronic Industries Alliance Standard 748, Earned Value Management Systems (ANSI/EIA-748). (ii) For cost or incentive contracts and subcontracts valued at $50,000,000 or more, the contractor shall have an earned value management system that has been determined by the cognizant Federal agency to be in compliance with the guidelines in ANSI/EIA-748. (iii) For cost or incentive contracts and subcontracts valued at less than $20,000,000— (A) The application of earned value management is optional and is a risk-based decision; (B) A decision to apply earned value management shall be documented in the contract file; and (C) Follow the procedures at PGI (1)(iii) for conducting a cost-benefit analysis.PGI (iv) For firm-fixed-price contracts and subcontracts of any dollar value— (A) The application of earned value management is discouraged; and (B) Follow the procedures at PGI (1)(iv) for obtaining a waiver before applying earned value management.PGI (2) When an offeror proposes a plan for compliance with the earned value management system guidelines in ANSI/EIA-748, follow the review procedures at PGI (2).PGI (3) The Defense Contract Management Agency is responsible for determining earned value management system compliance when DoD is the cognizant Federal agency. (4) See PGI (4) for additional guidance on earned value management.PGI

SUBPART – Earned Value Management System (Added April 23, 2008) Policy. (1) DoD applies the earned value management system requirement as follows: (i) For cost or incentive contracts and subcontracts valued at $20,000,000 or more, the earned value management system shall comply with the guidelines in the American National Standards Institute/Electronic Industries Alliance Standard 748, Earned Value Management Systems (ANSI/EIA-748). (ii) For cost or incentive contracts and subcontracts valued at $50,000,000 or more, the contractor shall have an earned value management system that has been determined by the cognizant Federal agency to be in compliance with the guidelines in ANSI/EIA-748. (iii) For cost or incentive contracts and subcontracts valued at less than $20,000,000— (A) The application of earned value management is optional and is a risk-based decision; (B) A decision to apply earned value management shall be documented in the contract file; and (C) Follow the procedures at PGI (1)(iii) for conducting a cost-benefit analysis.PGI (iv) For firm-fixed-price contracts and subcontracts of any dollar value— (A) The application of earned value management is discouraged; and (B) Follow the procedures at PGI (1)(iv) for obtaining a waiver before applying earned value management.PGI (2) When an offeror proposes a plan for compliance with the earned value management system guidelines in ANSI/EIA-748, follow the review procedures at PGI (2).PGI (3) The Defense Contract Management Agency is responsible for determining earned value management system compliance when DoD is the cognizant Federal agency. (4) See PGI (4) for additional guidance on earned value management.PGI (3) The Defense Contract Management Agency is responsible for determining earned value management system compliance when DoD is the cognizant Federal agency.

Enterprise Level Customer  Recognize the importance of DCMA as DoD Executive Agent for EVMS and USD(AT&L) as our Enterprise-level customer who has entrusted the Agency with overseeing its effective implementation › EVM Center will establish Enterprise-level customer outcomes that will be tied into the overall DCMA operating plan › Working with the EVM Center each CMO will be expected to implement, achieve, and sustain Enterprise-level outcomes to ensure that supplier EVMS are reliable › While it is important that we maintain a working relationship with our program-level customers the importance of maintaining a sense of independence in the execution of our EVMS role and responsibilities is essential 6

“Despite the proven value of EVM, we are not maximizing its benefits in managing defense programs. The policy requirements for applying EVM to DoD contracts are well documented. However, the level of acceptance and use of EVM in program management Department-wide is insufficient, especially given the number of major defense programs experiencing execution problems. Several unfavorable findings from recent audits further indicate that EVM is not serving its intended function in the internal control process”. › Honorable Kenneth J. Krieg USD(AT&L) July 03, 2007 Enterprise: Voice of the Customer 7

“A method of exposing issues and moving them quickly through the scheduling and cost systems for rapid resolution - the current process is too time consuming, causing unnecessary delays that affect crucial decision making processes.” »NAVAIR Program Manager Tactical: Voice of the Customer 8

 Industry Concerns: › Erosion of avenues of communication and problem resolution › Conflicting contractual requirements › Duplicative management systems reviews › Proliferation of independent approaches › Declining government experience and resources  Department Concerns: › Diverse implementation of EVM among and within companies › Maturity of industry infrastructure to support “ownership” of EVM › Lack of institutionalizing EVM as an integral program management tool › Varying levels of confidence in reported performance and financial data › Internal oversight lacks sufficient rigor What DCMA Has Found 9

1.PM & CAM ownership, inattention to budgetary responsibilities □ Funds and budget distinction 2.Supplier processes and toolsets are too cumbersome 3.Customer pressures jeopardize EVMS compliance □ Tailored implementation and reporting requirements 4.Work authorization procedures not followed 5.Lack of integrated management systems □ Budget and data reconciliation issues 6.Front loaded baseline 7.Baseline fluctuations and frequent replannings 8.Current period and retroactive changes 9.Improper use of Management Reserve □ Reserves harvested to improperly cover cost overrun 10.EV techniques not reflecting actual accomplishment □ Progress not tied to technical accomplishment □ False variances 11.Untimely, unrealistic Latest Revised Estimates 12.Monitor progress on a regular basis and in an integrated way Integrity Pressures 10

13.Zero budget work packages and control accounts 14.Lack of vertical and horizontal traceability □ Inability to identify and manage a program critical path 15.Lack of critical subcontractor integration and oversight □ Complexities of a growing supply chain 16.Material performance and accounting misalignment □ Progress improperly tied to financial event 17.Not capturing and using cost and schedule data 18.Lack of predictive variance analysis □ Lack of root cause analysis (impact) 19.Internal controls and surveillance lacking 20.Managerial actions not demonstrated □ Continually evaluate progress and predict and mitigate problems 21.Opportunities lost by reviewing the data at too high a level 22.Measuring progress to the wrong things Integrity Pressures 11

 Deficiencies raise concerns regarding the project management process and the ability to assess emerging issues of cost and schedule in a timely manner › Early detection of trends and issues is key to success  Consequences › Managers unable to assess the magnitude of problems › Inaccurate status information › Misleading cost and schedule performance trends › Delayed visibility of problems › EAC jumps and schedule slips (unwelcome surprises)  Deficiencies considered a material weakness because of the lack of compliance with contractual terms and conditions  Diminishes the purchasing power of the Department › Lower quantities at a higher cost Recognize the Impact 12

Compliance Review Purpose  Provide suppliers the opportunity to demonstrate that contractual terms and conditions have been met through the implementation of an EVMS that complies with the 32 guidelines in ANSI/EIA

System Surveillance Plan (SSP) Purpose  Provide suppliers a consistent standardized process to validate the that contractual terms and conditions have been met through the implementation of an EVMS that complies with the 32 guidelines in ANSI/EIA-748.  Minimizes questions of how the process was applied between suppliers.  Will reduce the need for system compliance reviews if the process is embraced by all involved and actions are worked to closure.  Tool that allows DCMA to perform their DFAR responsibility for EVMS oversight. 14

 Management planning and control tool for integrating a program's scope, schedule, and cost elements into a baseline against which performance and accomplishments can be measured  EVMS generates variance reports from which managers can evaluate progress and status, forecast program impacts, and take any necessary corrective action  Managers have an understanding of the strengths and weaknesses inherent in the methodology before they employ earned value tools EVMS Implementation Objectives 15

EVMS Review Methodology 16  DCMA led with joint participation  Review members organized into teams responsible for major guideline areas that cover nine management processes  Compliance assessed through data traces and manager interviews › Whether descriptive processes and practices are compliant with the ANSI-748 guidelines › Whether descriptive documents containing contractor policies and procedures are used in actual operation › How the data are generated by the system › How the data are used in the management of the program › Managers’ knowledge of EVMS roles and responsibilities Goal: Necessity to implement a standard review process as to eliminate variation in approaches and guideline interpretations, reduce government review team size, minimize program disruption, and control review costs

17  Matter of professional judgment and is influenced by perception of the needs of a reasonable person who will rely on the performance measurement data and financial statements  Materiality judgments are made in light of surrounding circumstances and involve both quantitative and qualitative considerations › Number of discrepancies observed › Associated absolute dollar value impact › Importance of items to the accomplishment of contract requirements › Impact on EVMS and performance reporting Discrepancy Level 1 = Major Finding Non-compliant, significant deficiency that materially affects performance measurement; correction of deficiency must occur before system is accepted What’s a Material Finding

18  OSD (AT&L) continues to make EVM a priority and plans to stay actively engaged  DCMA continues to function as the Department’s Executive Agent for EVMS › Promote the benefits of EVM › Provide advice and assistance › Enforce compliance requirements  DCMA and services will continue to work issues, share improvement ideas and recommend and implement solutions  Goal is to ensure supplier EVMS are effective, consistent, and reflective of the accepted minimum standard Stay the Course

EVM is a Foreword Looking Management Tool The Goal