2. 1 EVM for Contract Managers 1 1 Breakout Session # E14 Presenter: Frank Malsbury, CPCM, Fellow, Integrated Program Management Cert, and Finance “Specialist” Disclaimer: The content of this presentation is 100% opinion of Frank Malsbury and does not represent Raytheon Company in any way. 12 July 2011 2:30PM – 3:45PM

3. Objectives 2 Use EVM via Integrated, Collaborative Perspective EVM is a Management Tool, Use it to Manage Contract Performance Report (CPR) Provides Estimate at Completion (EAC) Forecasts & Explains Variances EVM is In Your Career Path (OMB & OFPP) Apply Federal, DoD EVM Policy Accurately, Wisely Use Leverage Each Contract Section Recognize Every Contract Action Impacts EVM What You Can Do to Help Yourself Practice Using Contract Performance Report Examine the Data, Analyze & Understand, Predict Performance Talking to Both Government & Contractor

4. Earned Value Management 3 -DoD Chose EVM Project Management Technique -Compliant EVM System (Process) Objectively Tracks Physical Accomplishment of Work Compare to Plan -Good Tools + Accurate EVM Data = Early Warning -Make EVM Effective to: -Improve Requirements Definition = Better WP -Understand & Control of Authorized Work -Report Objective Performance for Stakeholders -Focus Right Work Right Sequence Right Time -Status Variance from Plan as We Go Contract = Performance Measurement Baseline

5. One Timeline of Guidance & Direction 4 USD AT&L Memorandum in 2007 – Roles & Responsibilities Issues in Contracts 2008; Contracting Officers Help Report to Congress 2009 – EVM Technique Acquisition Reform 2010 – Do More Without More NDIA 2011 Integrated Program Management CM Article – 1970 to 2011 What Will the Next Report or Focus Group Find?

6. USD AT&L Guidance 5

7. Issues in Contracts 6 5 significant issues

8. Contracting Officers Can Help 7

9. Report to Congress 8

10. National Defense Industrial Association – May 2011 9

11. Integrated Program Management 10 “Three Legged Stool” Cost-Schedule-Technical Demands Integrated Effort and Excellent Communications “Proper use of... [EVMS] tools will prevent... surprises, but those with a singular [functional] objective will not appreciate the... impact of the data that is reported.” Contract Managers are Generalists “... objective measure,... [of] earned value, is the key element in achieving a precise assessment of progress, which is the means to readily identify both positive and negative performance. It also acts as an early warning [EAC] for Control Account Plans that are at risk, thereby highlighting areas that require the implementation and monitoring of corrective action..”

12. Every Contract Action Impacts EVM 11 Negotiate Undefinitized Contract Actions in Timely Manner Impacts Planning – Demand Detail Planning for Near Term; Don’t Accept Contractors Waiting for Definitization to Track Performance Impacts Estimate At Completion “No Cost” Mods Recycle Funds and Add Scope, but No Additional Budget for New Work (Budget At Completion Unchanged) – No Credit for Contractor Underrun! Past Performance Reports Do Not Reflect Good Performance! Know EVM Before Using Withhold Per DFARS 52.242- 7005 Contractor Business Systems (May 2011) – Good “Stick” for EVM, but What is a “Material” Flaw? What is 5% Based On?

13. Ways to Help Yourself 12 Distinguish a Good Basis of Estimates (BOEs) from Weak BOE Can Improve BCWS (Work Planning!) Good BOEs Enable Faster Audits by DCAA Consider Alpha Contracting, One Pass, Partnering Know Clauses & Thresholds for EVM in Your Agency or Department EVM When the Contract Type is Changed in Negotiations, e.g., from FFP to FPIF EVM When Dollar Value Grows From <$20M to Exceed $20M Ask for An EVMS Plan With the Proposal and Evaluate It Before Award What is The Contractor Company/Program Policy? What Tools is the Contractor Using; Proposing? Write Changes to Requirements in the Statement of Work So Each Changed Task Enables Accurate Cost Estimating, e.g., Use “From,” “By,” “To” Format and Demand Good BOEs Add – Delete Proposals for Recycling Funds

14. Ways to Help Yourself 13 Do Not Direct Use of Management Reserve (MR) for New Work MR Belongs to the Contractor, is Not Funds, and Used for Control Purposes, Primarily Risk Management Know Budget Can’t Be Spent; Funding Can Be, Costs Are Paid Wisely Apply Requirement to Conduct IBR “within 180 days” Consider a Flexible 180 Days Consistent with Policy “The Contractor shall conduct the IBR approximately 60 days after the Performance Measurement Baseline is locked down. “Approximately” allows two weeks on either side of the 60 days. “Locked down” means the Work Packages and Planning Package budgets are time-phased in the EVM “engine” and time-phased spread in the Integrated Master Schedule.”

15. Participate in the IBR 14 Improve Your Understanding of the PMB See How Work is Structured in the IMS Witness How Work is Planned and Risks Identified See How the Work is Authorized Check on the Contract Walk-thru Observe How the Control Account Manager Preparations

16. 15

17. Policy in DODI 5000.2 16

18. EVM Requirements – Authority, Need / Requirement, WBS, SOW Purchase Request – Incremental Funding Solicitation – Tailored EVM Source Selection – Section L & M Negotiation – Cost, Schedule, Technical, and EVM Award – Startup, Execute Contract, implement EVM, Integrated Baseline Review Contract Administration – EVM reports – the CPR and IMS Leverage When EVM Required 17 Part IThe ScheduleThe Schedule A Solicitation/Contract Form BSupplies or Services & Prices or Costs CSpecification/SOW/SOO/ORD DPackaging & Marking EInspection & Acceptance FDeliveries or Performance GContract Administration Data H Special Contract Requirements Part IIContract ClausesContract Clauses IContract Clauses Part IIIList of Exhibits & AttachmentsList of Exhibits & Attachments JAttachments and Exhibits Part IVRepresentations & InstructionsRepresentations & Instructions KRepresentations, Certifications, & Other Statements LInstructions, Conditions, & Notices to Offerors MEvaluation Factors

19. FAR 7-105 (b)(11) Management information requirements.... If an Earned Value Management System is to be used, discuss the methodology the Government will employ to analyze and use the earned value data to assess and monitor contract performance. In addition, discuss... timing and conduct of integrated baseline reviews (whether prior to or post award). (See 34.202.) 34.202 FAR 34.201 Policy (a)An Earned Value Management System (EVMS) is required for major acquisitions for development, in accordance with OMB Circular A-11. The Government may also require an EVMS for other acquisitions, in accordance with agency procedures. Skipping some... (c) As a minimum, contracting officers shall require contractors to submit EVMS monthly reports for those contracts for which an EVMS applies. (d) EVMS requirements will be applied to subcontractors using the same rules as applied to the prime contractor. (e) When an offeror is required to provide an EVMS plan as part of its proposal, the contracting officer will determine the adequacy of the proposed EVMS plan prior to contract award. EVM in Acquisition Planning 18

20. EVM in the SOW (Section C) 19 The Statement of Work Contains Requirements for EVM: Product Oriented Contract Work Breakdown Structure (CWBS) Application of ANSI/EIA-748 for a Compliant EVMS Flow Down to Critical Subcontractors / IOTs – Timely Validation Reference to EVM Appropriately Tailored CDRLs Conduct Integrated Baseline Review(s) (IBR) – Performance Measurement Baseline Understood, Credible Leverage for Accurate Performance Measurement Baseline

21. EVM in Provisions (Section I) 20 FAR Clauses –FAR 52.234-2 – Notice of EVMS – Pre-Award IBR –FAR 52-234-3 – Notice of EVMS – Post Award IBR –FAR 52-234-4 – EVMS DFAR Clauses –252.234-7001, Notice of EVMS (solicitation) –252.234-7002, EVMS (contract; new 2011 – ties to withholding) –252-234-7005, Contractor Business Systems (withholding) Clauses Impact EVM –Warranty –GFP “as is” Leverage Clauses, Avoid Special Provision Conflicts

22. EVM in CDRLs (Section J) 21 EVM CDRLs – Read the Data Item Description (DID)!! Contract Performance Report (CPR) – DI-MGMT-81466A Integrated Master Schedule – DI-MGMT-81650 Contract Work Breakdown Structure – DI-MGMT-81334C Contract Funds Status Report – DI-MGMT-81468 Don’t Accept EVM Terms Without Consulting Your EVM Experts Even If You Think You Understand Earned Value Management Implementation Guide Tailoring: Type of Contract (risk based) Technology Maturity Schedule Past Contractor Performance Cost of Data Leverage Tailored CDRLs for Need & Affordability

23. EVM in Instructions (Section L) 22 Guidance to Bidders to Assemble Proposals Proposals Include a Description of the Company EVMS In Accordance With RFP FAR Clauses and a Plan to Implement EVM on the Program Compliance with Validation (>$50M) Requires: –Refer to Advance Agreement, Letter of Acceptance, and a Copy of the Approved EVM System Description; or –Detailed Plan to Obtain EVM Validation: How and When Compliance Only (>$20M and <$50M) Requires a Written Summary of the Proposed EVMS Reference in Sufficient Detail to Show How It Addresses All ANSI/EIA-748 G uidelines Leverage Instructions: Ask for EVMS Plan

24. Evaluating the EVMS Plan (Section M) 23 Section L and M Must Be Aligned, M is Written First Detail How Proposed EVMS Will Be Evaluated; Must Be Adequate to Proposed Effort. The DCMA should facilitate the evaluation. Example: “Provide an effective approach for applying Earned Value Management (EVM) to software.” Add Detailed Criteria to Score “effective approach.” Example: “Has the contractor provided appropriate cost, performance, and schedule metrics (including earned value measures and TPMs) to be used to track and evaluate the progress in reducing risk for the item?” Obtain Input from System Engineer, Price Analyst (cost estimate), & Finance (data + tools) Leverage the Evaluation to Assess EVM

25. Practice: CPR DID DI-MGMT-81466A 24 The CPR consists of five formats Format 1 – Work Breakdown Structure Format 2 – Organizational Categories Format 3 – Baseline Format 4 – Staffing Format 5 – Explanations & Problem Analyses Uses of CPR Data Integrated Cost & Schedule EVM Data Identify the Cost And Schedule Impact of Actual and Potential Problems Provide Valid, Timely Program Status Info for Higher Management The Cpr Provides Timely, Reliable Summary-level Data With Which to Access Current and Projected Contract Performance. Did Has About 110 “Shalls” for Compliance ~70% Error Rate?! Mailing Address! Division? 16 pages

26. CPR – a Manager’s Report 25

27. CPR Template 26 5. Block 16 – Remarks: 5a. Format 1 Instructions: 5.a.1. Contract Work Breakdown Structure (CWBS) elements shall be reported in accordance with the CSDR (Cost and Software Data Reporting) plan attachment X, except for the following: 5.a.1.1. CWBS XXX,XXX,XXX shall be reported at level XX. 5.a.1.2. When the budgeted value of a Level three CWBS element budget exceeds 20% of the Contract Budget Baseline (CBB) then such element will be reported at a lower level where none of the lower reporting elements exceed 20% of the CBB. 5b. Format 1 and Format 2 Instructions: Reporting levels will be reviewed periodically, and may be adjusted by contract modification with no change to the contract price. 5c. Format 3 Instructions: Significant differences (absolute values exceeding +/- 5%) between the Performance Measurement Baseline (PMB) at the beginning and end of each specified period shall be explained in Format 5. 5d. Format 4 Instructions: (5.d.1.) The contractors estimate-to-complete projections shall be used for time phasing equivalent staff months for each organizational category specified in Format 2. (5.d.2.) Significant changes that require explanations in Format 5 are those that change the absolute value of the projected total staff-months at completion of any organizational or functional category by more than +/-5%. 5e. Format 5 Instructions: (5.e.1.) Problem analyses and narrative explanations shall be required for Format 1 elements when cost/schedule variances fall within the following categories: o 5 largest current cost variances exceeding +/- $100K or +/- 5% o 5 largest current schedule variances exceeding +/- $100K or +/- 5% o 5 largest cumulative cost variances exceeding +/- $250K and +/- 5% o 5 largest cumulative schedule variances exceeding +/- $250K and +/- 5% o 5 largest variances at completion exceeding +/- $250K and +/- 5% o other cost and schedule variances or technical performance issues that are causing or are likely to cause significant schedule delays or cost overruns. (5.e.2.) Narrative explanations required and variance thresholds will be reviewed periodically, and may be adjusted by contract modification with no change in contract price. (5.e.3.) Schedule variance narratives shall identify significant missed milestones, impact to major milestones, and expected recovery dates. (5.e.4.) If there are no changes to the reportable element problem analysis, expected impacts, or corrective action status then specify, “no changes since the last reported analysis” and reference the CPR date when the narrative was reported. 5f. CPRs required from subcontractors will be provided electronically using the ANSI X12 Transaction Set 839 specification or the XML equivalent. 26

28. CPR Format 1 - WBS 27

29. CPR Format 1 – the Estimated Cost at Completion (EAC) 28

30. CPR Format 1 – Authorized Unpriced Work 29

31. CPR Format 1 – the Estimated Price 30

32. CPR Format 2 - OBS 31

33. CPR – Format 3 Baseline Changes 32

34. CPR – Format 4 Staffing Forecast 33

35. Format 5, Explanations and Problem Analyses, a Narrative of: Contractually required cost, schedule, and EAC variance analyses MR changes and usage UB contents Differences between the best case, worst case, and most likely management EAC, if any Difference between the most likely management EAC and the estimate in Block 8.e of Column (15), if any Significant differences between beginning of period PMB time phasing and end of period PMB time phasing in Format 3 Performance measurement milestones that are inconsistent with contractual milestones Significant staffing estimate changes in Format 4 Any other relevant topic like the date(s) of the Integrated Baseline Review(s) or Subcontractor Format 5 CPR Format 5 – Read Program Summary 34

36. Conclusions 35 Build a Strategy to Use EVM to Do More Without More Integrate and Leverage Your Contract Actions with EVM Jointly Understand Impact of Every Contract Change on Company EVMS Use the CPR to Manage and Answer the Three Key Program Management Questions: How are you doing? How do you know? Where are you going? Make Your Place on the EVM Team!