J.14 ITS A0001 EVMS_IntentGuide_Nov06_Appendix.pdf

National Defense Industrial Association (NDIA) Program Management Systems Committee (PMSC)

Earned Value Management Systems Intent Guide

November 2006 Edition

© NDIA PMSC Earned Value Management Systems Intent Guide August 2006 Edition. This document may not be reprinted without permission. For permission to reprint, please contact NDIA Procurement Director Ruth Franklin at rfranklin@ndia.org.

ANSI EIA-748-A guidelines that are shaded in grey within document are reprinted with permission. These guidelines were excerpted from GEIA Standard EIA-748-A and are © 2006 Government Electronics and Information Technology Association. All rights reserved. For a complete copy of GEIA Standard EIA-748-A, go to www.geia.org and click on the On-Line Store.

November 2006 Edition

National Defense Industrial Association 2111 Wilson Blvd., Suite 400 Arlington, VA 22201

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NDIA PMSC

ANSI/EIA-748-A Intent Guide

3 November 2006

CONTENTS

1 PURPOSE AND SCOPE

2 INTENT GUIDE TO THE EVMS GUIDELINES

2.1 ORGANIZATION

Intent Guideline 1 Intent Guideline 2 Intent Guideline 3 Intent Guideline 4 Intent Guideline 5

2.2 PLANNING, SCHEDULING, AND BUDGETING

Intent Guideline 6 Intent Guideline 7 Intent Guideline 8 Intent Guideline 9 Intent Guideline 10 Intent Guideline 11 Intent Guideline 12 Intent Guideline 13 Intent Guideline 14 Intent Guideline 15

2.3 ACCOUNTING CONSIDERATIONS

Intent Guideline 16 Intent Guideline 17 Intent Guideline 18 Intent Guideline 19 Intent Guideline 20 Intent Guideline 21

2.4 ANALYSIS AND MANAGEMENT REPORTS

Intent Guideline 22 Intent Guideline 23 Intent Guideline 24 Intent Guideline 25 Intent Guideline 26 Intent Guideline 27

2.5 REVISIONS AND DATA MAINTENANCE

Intent Guideline 28 Intent Guideline 29 Intent Guideline 30 Intent Guideline 31 Intent Guideline 32 i November 2006

3 EXAMPLE PROCESS DESCRIPTION COMPLIANCE MAP

3.1 DEVELOPING A COMPLIANCE MAP TO THE EVMS GUIDELINES

3.2 EXAMPLE COMPLIANCE MAP

APPENDIX A COMPLIANCE MAP TEMPLATES

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1 PURPOSE AND SCOPE

This Intent Guide was created by the National Defense Industrial Association (NDIA) Program Management Systems Committee (PMSC) to provide additional insight into the Earned Value Management System (EVMS) guidelines included in Section 2 of the ANSI/EIA-748-A Standard for Earned Value Management Systems. It is applicable to either government or industry communities for the purpose of documenting how their earned value management system complies with the ANSI/EIA 748 EVMS Guidelines.

A contractor, subcontractor, or government agency who needs to demonstrate or who wants assurance that their system complies with the standard should use this intent guide to develop a compliance map documenting how their business processes conform to the ANSI/EIA EVMS Guidelines. The objective of the compliance map is to demonstrate that a contractor, subcontractor, or agency has thought through each guideline and can describe how their business process complies with the guideline.

Section 2 provides the management value, intent, typical attributes, and objective evidence found in typical outputs for each of the guidelines listed in Section 2 of the ANSI/EIA 748 standard. Not all of the typical attributes and objective evidence typical outputs must be present for an intent guideline to be met. The use of the word “typical” is intended to convey that they are examples, but not the only ways, of demonstrating a guideline has been met. To be most effective, compliant business process and system documentation should be implemented on an organizational basis instead of program by program, and the implemented level of detail should be commensurate with the management needs of the program.

Note: For this guide, the terms “project” and “program” are used and intended to be interchangeable. Additionally for this guide, the term Critical Path is used to “mean the sequence of discrete work packages and planning packages (or lower-level task/activity) in the network that has the longest total duration.” The term “work package and planning package (or lower-level task/activity)” is intented to provide implementation flexibility to schedule at either the work package or lower level task/activity.

Section 3 in this document provides an example of a process description compliance map and Appendix A provides a compliance map template that can be used to help a company develop their own compliance map.

A customer or industry reviewer of an earned value management system can use the compliance map described in this document as the basis for verifying compliance with the ANSI/EIA 748 EVMS Guidelines. However this guide should not be interpreted as adding additional requirements that must be met in conforming to the ANSI/EIA 748 EVMS Guidelines.

In performing an assessment or verification that business processes and system documentation complies with the ANSI/EIA 748 EVMS Guidelines, the NDIA PMSC recommends the following:

1. Contractor business processes and system documentation is mapped to and complies with the guideline intent, typical attributes, and typical objective

November 2006 evidence outputs described in this document by the process owner. See Section 3 for an example.

2. A party independent from the documenting party verifies the compliance assessment.

3. The verifying party is versed in the ANSI/EIA 748 EVMS Guidelines.

4. The customer must recognize this method (i.e., 1 above) as applicable for the compliance assessment verification to have meaning.

5. Customers should consider past acceptance of compliance to the ANSI/EIA 748 EVMS Guidelines, business organization application policy, and surveillance activity before making a management decision to perform a compliance assessment.

For ongoing verification of continued compliance with the ANSI/EIA 748 EVMS Guidelines, use the NDIA PMSC Surveillance Guide.

For definitions of common terms used in this intent guide, see Section 2.6 in the ANSI/EIA 748 standard document.

Recommended changes to sections of this guide may be submitted to the NDIA PMSC Chair or Co-Chair for review and update following approval of the committee. Contact names can be found on the NDIA web site.

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2 INTENT GUIDE TO THE EVMS GUIDELINES

2.1 Organization

a) 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.

Management Value

The Work Breakdown Structure (WBS) is used as the basic building block for the planning of all authorized work. The WBS is a product-oriented division of project tasks depicting the breakdown of work scope for work authorization, tracking, and reporting purposes that facilitates traceability and provides a control framework for management. It should ensure that the Statement of Work (SOW) is entirely covered and allow for the integration of technical, schedule, and cost information. The WBS also facilitates communications as it establishes a common frame of reference for customers, management, and Integrated Product Teams (IPTs).

Intent Guideline 1

A WBS is a direct representation of the work scope in the project, documenting the hierarchy and description of the tasks to be performed and their relationship to the product deliverables. The WBS breaks down all authorized work scope into appropriate elements for planning, budgeting, scheduling, cost accounting, work authorization, measuring progress, and management control. The WBS must be extended to the level necessary for management action and control based on the complexity of the work. A WBS dictionary is typically used to define the work scope for each unique element in the

WBS.

Typical Attributes:

• Only one WBS is used per project and it contains all project work, including revisions for authorized changes and modifications.

• The WBS contains all contract line items and end items.

• The WBS identifies all WBS elements specified for external reporting.

• The WBS is extended at a minimum to the control account level.

• The WBS elements should collectively provide a complete definition of work scope requirements.

• The WBS may evolve as the project requirements change.

Objective evidence may be found in these typical outputs:

• Work Breakdown Structure (WBS).

• WBS dictionary (may or may not be used, but a method to reconcile the statement of work to the WBS structure must be demonstrated).

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b) 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.

Management Value

The OBS helps management focus on establishing the most efficient organization by taking into consideration the availability and capability of management and technical staff, including subcontractors, to achieve the project objectives.

Intent Guideline 2

Assign organizational responsibility for the project work. An OBS is used to facilitate the assignment of responsibility, accountability, and authority for all tasks to be performed.

An OBS is a direct representation of the hierarchy and provides a description of the organizations established to provide resources as well as to plan and perform the work tasks. The OBS identifies the organization responsible for each segment of work, including subcontracted and intra-organizational effort. The assignment of lower-level work segments to responsible managers should provide key control points for management purposes. When effort is subcontracted, the applicable subcontractor is identified and related to the appropriate WBS element(s) and/or organization charged with acquiring the subcontracted item.

Typical Attributes:

• All authorized work is assigned to organizational elements.

• Organization elements are work teams, functions, or whatever organization units are used by the company for execution of the program work efforts.

• Major subcontractor work efforts are integrated into the program structure.

Objective evidence may be found in these typical outputs:

• Organization Breakdown Structure (OBS).

• OBS intersections with the WBS.

c) 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.

Management Value

The integration of planning, scheduling, budgeting, work authorization, and cost accumulation management processes provides the capability for establishing the Performance Measurement Baseline (PMB), identifying work progress, and collecting actual costs, facilitating management analysis and corrective actions. The WBS and OBS allow summarization of cost data from the detail level through both the WBS and the OBS to the appropriate project level needed for management insight and control.

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Intent Guideline 3

Integrate the technical, schedule, and cost elements of the project through project plans that include schedules, budgets, authorization of work, and accumulation of costs, all consistent with the budget plan. The work tasks are assigned to a WBS and OBS and are traceable to the planning and budgeting system and the cost collection system.

Establishment of unique coding structure facilitates the linkage between the planning, scheduling, budgeting, work authorization, cost accumulation, and performance measurement processes.

Typical Attributes

Provide a logical framework that links the products of the management processes through common data elements. Examples include cross-references between the statement of work and WBS, the master schedule and performance measurement tasks, and the detail schedules and control account plans.

Objective evidence may be found in these typical outputs:

• Master, intermediate, and detail level schedules.

• Manufacturing Requirements Planning (MRP) or Enterprise Requirements Planning (ERP) operational schedules.

• Control account plans.

• Performance reports by WBS and OBS.

• Responsibility Assignment Matrix (RAM).

• Statement of Work.

• Work authorizations.

• WBS and OBS.

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

Management Value

Visibility into direct and indirect costs is essential for successful management of a project. Therefore, it is important to have a documented process and organizations established specifically to manage and control indirect costs.

Intent Guideline 4

Indirect costs are for common activities that cannot be identified specifically with a particular project or activity and should typically be budgeted and controlled separately at the functional or organizational manager level. Clearly identify managers who are assigned responsibility and authority for controlling indirect costs, including overhead, burden, and General and Administrative (G&A) costs, and who have the authority to approve expenditure of resources. The process for management and control of indirect costs, including assignment of responsibility, is typically documented in the organization’s approved accounting procedures.

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Typical Attributes:

• Indirect account structure and organizational assignment/authority level are clearly defined.

• Documented process clearly defines:

o How overhead resources are assigned, budgets are established, and expense is controlled.

o Who is responsible within the organization for establishing overhead budgets and their authorities.

Objective evidence may be found in these typical outputs:

• Cost Accounting Standards (CAS) disclosure statement.

• Organizational chart.

• Chart of accounts.

e) 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.

Management Value

The careful establishment of the control account structure ensures the proper level of management is established based on the complexity of the work and the capability of the organization. It also establishes the lowest level of performance measurement necessary for program management.

Intent Guideline 5

The integration of the WBS and OBS creates control accounts that facilitate schedule and cost performance measurement.

The control account is the point where the WBS tasks and OBS responsibility intersect. It is defined as the point where a single functional organization or integrated product team has responsibility for work defined to a single WBS element. It is also the primary point for work authorization, work performance management, and work performance measurement; i.e., where planned value is established, earned value is assessed, and actual costs are collected. Each control account is assigned to a control account manager.

The control account manager is responsible for ensuring the accomplishment of work in his or her control account and is the focal point for management control.

Typical Attributes:

• A single control account is visible at the intersection of the WBS and OBS.

• The control account clearly identifies any supporting activities.

• The estimated costs of work performance elements are evident.

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Objective evidence may be found in these typical outputs:

• Control accounts.

• Responsibility Assignment Matrix (RAM).

• Contract Performance Reports (CPRs), if applicable.

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2.2 Planning, Scheduling, and Budgeting

a) 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.

Management Value

Scheduling authorized work facilitates effective planning, statusing, and forecasting, all of which are critical to the success of all projects. The integration of the technical, schedule, and cost aspects of the project results in the:

• Expected sequence of work.

• Establishment of significant interdependencies between work packages and planning packages (or lower-level tasks/activities) that determine total work time and critical path through the project.

• Time-phasing of authorized discrete work for use as a performance measurement baseline.

Intent Guideline 6 The scheduling process documents and the resulting project schedule provide a logical sequence of work leading to a milestone, event, and/or decision point needed to ensure that the schedule supports the project objectives. There is a clear definition of what constitutes commencement and completion of each work package and planning package (or lower-level task/activity). While no specific scheduling software is required, but there must be horizontal and vertical integration of the schedule through the framework of the WBS and OBS. Government development programs or significant development efforts typically schedule the discrete authorized work through the use of a network schedule.

Production programs typically schedule using a Manufacturing Resource Planning (MRP) or Enterprise Resource Planning (ERP) tool employing a line of balance schedule that supports the project objectives.

The master schedule must agree with the project objectives, include all key events, and reflect a logical sequence of events. Ensuring that all team members are working to the same project schedule is essential for monitoring progress, analyzing variances, and tracking corrective actions.

An integrated network scheduling system has the following characteristics:

• Distinct tasks that can be summarized up through the WBS and OBS to track progress and measure performance.

• The schedule reflects all the time-phased discrete work to be accomplished that is traceable to the WBS and the Statement of Work.

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• Critical target dates, project milestones, contractual events, accomplishment criteria, and project decision points are identified and are being used to plan, status, and monitor progress of the work.

• The schedule describes the sequence of work and should consider the significant interdependencies that are indicative of the actual way the work is accomplished.

The schedule links key detail work packages and planning packages (or lower-level tasks/activities) with summary activities and milestones.

• Significant interdependences should be defined at a consistent level of detail to support development of a critical path. The minimum level linkage is at the work package and planning package level. The schedule should be designed for effective management purposes and contain a critical path for the entire contractual period of performance.

• Discrete tasks/activities along the critical path have the least amount of float/slack.

• Each key program milestone (for example, System Design Review, Preliminary Design Review, or Critical Design Review) must be logically linked within the master schedule network.

• Resource estimates from the budget plan are reasonable and resources are available to support the schedule.

• The schedule is reasonable as a baseline for achieving project requirements as demonstrated through schedule analysis techniques.

• The baseline schedule is the basis for measuring performance.

• The schedule provides current status and forecasts of completion dates for all discrete authorized work.

• The schedule network relationships support the development of a critical path for development projects.

Objective evidence may be found in these typical outputs:

• Integrated network schedules including master, intermediate (if any), and detailed schedules.

• MRP or ERP schedules, or planned order reports.

• Control account plans (may be separate plans or detail schedules).

• Work authorization documents.

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

Management Value

Objective indicators enable measurement of work accomplished, thereby allowing its accurate comparison to planned work. Meaningful performance metrics enable better

A-8 November 2006 management insight and decision-making, ensuring that maximum time is allowed for management action to keep the project on plan.

Intent Guideline 7

Identify objective interim performance measures within control accounts (or lower-level tasks/activities) to enable accurate performance assessment each month. The master schedule includes key program and contractual requirements. It enables the team to predict when milestones, events, and program decision points can be expected to occur.

Lower-tier schedules, when utilized, must contain specific control account (or lower-level task/activity) start and finish dates that are based on physical accomplishment and are clearly consistent with program time constraints.

These control accounts (or lower-level tasks/activities) will align with the objective interim performance measures to enable accurate performance assessment. A sufficient number of interim measures will be defined after the detailed schedule is established to ensure performance is measured as accurately as possible. Interim measures will be based on the completion criteria developed for each increment of work and should provide a basis for objectivity, limiting the subjectivity of the measurement of work accomplished.

Accurate schedule status depends on the selection of objective measures of progress to indicate work completion. These measures are necessary to substantiate technical achievement against the schedule plan and justify progression to the next control account (or lower-level task/activity). A key feature of an interdependent schedule is that it establishes and maintains the relationship between technical achievement and progress statusing.

Typical Attributes:

• Objective completion criteria are determined in advance and used to measure progress to determine achievement of milestones or other indicators.

• Interim milestones and lower-tier tasks serve as indicators of progress against which the control account manager monitors progress.

Objective evidence may be found in these typical outputs:

• Integrated schedules including master, intermediate (if any), and detailed schedules that identify contract milestones and key events.

• MRP or ERP production planned order reports.

• Control account plans (may be separate plans or detail schedules)

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c) Establish and maintain a time-phased budget baseline, at the control account level, against which program performance can be measured. 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. Budget for far-term efforts may be held in higher level accounts until an appropriate time for allocation at the control account level. On government contracts, if an over-target baseline is used for performance measurement reporting purposes, prior notification must be provided to the customer.

Management Value

The time-phased performance measurement baseline that represents the planned scope of all authorized work and schedule provides the program manager a reference to assess project performance. It is controlled and reconciled to the target cost plus authorized unpriced work less management reserve. It represents the cumulative, time-phased, budgeted cost for work scheduled. The performance measurement baseline is a key component of earned value management.

Intent Guideline 8

The assignment of budgets to scheduled segments of work produces a plan against which actual performance can be compared. This is called the Performance Measurement Baseline (PMB). The establishment, maintenance, and use of the PMB are indispensable to effective performance measurement. The PMB should be in place as early as possible after project award or Authorization to Proceed (ATP).

The Contract Budget Base (CBB) value used to establish PMB is tied to the current value of the project, including any authorized, unpriced effort. Included in this CBB value will be any budgets set aside for management reserve. The PMB represents the time-phased scope, schedule, and associated budget through the end of the contract.

Typically this is accomplished through the establishment of time-phased resources within control accounts. For future effort that cannot practically be identified to a control account, it is permissible to establish a temporary summary level planning package above the control account level that identifies scope, schedule, and associated budget to the end of the contract. The budget for this effort must be identified specifically to the work for which it is intended, time-phased, periodically reviewed for validity, and not used to perform other scopes of work. These summary efforts should be subdivided into control accounts at the earliest opportunity. Planning horizons may be used to determine the appropriate time period in which to convert summary level planning packages into control accounts. Control accounts and summary level planning packages should exist from program start through the end of the contract.

Since control account budgets and schedules also establish the constraints required for baseline control, care must be exercised in the establishment of control account budgets to ensure a viable scope/effort correlation and to prevent inadvertent front-loading of the budget baseline. When establishing control accounts, factors to consider include the:

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• Natural flow of work at this management control point.

• Significant program events that will be supported by completion of the effort within the control account.

• Need to enhance objective measurement of progress by establishing shorter assessment periods.

• Rate structures related to the control account resources.

The maintenance of realistic budgets, directly tied to an established scope of work, is essential for each organization responsible for performing project effort. Eventually, all the work will be planned by specific organizational elements to the control account level.

The PMB represents the formal plan for each control account manager to accomplish the authorized work assigned within the time defined by the project schedule and within the budget authorized.

During the life of a project, situations may arise whereby available budgets for the remaining work are insufficient to ensure valid performance measurement. 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).

Advance notification to the appropriate parties is essential prior to the implementation of an OTB. It is important to ensure that both internal management and the customer have a common understanding of the OTB’s impact on the performance measurement metrics.

When the contractor and customer project managers are satisfied that the new baseline represents a reasonable plan for completing the contract, the new baseline becomes the basis for future performance measurement.

Typical Attributes:

• The PMB reflects the work scope, time-phased consistent with the integrated schedule.

• The PMB reflects the budget value for the work scope in all control accounts and summary level planning packages.

• Control account budgets reflect the resources planned to perform the work and can only exceed the contract budget base when an over-target baseline is employed.

Objective evidence may be found in these typical outputs:

• Control account plans.

• Summary level planning packages.

• Performance measurement baseline.

• Undistributed budget logs.

• Notification to the customer of an over-target baseline.

• Work authorization document.

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

Management Value

An essential part of project planning and establishing a performance measurement baseline is the establishment of budgets for all the authorized work. Identification of the budget cost elements documents the required resources and places work scope with the performing organization.

Intent Guideline 9

Through a work authorization process, establish budgets for all authorized work to be done by the responsible organizational elements. No work should begin before the effort is authorized by an initial work authorization. As budgets and schedules are established and approved for all the authorized work at the control account level, the work authorization is updated as required. The control accounts identify the appropriate cost elements (labor, subcontract, material, and other direct costs). It is important to include all resources required to accomplish the work scope.

Each control account should contain resources necessary to complete the assigned effort and budgets reflecting these resources. Budgets established at the control account level must be planned by element of cost. In addition:

• Budgets may be stated in dollars, hours, or other measurable units.

• It is necessary to use proper rates that will provide a valid performance measurement baseline.

• In general, the budget process provides for the following:

o Direct budgets allocated to organizations performing the planned work.

o Indirect budgets allocated to specific organizations having responsibility for controlling indirect costs.

o Identification of any management reserves or undistributed budget.

Material and subcontractor aspects must also be considered, including:

• Time-phasing of material budget should be consistent when the material is expected to be received, consumed, or paid. Guideline 21 addresses material accounting issues that may affect the time-phasing of material budgets.

• Budgets for subcontractors are time-phased to support program schedule requirements.

Typical Attributes:

• Internal reports. Show budgets for each control account, and show that these budgets are reconcilable to the budget values shown on the latest control account/work package plans and in the work authorization documents.

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• Control account/work package plans. Budgets are identified by element of cost (i.e., direct labor dollars/hours, material and/or subcontract dollars, and other direct costs).

• Responsibility assignment matrix (dollarized). Represents the complete project plan and budget. The budget is based on detailed estimates of the amounts of labor, materials, and other resources required to complete the work associated with each control account.

• Resource plan. Identifies the resources needed to accomplish the work and assign resources to tasks in the master schedule.

• Internal reports. Identifies control account budgets that can be summarized to organizational elements. Differentiation is made between direct cost budgets and those that include indirect costs.

Objective evidence may be found in these typical outputs:

• Control account plans by element of cost.

• Work authorization documents.

• Performance measurement baseline.

• Undistributed budget logs.

• Bills of Materials (BOM).

• Responsibility assignment matrix (dollarized).

• Schedules, if resourced.

• Resource plan for resources not contained in the control account plans.

• Material requirements documentation identifying when the material is expected to be used.

• Subcontractor schedules.

e) To the extent it is practicable 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.

Management Value

Budgets, established at the work package level identifying specific resource requirements in dollars, hours, or other measurable units, provide the detail for effective execution of the baseline plan. The resources are to be time-phased the way the detail work is to be accomplished. This approach provides meaningful product-related or management-oriented events for performance measurement. Where a control account cannot be planned in work package detail, the work scope, budget, and schedule requirements are held in planning packages. The master schedule may have more detail below the work

A-13 November 2006 package/planning package level to support the development of a realistic critical path, as applicable.

Intent Guideline 10

Effort contained within a control account is distributed into either work packages or planning packages. Work packages are single tasks assigned to a performing organization for completion and are natural subdivisions of control account effort, resulting in a definable end product or event. Work package descriptions must clearly distinguish one work package effort from another. When work packages are relatively short, little or no assessment of work-in-progress is required. As work package length increases, work-in-progress measurement becomes more subjective, unless objective techniques, such as discrete milestones with pre-assigned budget values or completion percentages, subdivide them. A key feature, from the standpoint of evaluating accomplishment, is the desirability of having work packages that incorporate frequent, objective indicators of progress.

Each work package will have the following characteristics:

• It represents units of work at the level where work is performed.

• It is clearly distinguishable from all other work packages.

• It is assigned to a single organizational element, or in an integrated product team environment, to a single integrated product team responsible for multiple functional disciplines performing the scope of work.

• It has scheduled start and completion dates and, as applicable, interim milestones, all of which are representative of physical accomplishment.

• It has a budget or assigned value expressed in terms of dollars, labor hours, or measurable units that is substantiated by supporting project plans.

• Its duration is limited to a relatively short span of time. A longer task needs objective intermediate measures to enable accurate performance assessments.

• It is consistent with detailed engineering, manufacturing, or other schedules.

• It has material costs segregated from other elements of cost.

• It has subcontract effort consistent with subcontractor program plans.

Subcontractor and contractor plans are directly reconcilable.

Work for a given control account that cannot be planned in detail at the outset will be divided into larger segments and placed into planning packages within the control account. Planning packages are aggregates of future tasks and budgets, beyond those planned in detail that will be divided into work packages at the earliest practical 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.

Typical Attributes:

• Control Account Plans (CAPs) represent the work assigned to one responsible organizational element on one program WBS element. This is the lowest level in the structure at which the comparison of actual costs to planned budgets and

A-14 November 2006 earned value is required. It is also the cost collection point that identifies the cost elements with the factors contributing to cost and/or schedule variances.

• Work packages represent detailed jobs, except for those that are for material items. They are units of work at levels where work is performed and are clearly distinguishable from all other work packages. They are:

o Assigned to a single organizational element.

o Have scheduled start and completion dates and, as applicable, interim milestones.

o Have a budget or assigned value expressed in terms of dollars, labor hours, or other measurable units.

o Have a duration limited to a relatively short span of time, or are subdivided by discrete value milestones to facilitate the objective measurement techniques of work performed, or are Level of Effort (LOE) work packages integrated with detailed engineering, manufacturing, or other schedules.

• A planning package is the logical aggregation of work within a control account, normally the far-term effort, that can be identified and budgeted in early baseline planning, but can not yet be defined into discrete, apportioned, or level of effort work packages. Planning package plans must reflect the manner in which the work is to be performed.

Objective evidence may be found in these typical outputs:

• Control account plans divided into work packages and planning packages.

• Control account schedules.

• Control account time-phased budgets.

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

Management Value

The integrity of the performance measurement baseline requires that the budget of the control account equal the sum of its work package and planning package budgets. When the budget of the control account equals the sum of its work package and planning package budgets, it prevents duplicate recording of budgets.

Intent Guideline 11

All control accounts must contain a budget, schedule, and scope of work and should realistically represent the work 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 the control account. A control account manager should not have a budget without an assigned scope

A-15 November 2006 of work. Conversely a control account manager should not have authorized scope without associated budget.

Typical Attributes:

Control Account Plans (CAPs) usually represent the work assigned to one responsible organizational element on one program work breakdown structure element; they are usually at the lowest level in the structure at which the comparison of actual costs to planned budgets and to earned value are required; they are the cost collection points that will identify the cost elements and factors contributing to cost and/or schedule performance.

Objective evidence may be found in these typical outputs:

• Control account plan total budget.

• Work package budget.

• Planning package budget.

g) 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 impracticable may be classified as level of effort.

Management Value

Meaningful product- or management-oriented events are critical for performance measurement. Objective measurement of Level of Effort (LOE) activity is impracticable and provides little, if any, visibility into actual performance; therefore, its use must be minimized.

Intent Guideline 12

Each task on the project needs to be assessed to determine the best method to budget and measure its progress toward completion. Level of effort is defined as having no measurable output or product that can be discretly planned at the work package level.

Level of effort must be limited to those activities that are unable to be measured discretely to avoid distorting project performance data. Level of effort work packages should be separately identified from discrete effort work packages and apportioned effort work packages. Budgets for level of effort activity must have a sound basis of estimate and be time-phased to properly reflect when work will be accomplished. LOE budgets may be planned at either the control account level or at the same level as discrete or apportioned work packages.

Typical Attributes

Level of effort work packages contain tasks of a general or supportive nature that do not produce definite end products, must be separately evaluated from discrete work packages within the control account, and contain time-phased budgets for planning and control.

• The amount of LOE activity will vary among performing organizations, but it must be held to the lowest practical level.

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

• If level of effort and discrete work packages are ever mixed within the same control account, the control account manager must ensure visibility into the earned value technique for measuring performance of the discrete effort portion.

• The earned value for level of effort work packages equals the time-phased budget.

Objective evidence may be found in these typical outputs:

• Control account plans identify level of effort work packages and budgets.

h) 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.

Management Value

The overall value of establishing indirect budgets lies in the ability of company management to manage cost elements that cannot be directly assigned to individual cost objects (products). By comparing actual indirect expenses to established indirect budgets, the company can determine if the absorption of indirect expenses based on existing documented allocation schemes is on track or if allocation rates will need to be adjusted. The accurate assignment of indirect expenses, therefore, ensures that each program will only receive its fair share of indirect costs.

Intent Guideline 13

Establish indirect (overhead, burden, and G&A expense) budgets at the appropriate organizational level for each pool and cost sub-element. It is important to have an indirect budgeting and forecasting process, because indirect costs can account for a major portion of the cost of any project. As such, the budgetary control and management of this category of cost cannot be overlooked or minimized. Indirect budgets on the project are established and planned with the established direct budgets consistent with the method by which allocation of indirect costs will ultimately be made to the project. This methodology is normally described in the organization’s accounting procedures.

Typical Attributes:

• Organization charts are generally contained within the contractor’s system description identifying personnel or organizations responsible for maintaining indirect costs.

• The organization’s overhead policies and procedures are generally described in the organization’s system description and represent a rational, traceable process.

• Cost Accounting Standards (CAS) established by the Cost Accounting Standards Board (CASB) ensure consistent and proper accounting for direct and indirect costs that are applied to government contracts. Direct costs are any cost that may

A-17 November 2006 be identified specifically with a particular cost objective; indirect costs are costs that, because of their incurrence for common or joint objectives, are not readily subject to treatment as direct costs.

• CAS disclosure statement defines the content and processes of the organization’s management of indirect costs and generally includes a definition of indirect expenses and overhead pools.

• Forward pricing forecasts identify projected overhead rates beyond current year.

Objective evidence may be found in these typical outputs:

• Documented process for managing indirect costs.

• Organizational structure identifying ownership responsibility and authority levels.

• Indirect cost policies and procedures.

• Chart of accounts.

• Organizational charts.

• Forward pricing forecast (including sales forecast and business base projections).

• CAS disclosure statement, if applicable.

• Indirect budget and performance reports.

i) Identify management reserves and undistributed budget.

Management Value

Project managers must realize the performance measurement baseline planning process contains risk and should identify a Management Reserve (MR) contingency account for unplanned activity within the project scope. Unexpected work scope growth within the contract SOW, rates changes, or schedule slips are example of situations that may make the amount of performance measurement budget assigned to an individual CAM inadequate. This facilitates the maintaining of budgets for work accomplished and provides effective performance measurement data for management.

In order to ensure that budget for newly authorized efforts remains tied to the associated scope during the initial planning process, Undistributed Budget (UB) has been designated as the short-term holding account. Once the responsible organization(s) has been identified, the budget will transfer from undistributed budget to the appropriate control account(s). This ensures budget and scope will not be transferred independently.

Intent Guideline 14

Identify and control management reserve and undistributed budget. Management reserve is budget set aside for unplanned events that may arise during the course of the project.

Because management reserve is budget that is not yet tied to work, it does not form part of the performance measurement baseline. The management reserve budget should be commensurate with the level of risks identified by the project and/or withheld for management control purposes.

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Undistributed budget is budget that is applicable to specific project effort but has not yet been distributed below the project level either directly to control accounts or to summary level planning packages. It is a transient amount because, once it is distributed to either control accounts or to summary level planning packages, it ceases to be undistributed budget. Because undistributed budget is budget that is tied to work, it does form part of the performance measurement baseline. Undistributed budget accounts are to be cleared in a reasonably timely manner as work scope is finalized and distributed to control accounts or to summary level planning packages

Typical Attributes:

• Program control logs including:

o Management reserve (showing month end values; monthly sources and applications to control accounts; and current value).

o Undistributed budget (showing month end values; monthly sources and applications to control accounts; current value).

o Performance measurement baseline (showing month end values; monthly changes from/to management reserve and undistributed budget; current value).

o Contract budget base (showing month end values; monthly changes identifying contract modifications; current value).

• Monthly performance reports to verify that starting and ending values are consistent with various logs.

Objective evidence may be found in these typical outputs:

• Project control logs (management reserve, undistributed budget, performance measurement baseline, and contract budget base).

• Contract Performance Reports (CPRs), if applicable.

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

Management Value

A project baseline that reflects the common agreement between the two parties provides a common reference point for progress assessment. It provides recognition of contractual requirements and precludes unauthorized changes to the performance measurement baseline. The project target cost must be reconciled with the performance measurement baseline and management reserve.

Intent Guideline 15

Reconcile the project value (target cost plus authorized, unpriced work) with the sum of all control account budgets, indirect budgets, management reserves, and undistributed budgets.

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• Program control logs including:

o Management reserve (showing month end values; monthly sources and applications to control accounts; current value).

o Undistributed budget (showing month end values; monthly sources and applications to control accounts; current value).

o Performance measurement baseline (showing month end values; monthly changes from/to management reserve and undistributed budget; current value).

o Contract budget base (showing month end values; monthly changes identifying contract modifications; current value) reconciled to program target cost.

o Total allocated budget reconciled to the contract budget base and any recognized over-target baseline.

• Contract and modification control logs identifying authorized target cost.

Objective evidence may be found in these typical outputs:

• Project control logs (management reserve, undistributed budget, performance measurement baseline, and contract budget base) reconciled to project target cost.

• Contract Performance Reports (CPRs), if applicable.

• Internal report showing the summarization from cost account to the performance measurement baseline.

2.3 Accounting Considerations

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

Management Value

Direct cost must be assigned to a project consistent with the pertinent budgets in order to achieve effective performance management. A project’s cost-charging structure established in the accounting system should help ensure that actual costs collected are directly compared with associated budgets for that work.

Intent Guideline 16

Accumulate direct costs in the formal accounting system in a manner consistent with the way the related work is planned and budgeted. Actual costs reported in the performance reports agrees with the costs recorded in the general books of account (accounting system) or can be explained as timing differences.

Timing differences that may occur between the accounting system and project performance reports must be reconcilable.

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Of particular interest is the accounting for material (i.e., at consumption, receipt, inventory acceptance, or inventory release).