United States General Accounting Office GAO Report to the Subcommittee on Acquisition and Technology, Committee on Armed Services, U.S. Senate May 1997 MAJOR ACQUISITIONS Significant Changes Underway in DOD’s Earned Value Management Process GAO/NSIAD-97-108 United States GAO General Accounting Office Washington, D.C. 20548 National Security and International Affairs Division B-276406 May 5, 1997 The Honorable Rick Santorum Chairman The Honorable Joseph I. Lieberman Ranking Minority Member Subcommittee on Acquisition and Technology Committee on Armed Services United States Senate Despite the regularity with which defense acquisition programs have experienced cost overruns and schedule delays, the Department of Defense (DOD) does have an extensive system intended to provide program managers and others with early warnings of cost and schedule problems. In 1967, DOD issued a set of cost/schedule control system (CS2) criteria that it required defense contractors to meet. However, it has become widely accepted by DOD and the defense industry alike that this process is in need of reform. This report addresses the problems facing the CS2 process, the progress DOD has made with reforms, and the challenges DOD faces in fostering and managing potentially significant changes. DOD’s CS2was established in 1967 as a tool to measure the value of work Background performed as compared to the actual costs, a concept referred to as earned value. Earned value goes beyond the two-dimensional approach of comparing budgeted costs to actuals. It attempts to compare the value of work accomplished during a given period with the work scheduled for that period. By using the value of work done as a basis for estimating the cost and time to complete, the earned value concept should alert program managers to potential problems sooner than expenditures alone can. To illustrate, assume a contract calls for 4 miles of railroad track to be laid in 4 weeks at a cost of $4 million. After 3 weeks of work, only $2 million has been spent. By analyzing planned versus actual expenditures, it appears the project is underrunning the estimated costs. However, an earned value analysis reveals that the project is in trouble because even though only $2 million has been spent, only 1 mile of track has been laid; thus, the contract is only 25 percent complete. Based on the value of work done, the project will cost $8 million ($2 million to complete each mile of track) and the 4 miles of track will take a total of 12 weeks (3 weeks for each mile of track) to complete instead of the originally estimated 4 weeks. Page 1 GAO/NSIAD-97-108 Earned Value Management B-276406 The communities that have a vested interest in earned value generally and CS2 specifically are the (1) program managers, who are charged with overall management responsibility for acquisition programs; (2) contractors, who are responsible for successful execution of the contract; and (3) overseers, such as acquisition executives, financial managers, contract surveillance officials, and cost estimators who are tasked with tracking and estimating program costs. For earned value to be effective, it must serve the basic needs of all these users. An engineer might consider its most useful output to be technical status information on particular components. An accountant may view its most important product to be the cost versus budget information it provides. A program manager may share both views or may value the scheduling data the most. Thus, regardless of the system or process used to record information, earned value should provide insightful information to all three communities. In its 1967 financial management regulations, DOD issued 35 CS2 criteria that were to be applied to most major weapon acquisitions (see app. I for a listing of the criteria). The criteria are not an accounting system per se, but rather general management or internal control guidelines to be used on flexibly priced1 contracts. The criteria require that the contractor’s management control system provide data that (1) relate time-phased budgets to specific contract tasks; (2) indicate work progress; (3) properly relate cost, schedule, and technical accomplishment; (4) are valid, timely, and auditable; (5) supply managers with summary level information; and (6) are derived from the same internal management control systems used by the contractor. Over the years, the basic criteria were supplemented by additional guidance and procedures for contractor system reviews and reporting, which have become “de facto” requirements. For example, the government conducted a series of implementation and surveillance reviews of contractors’ management control systems to ensure they complied with the criteria. In 1972, DOD developed a Joint Implementation Guide to standardize CS2 implementation procedures. The guide contained a checklist of about 160 specific questions, which were referred to as subcriteria, to be covered with contractor employees during the implementation reviews. These requirements converge with other requirements in determining how a contractor designs its management 1 Flexibly priced contracts include all types of cost reimbursable contracts and those fixed-price contracts with incentive fee arrangements. Contracts not having such arrangements are called firm fixed price. The CS2 requirement must be imposed on flexibly priced contracts with a value of $70 million in research, development, test, and evaluation and $300 million in procurement. Page 2 GAO/NSIAD-97-108 Earned Value Management B-276406 control system. For example, DOD independent cost estimators have required a different breakout of contractor cost information than the CS2 did and have specified that cost data be collected in uniform or consistent categories. The contractor’s system must be elaborate enough to satisfy all of these data requirements, regardless of their source or purpose. The core concept of the CS2 process—earned value—is recognized as a Results in Brief sound way to measure progress on major acquisition programs. Over the years, however, the process has evolved to where the needs of some of its key users are being satisfied, while others are not. Specifically, DOD program managers are not satisfied with the timeliness of the CS2 reports. Because the data contained in the reports are typically up to 2 months old, the reports do not function as an early warning system needed by program managers. Moreover, the process has not fully integrated cost, schedule, and technical data as intended. The want of such information can invite subjective and potentially optimistic judgments to fill the void. Contractors maintain that accommodating extensive government certification reviews, collecting and arraying data in prescribed categories, and preparing detailed reports requires significant effort and cost to the government and draws some of their engineering resources away from program execution. Commercial firms that use earned value systems produce reports more frequently, more quickly, and in less detail than the CS2 process. Users outside the program offices—such as financial managers and cost estimators—find that the data generally meets their needs. These users generally place more value on consistency among cost categories and less value on timeliness than program managers. DOD has acknowledged the problems with CS2 for a decade, but reforms have proceeded slowly mainly because responsibility for the process has resided with the oversight organizations that have been its architects. DOD attempted to effect change in 1989 by transferring top-level responsibility for the system from the comptroller staff to the acquisition staff. Despite this transfer, little progress was made because execution of CS2 at the field level remained within the comptroller community. Nonetheless, DOD has embarked on several reforms that could dramatically change the CS2 process. Recently, DOD accepted industry’s earned value management criteria as a replacement for the government’s long-standing CS2 criteria. DOD has also transferred responsibility and control over the process from the services to the Defense Contract Management Command (DCMC), which currently provides the on-site interface between the government program office and the contractor. Another reform underway involves Page 3 GAO/NSIAD-97-108 Earned Value Management B-276406 giving DOD program managers latitude to tailor their contract data to the specific needs of their program—such as the categories and the level of detail. In many cases, program managers are using direct (on-line) access to obtain data from the contractors’ internal management information systems. These recent steps to reform the CS2 process have potent implications. For example, adopting the industry criteria could result in less burdensome and more useful contractor management information systems, but could also lessen the government’s ability to oversee defense programs. In light of both the day-to-day demands of managing the process on individual contracts and implementing recent reforms, DCMC faces a significant challenge as it takes over stewardship of the process. Service officials are concerned about how quickly it can meet these demands, given its decline in staffing over the last several years. Ultimately, DCMC will have to ensure that the process meets the basic needs of all its key users—program managers, contractors, and oversight personnel. An earned value system faces stiff and somewhat competing demands The CS2 System Has from its users: (1) providing the right analyses in time for program Served Oversight managers to use; (2) enabling adequate oversight and analysis of multiple Needs Better Than programs beyond the program office level; and (3) minimizing the effort required of the contractor to provide the necessary systems, data, and Program Management analysis. DOD policy states that earned value is an integrated program Needs management tool, but because it has historically been a comptroller function, CS2 has been viewed by other users as a compulsory and burdensome financial reporting system. Moreover, it has not fully satisfied the needs of many program managers for up-to-date and integrated information on cost, schedule, and technical progress. Program Managers: Government program managers are responsible for managing the cost, Timeliness of CS2 Data schedule, and technical performance of their weapon acquisition Limits Its Utility programs. The CS2 process was designed to integrate these three parameters into an effective early warning tool. However, program managers have historically expressed concerns that CS2 data, as reported, are too late and too voluminous to be useful for day-to-day program management. The primary CS2 report, the cost performance report, can be up to 60 days old and can contain over 100 pages of detailed information. We confirmed that many program managers still see data timeliness as an issue. According to some managers, using CS2 data is like “managing by Page 4 GAO/NSIAD-97-108 Earned Value Management B-276406 looking through a rear view mirror.” DOD acknowledged some of these issues in the 1987 preface to the Joint Implementation Guide. We contacted managers of Acquisition Category 1D2 programs in engineering and manufacturing development to evaluate whether the CS2 data met their needs. Their comments disclosed that while they strongly support the concept of earned value, the timeliness of the data is still a significant concern. Ten of the 15 program managers who responded believed that the data were delivered too late to be an effective real-time management tool. Twelve of these managers responded that the cost performance reports did not contain problems they were not previously aware of. One manager stated that because the reports are between 30 and 90 days old, he usually winds up addressing long resolved issues, which creates unnecessary work for him. Another expressed the concern that by the time the report reaches him, the problem is usually worse. Part of the problem is that the CS2 system is driven by users in an oversight, not in a program execution role, another stated. When the CS2 reporting requirements were initially generated in 1967, the data were as timely as commonly available technological tools would allow. The work was broken out into short, discrete work packages and grouped into cost accounts. Engineers in the contractor’s plant were often made responsible for managing and reporting on these cost accounts each month. This information was accumulated, consolidated at the contractor’s plant, and mailed to a variety of offices within DOD. Financial analysts within DOD then reviewed and entered this data into software applications for further analysis. By this time, the data were at least 2 months old. Technological advances have eliminated the need for government analysts to manually enter the data; nevertheless, many program offices still rely on the mail to obtain the report in hard copy or on a diskette. Program managers are not satisfied with the timeliness of these reports. With the advent of readily accessible real-time communication tools like personal computers, electronic mail, and the Internet, however, program managers are unwilling to wait 2 months for program status information. Because of this time delay, program managers generally use other means to satisfy their needs for information, like integrated product teams. With 2 An acquisition category 1 program is defined as a major defense acquisition program with estimated expenditures of over $355 million in research, development, test, and evaluation, or over $2.135 billion in procurement (in fiscal year 1996 dollars). A category 1D program is monitored by the defense acquisition executive, not a service executive. At the time of our review, there were 16 category 1D programs in engineering and manufacturing development. Page 5 GAO/NSIAD-97-108 Earned Value Management B-276406 technological advances in communication, program managers can directly access contractor data on a real-time basis. This type of access allows the government program manager to analyze and react to the same vintage information the contractor is using to manage. In addition to timeliness problems, the CS2 reports emphasize the cost and, to some extent, the schedule data without fully integrating technical information. Assessment of technical risks is left to subjective, often optimistic judgments of program personnel. One of the managers we surveyed pointed out that CS2 does not show if the technical performance is being achieved or if the work on the critical path is being done on time or within cost. In other words, even though a discrete work segment may be completed, CS2 data do not directly inform a manager of the success or quality of the work. Instead, the standard cost performance report attempts to assign a cost value to schedule data. Thus, if a particular design task has fallen behind schedule, the standard report would assign a cost to the delay and present that cost. While this format may be ideal for a cost analyst, it cannot by itself facilitate the timely management of a technical problem, nor can it highlight the potential impact on critical path schedules. Another limitation is that the detailed data collection categories may not correspond to individual program structures. Although the need for overall reporting consistency is critical to the oversight community, program managers are willing to accept progress information presented in the same categories and format that the contractor uses to manage the program. Most program managers we surveyed were interested in obtaining real-time data directly from the contractor in whatever format the contractor used, as long as the format remained consistent and the data could be verified. According to DOD officials, program managers have had the flexibility to modify reporting requirements for many years, but the needs of the oversight community for consistent reporting formats and categories have taken precedence. Many of the program managers we contacted are now taking advantage of this flexibility to tailor their reporting requirements. DOD officials stated that these limitations reflect more on how the CS2 criteria and cost estimating requirements have been implemented than on the criteria themselves. They noted that the CS2 criteria allow such flexibility but that subsequent reporting and certification procedures have led to rigid implementation practices. Page 6 GAO/NSIAD-97-108 Earned Value Management B-276406 Contractors: CS2 Validation Although contractors generally recognize the basic CS2 criteria as sound and Reporting Are management principles, they believe DOD’s implementation process Burdensome contains many burdensome requirements. Independent studies have found that CS2 reporting was too detailed, repetitive, and voluminous to be used effectively as a management tool either by the government or by industry. Further, they found that the requirement may actually undermine program performance by diverting the time and attention of the company program manager. The formal reports represent only the end product of what is required in CS2.Perhaps more significant are the cost and management control systems the contractors must have in place to record the required information and the government reviews of those systems to certify their acceptability. To facilitate cost estimating, DOD guidance specifies a structure for breaking the work down on developing a major weapon into uniform categories or segments. At the most basic level, CS2 guidance requires that the work is broken down into discrete short-span work packages, which are consolidated into a cost account. A cost account is a management control point at which actual costs can be accumulated for an element of work. Table 1 illustrates an excerpt of a work breakdown structure for an ongoing aircraft program. Table 1: Work Breakdown Structure for an Aircraft Program Level 1: Aircraft Level 2: Air vehicle Level 3: Avionics Level 4: Communication/navigation/identification Level 5: Navigation software Level 6: Individual cost accounts Source: DOD. Cost accounts on complex weapon programs can number over 1,000. While these costs have to be recorded and tracked by the contractor at some level, cost-estimating requirements in conjunction with CS2 implementation practices have dictated how the accounts are defined and at what level of detail. For example, if a contractor’s internal management system differs from the cost-estimating structure, the contractor may have to track costs one way to satisfy cost-estimating requirements and another way to match how it actually manages. This requires more engineering Page 7 GAO/NSIAD-97-108 Earned Value Management B-276406 effort by the contractor because it is the technical staff who typically manage the cost accounts. For example, in aircraft programs, DOD requires contractors to record and report earned value information for the aircraft sections. However, they could be managing by aircraft ribs (structural components that strengthen larger airframe sections). To satisfy DOD’s requirements, these contractors would have to artificially segregate costs for ribs going to the fuselage from those going into the wings and tail sections. They would also have to prepare lengthy CS2 variance reports, which takes them away from their engineering duties and provides information that does not directly relate to how the program is being managed. The standardization that work breakdown categories provide may facilitate government analysis and oversight above the program level, but may not aid—and in fact could inhibit—program management. DOD policy has given program managers the flexibility to modify the level of detail in CS2 reports and more recently, the prescribed work breakdown categories. Program managers have used this latitude in modifying their CS2 reporting requirements and are tailoring their reporting requirements. However, the contractors still track costs according to the standardized work breakdown structure to satisfy the cost estimators’ needs for data consistency. Recently, the Cost Analysis Improvement Group, an organization that provides independent program cost estimates to the Secretary of Defense, has taken steps to clarify the needs of the cost-estimating community with respect to those of CS2. The group, which relies on actual cost data from contractor accounting systems, has reemphasized the need for consistent cost reporting while reducing the burden on contractors. Accordingly, the group is in the process of improving its reporting systems to allow contractors to report in their own formats and appropriate level of detail, using a common data format that in turn enables DOD to convert the data into the format needed by the cost-estimating group. The requirement to have management control systems that comply with CS2 criteria is contained in the basic weapons system contract. However, the detailed requirements for these systems have been established through an extensive certification process. During the certification reviews, the government used a checklist of 158 specific questions to assess compliance at all levels of the contractor organization. The various reviews conducted on the contractor system during the life of a contract Page 8 GAO/NSIAD-97-108 Earned Value Management B-276406 are summarized in table 2 below, along with estimates of the resources involved. Table 2: Traditional CS2 Compliance Reviews Review title Purpose of review Days Staff 2 Implementation visit Contractor plans to implement CS 2-3 4-5 Readiness assessment CS2 implementation progress 5 5-15 Demonstration review Compliance of contractor management 15-20 10-25 control systems Extended subsequent Revisions to management control 10-15 10-25 application review system Subsequent application New contract application of CS2 5 6-10 review requirements Baseline review Proper implementation of contract 3 4-6 baseline Source: Cost/Schedule Control System Criteria, The Management Guide to C/SCSC; Quentin W. Fleming; 1992. The time and staff required for these reviews can vary, depending upon the complexity of each contract. In addition to the government personnel required to perform these reviews, an even larger number of contractor personnel may be required to support the reviews, which adds to the cost of a contract. For example, cost account managers are interviewed during the demonstration review, using the checklist of 158 questions. Because the CS2 implementation guidance dictates that work be segregated into small, short work packages, this could entail numerous contractor staff. In addition, once a contractor’s system has been validated by the government, it is then subject to periodic surveillance reviews that are performed throughout the life of the contract. Contractors ultimately viewed the government-approved management system as one that the government had imposed upon them. They could not redesign or modify such a system without first getting government approval. If a change were approved, the government would initiate another system review to revalidate the revised system. Contractors would thus shun system improvements to avoid the additional reviews. Financial Management: CS2 Because the financial management community has presided over the Is Satisfactory evolution of CS2 for most of the past 30 years, the system has been optimized to meet its needs. The initial regulation governing CS2 policy, DOD Instruction 7000.2, was issued by the DOD Comptroller as part of the Page 9 GAO/NSIAD-97-108 Earned Value Management B-276406 financial management regulations.3 It was implemented and administered by an infrastructure of DOD financial managers. This infrastructure permeates all levels of DOD. At the program office level, analysts review the reports, participate in contractor system reviews, and monitor contract progress. At the buying command and at service headquarters, financial managers were in charge of the various contractor system reviews, analyzing the reports, and projecting trends and estimates to complete. At the Office of the Secretary of Defense, cost analysts and program oversight personnel still review this data in support of major milestone decisions and through periodic oversight reports like the Defense Acquisition Executive Summary. At the contractor’s plant, DCMC representatives participate in the system reviews, provide on-site surveillance and review the reports for accuracy. Until December 1995, the Performance Measurement Joint Executive Group, comprised of financial management experts, was the chief decision-making body for CS2 issues. The role played by the financial management community is somewhat unique to the federal government. Unlike the commercial world, where the company developing a new product funds the development with its and/or investors’ money, weapon system development is funded by the government—the customer. The government acts as an agent for the public trust and therefore has a responsibility to oversee the expenditure of those funds. The cost performance report, as one of the main reports to assist the government in that responsibility, provides auditable data from which an analyst can generate independent estimates at completion and may also project trends based on contract performance. Historical cost data from the contractor’s systems also enable estimators to develop parametric models from which future weapon systems’ cost can be estimated. Consistent with these needs, the financial management community, in its stewardship over the CS2 process, has placed a premium on reliable and consistent cost data. The cost analyses performed on weapon acquisition programs are an important internal control that can highlight performance problems that program managers, as advocates, may overlook. The controversy and subsequent cancellation of the Navy’s A-12 aircraft illustrates the value of CS2 data being available to organizations outside the program manager’s office. According to the 1990 administrative inquiry conducted for the Secretary of the Navy, the cost performance data from the A-12 contractors clearly indicated significant cost and schedule problems. The 3 In 1991, DOD Instruction 7000.2 was canceled and its requirements included in DOD Instruction 5000.2, Defense Acquisition Management Policies and Procedures. This regulation was superseded in 1996 by DOD Regulation 5000.2-R, Mandatory Procedures for Major Defense Acquisitions. Page 10 GAO/NSIAD-97-108 Earned Value Management B-276406 results of an oversight review of the cost performance reports disclosed that the A-12 contract would probably exceed its ceiling by $1 billion. However, neither the contractors nor the Navy program manager relied upon this data; instead, they used overly optimistic recovery plans and schedule assumptions. The inquiry concluded that the government and contractor program managers lacked the objectivity to assess the situation and they disregarded financial analysts who surfaced the problems. Commercial firms are increasingly adopting the concept of earned value Commercial Firms for development projects but are applying it in a more streamlined manner Use Streamlined than DOD has historically. Company managers are getting real-time Earned Value Process progress information in formats consistent with how they manage. Major defense contractors are also overwhelmingly emphasizing up-front technical planning and scheduling as opposed to traditional cost and schedule monitoring. United Defense Limited Partnership, a major defense contractor, has inserted earned value concepts throughout its entire management structure. A senior official from that company stated that a successful program hinges on good technical planning and scheduling, and for earned value to succeed, it must be useful to everyone, not just a requirement imposed onto one functional group by another. It must also be used to manage internally or it will not be taken seriously by those operating it. Motorola is also convinced that technical planning and scheduling is paramount to a successful project. It is using earned value to manage its multi-billion dollar satellite communication system, IRIDIUM, with streamlined data accumulation, reporting, and oversight mechanisms. For example, technical and schedule data are monitored at very detailed levels whereas costs are not included until much higher levels of reporting are reached. Similarly, Lockheed-Martin Missiles and Space has announced it is adopting earned value for all its contracts, regardless of whether the customer is military or commercial. Lockheed-Martin has benchmarked its processes and identified the best practices in program management. It estimates that by adopting these practices for each contract, it could reduce its non-value added activities by almost two-thirds. When a firm like Motorola makes large investments in a major development like IRIDIUM, detailed information requirements are essential, and in many ways, similar to DOD’s. According to the firms we spoke with who are funding major product developments and are using an earned value system, they produce internal status reports more frequently, Page 11 GAO/NSIAD-97-108 Earned Value Management B-276406 with less detail, that are more current than what the traditional CS2 process has provided to DOD. They also place emphasis on technical and schedule planning. Moreover, the manner in which the data is organized and reported is typically aligned with the way the companies manufacture. Government program managers we contacted indicated that this is precisely what they want—real-time information presented in a manner that mirrors how the contractor manufactures. The major differences between commercial earned value practices and traditional defense practices are shown in table 3. Table 3: Comparison of Commercial Earned Value to Traditional Defense Characteristic Commercial program Traditional DOD program CS2 Implementation Practices Frequency of status reports Weekly/bi-weekly Monthly Age of information Real-time/weekly Up to 60 days after reporting period ends Method of data dissemination Direct access to database Mailing of reports on paper or disk Work breakdown structure Level 3 Level 3-7 Variance analysis reporting Critical path items All elements Management focus Technical and schedule Costs As indicated, commercial firms obtain data much more frequently than DOD programs typically do. Program status information was available to commercial managers on either a real-time basis or as close as the companies’ computer capabilities would allow. Another significant difference is that variance analysis reporting is much less detailed in commercial firms. Companies set tolerance limits within appropriate manufacturing processes and report on breaches of those limits as opposed to reporting on all variances regardless of the element. If the element is not critical to meeting technical progress, schedule, or cost, it may be monitored but not necessarily reported. Management emphasis differs between the two groups, as well. We found that on commercial programs, the manufacturers tended to focus on adherence to schedule as opposed to costs. They do not forsake the other benefits of earned value but focus on technical and schedule goals before costs. Their philosophy is that focusing on key technical accomplishments per the planned schedule will cause planned costs to fall in line. For example, in the IRIDIUM program, Motorola did not add costs to the program status reporting until almost halfway up the reporting channel, a much higher level of aggregation than a typical DOD program. Company Page 12 GAO/NSIAD-97-108 Earned Value Management B-276406 management reasoned that because engineers and program managers on the manufacturing floors are concerned with meeting technical and schedule accomplishment, recording earned value information at that level is more informative in terms of labor hours than in terms of dollars. DOD officials believe that the CS2 criteria and basic guidance allow defense programs the flexibility to manage earned value information in a similar manner, but in practice, this flexibility has been limited by over implementation of the guidance. Despite DOD’s acknowledgement of CS2 implementation problems, until Some Early Reforms recently, little progress has been made in resolving them. Fundamentally, Have Made Limited this is because the CS2 data was responsive to the financial management Impact community that managed how the CS2 process was implemented. Most of the reforms that have been undertaken have made improvements, but have not alleviated the more significant problems with CS2. The integrated baseline review, however, may prove to be an exception because it has resulted in a marked reduction in traditional CS2 oversight reviews thus far. The 1987 Joint Implementation Guide clarified the objectives of CS2 as “For contractors to use effective internal cost and schedule management control systems, and for the government to be able to rely on timely and auditable data produced by those systems for determining product-oriented contract status.” It went on to stress that improved communication between the government and contractors could reduce improper implementation of the CS2 criteria. To stimulate reform, DOD transferred the responsibility for CS2 policy from the DOD Comptroller to the Under Secretary of Defense for Acquisition in August 1989. This top-level organizational change was not mirrored in the three services, however. As a result, CS2 implementation was fragmented, with top-level policy being managed by the Office of the Secretary of Defense acquisition community and day-to-day implementation being managed by the services’ financial management community. The Performance Measurement Joint Executive Group, comprised of financial management personnel, maintained central oversight of the CS2 process. In October 1993, the Under Secretary of Defense for Acquisition & Technology undertook an initiative to return earned value to its original purpose: a tool to integrate cost, schedule, and technical performance management. This initiative attempted to reduce the review burden and limit reporting requirements. In addition, to change the emphasis from government oversight to contractor responsibility, it encouraged industry Page 13 GAO/NSIAD-97-108 Earned Value Management B-276406 to develop its own management standards. About a year later, after limited progress, the Office of the Secretary of Defense requested that the Service Acquisition Executives personally revitalize CS2 reform under the Integrated Program Management Initiative. A top-level Executive Steering Group was formed to reengineer earned value implementation among the services. This group noted that while there were no exceptions to the CS2 requirement, there was broad latitude to change implementation practices. DOD and recent service policy memoranda have consistently stressed the need to streamline traditional CS2 reporting requirements by reducing the detailed information required, such as minute categories for reporting and tailoring other report formats. In December 1993, DOD initiated a major effort to revise the Joint Implementation Guide. After multiple iterations and coordination difficulties, it was finally reissued in December 1996. To provide more timely information to program managers, DOD is requiring all new contracts to use electronic data interchange (EDI) as a data transfer method. Under the EDI concept, the contractors will make the cost performance reports, along with other reports, electronically accessible to program managers, financial analysts, and other users like DCMC staff. To ensure that the cost performance report data can be transmitted and received in common data formats, DOD has developed a standardized data set for contractors to use when transmitting their reports. One of the benefits of using EDI for cost performance reporting is the time saved by electronically transmitting data to customers instead of physically mailing written reports. The time savings has been estimated at about 1 to 2 weeks, which includes time associated with re-keying information into the customers databases so they can perform their analyses. Notwithstanding some of the problems that are being encountered with electronic transfers of data, we believe the time savings associated with this method of communication is not likely to make the reports more useful. At best, the reports will still be received by the program offices and other interested users about 30 to 45 days after the end of a reporting period. One of the more successful initiatives to date is the integrated baseline review (IBR), which DOD implemented in 1994. The IBR focuses on the development of a detailed and achievable technical, cost, and schedule baseline for a program. The objectives of the IBR are twofold: to improve the use of cost performance data by contractor and government program managers and to reduce the number of CS2 reviews. As part of the overall risk assessment process, the IBR is intended to integrate the technical Page 14 GAO/NSIAD-97-108 Earned Value Management B-276406 content of the work with cost and schedule parameters. It is planned and executed by a multi-functional government and contractor team composed of engineering, logistics, manufacturing, contracting, and financial personnel. Unlike traditional CS2 baseline reviews, the IBR is led by the program manager, not a financial manager. By involving the program manager directly in this review, the process highlights the merits of using earned value to track progress. It has also reduced the number of CS2 compliance reviews. For example, CS2 reviews have decreased from 56 in 1993 to 5 in 1995 while the number of IBRs have increased from 3 in 1993 to 29 in 1995. The program managers that we surveyed strongly supported the IBR as a valuable program management tool. DOD has recently taken a three-pronged approach to reform the CS2 Recent Reforms Have process. This approach includes an internal organizational realignment to Major Implications for override cultural resistance to change, the recognition of commercial CS2 Process industry criteria to return the management of the system to the contractor, and direct electronic access by program managers to contractor information to improve the timeliness of CS2 data. These changes may have significant impact on the extent, type, and number of CS2 system reviews that occur; the interpretation of how the criteria/guidelines will be implemented; and the extent and timeliness of data received by government managers. Organizational In December 1995, DOD disbanded the Performance Measurement Joint Restructuring Shifts CS2 Executive Group and made DCMC the executive agent for CS2 issues. Policy Stewardship Away From matters are now handled by the Executive Steering Group, which includes representatives from the Service Acquisition Executives and the DCMC Financial Management Commander, to provide a program management orientation. In Community October 1996, the Under Secretary of Defense for Acquisition and Technology formally transferred CS2 compliance responsibility from the services to DCMC. This latest decision completes the transfer of virtually all CS2 policy, reform, and compliance decisions away from the financial management community. Nonetheless, members of the various communities will continue to be involved in the day-to-day operations of CS2. How their roles, practices, and interaction with one another will change under the aegis of DCMC remains to be seen. This transfer has significant repercussions for DCMC. Service representatives have expressed concern that because of its recent downsizing, DCMC may not have the resources to adequately perform its Page 15 GAO/NSIAD-97-108 Earned Value Management B-276406 increased responsibilities. In addition, about 85 percent of the CS2 field staff dedicate only part of their time to cost performance monitoring. DCMC officials are aware of these concerns and are working on a strategy to accomplish its newly expanded mission. Since it is likely that DCMC will not receive more than 6 additional billets to supplement its current level of approximately 150 cost performance monitors, DCMC is reengineering its approach to CS2 implementation along the lines of statistical process control measurement techniques. This would represent a management-by-exception approach to CS2 reviews. This may be a less costly and burdensome approach that could have potential for reducing the resources and infrastructure associated with traditional CS2 implementation practices, especially when coupled with the streamlined industry earned value criteria discussed below. How well such an approach meets the basic needs of all the communities is yet unknown. DCMC has begun to work with contractors to change the surveillance focus from the traditional oversight role to one based on what DOD refers to as insight—the ability to identify problems through process-based indicators such as the number of retroactive changes to cost accounts or the frequency of replanning actions. Each major defense contractor will work with DCMC to identify appropriate process and control objectives. Ultimately, once each contractor designates its unique control limits, DCMC staff would only be required to review those processes that are out of tolerance. In addition, DCMC plans to work with industry to encourage firms to assume responsibility for their management systems and processes. Industry Standard In August 1996, five industry associations published an industry standard, Developed by Contractors Industry Standard Guidelines for Earned Value Management Systems (EVMS), as a replacement to the current government CS2 criteria. DOD formally recognized the guidelines in the industry standard in December 1996. The Director, Defense Procurement, has issued an interim rule to enable contractors to begin using the EVMS without having to wait for the formal regulatory change process. The long-range plan is for the standard to be approved by the American National Standards Institute4 4 The American National Standards Institute serves as the administrator and coordinator of the U.S. private sector voluntary standardization system. It promotes and facilitates voluntary consensus standards. Page 16 GAO/NSIAD-97-108 Earned Value Management B-276406 and the International Standards Organization5. This would formally move earned value into common usage worldwide. In addition, Australia, Canada, and the United States have signed a memorandum of understanding concerning common cost and schedule management for their acquisitions. The EVMS contains 32 criteria, which are similar to the DOD criteria in principle. For example, both sets of criteria are divided into five broad categories: organization; planning, scheduling, and budgeting; accounting; analysis and management reports; and revisions and data maintenance. Each category describes the internal controls that should exist to facilitate proper program management. They also contain provisions for breaking out work into discrete work packages, documenting changes to the performance baseline, and measuring cost, schedule, and technical accomplishment. The industry standard gives the contractor the flexibility to revise the system as needed to reflect work consistent with internal management structures and to track costs at a higher organizational level than the level typically tracked in DOD programs. (See app. I for a more detailed comparison.) Despite their general similarities, the two criteria have significant differences that could affect government oversight. One such difference is that the government may no longer have the same review and approval authority over contractor management systems that it had in the past. DOD does not accept the self-certification provisions of the EVMS standard. Instead, it would like to find some middle ground between self-certification and traditional government certification. DOD’s goal is to encourage contractors to conduct self-evaluations with the government acting as an observer. However, DOD’s recently revised implementation guidance does not preclude a government review, when warranted, or a third-party certification arrangement. The third-party certification concept represents the standard industry practice for quality assurance systems. Although not required by the International Standards Organization—the industry organization responsible for the quality assurance standards—it is a generally accepted practice to get a third-party certification in order to meet its quality standards. This approach may mitigate some potential risks of the self-evaluation process and prove to be less burdensome than DOD’s traditional review and certification process. 5 The International Standards Organization is a nongovernmental entity whose mission is to promote the development of standardization and related activities in the world. Its focus is to facilitate the international exchange of goods and services and to develop intellectual, scientific, technological, and economic cooperation. Page 17 GAO/NSIAD-97-108 Earned Value Management B-276406 Other differences associated with the EVMS standard include the absence of specific requirements for access to data by the customer (in this case, DOD) for oversight purposes and the fact that program baseline and contractor management systems may be changed as needed, with notification of, but not approval by, the customer. Use of this standard on future procurements should give the contractor greater ability to manage and improve its processes. However, it could impede government oversight unless DOD is able to obtain accurate and timely information on contract performance. Therefore, acquisition program managers will have to ensure that access to data and reporting provisions are included on individual contracts. Likewise, the increased flexibility to revise the program baseline may make it more difficult to track divergences from original program goals. Technology Advances Can Current technology offers improvements that could enhance the timeliness Improve Data Timeliness of the CS2 data as well as integrate cost and schedule performance with and Quality technical performance. For several years, DOD has recognized the need to improve data timeliness and has focused on developing EDI capability. We found that several program managers have experimented with getting direct access via personal computers to contractor databases. This permits them to see at the same time the same data the contractor uses to manage the program. The government program managers who have used these systems are very pleased with the quality and timeliness of the information. We spoke to managers in several program offices who believe that having direct access to the same data the contractor uses to manage is critical. For example, the Joint Stand-Off Weapon system program has a direct access system that was custom built for the program. It contains cost, schedule, manufacturing, test, and engineering/technical information using a variety of displays. The system uses commercially available software and the data is updated twice a month. Cost data is available only to the program manager and two others to protect the contractor’s proprietary rate information. Similarly, the Sea-Launched Attack Missile Extended Range program is using a direct access system that enables its technical staff to pull up weekly status data by component or subsystem. Each integrated product team also reports progress each week. Information is displayed in terms of labor hours, not cost. Cost data is consolidated and presented at a high level. Improvements in the direct-access processes are being made to allow subcontractor data to be included and also to include such items as indirect charges to the contract and overhead. Page 18 GAO/NSIAD-97-108 Earned Value Management B-276406 These practices represent a departure from the traditional implementation of CS2, but technically have always been permissible under the basic 35 criteria. Nonetheless, using the streamlined direct access process has not been universally accepted. Some DOD officials have expressed concerns about the potential for inaccurate data in these systems that a monthly cost performance report review and audit would pick up. In addition, the direct access may only provide detailed data on the prime contractor status, and summary level information on subcontractor status. Another concern is that the cost information may not include full overhead charges. To implement this approach, the government may need to install special high-speed transmission or “trunk lines” that could be expensive and prohibit small programs from using it. Because of these concerns, DOD has not endorsed this approach, but is focusing on EDI implementation. Managers of these two programs believe that direct access systems are very beneficial and have found work-arounds for some of these concerns. According to the author of the EDI cost performance report data set, the ultimate goal is to standardize the data format in reports. The author believes that the optimal solution would be to standardize to a common data format so that DOD could reach into a contractor’s database to access, download, and analyze information. This would allow a program office to monitor the progress of a contractor’s performance, using the currently accepted reporting formats, on a near real-time basis. This standardization would also allow for the almost instantaneous analysis by the users of this information no matter what software or hardware the contractor or the government use. This capability would eliminate some of the concerns to unique direct access systems while still giving the program manager the flexibility to design a system that meets the needs of his particular program. Another promising effort is a technical risk assessment process being developed and tested by the Navy’s Program Executive Office for Air Anti-Submarine Warfare, Assault, and Special Mission Programs. This effort is intended to work in tandem with the CS2 information to enable the manager to integrate technical progress with cost and schedule data. In an early test, it was able to highlight and quantify technical risks on one program much earlier than the CS2 process did. The process requires that the critical technical performance and schedule drivers be identified at the start of the program. By developing specific risk curves and progress plans for each parameter, the program manager can obtain insights not just into work progress, but also technical success. This provides an early warning of technical problems, permitting the manager to mitigate cost and Page 19 GAO/NSIAD-97-108 Earned Value Management B-276406 schedule impacts. For example, in a retrospective analysis of an aircraft cockpit program, the software predicted problems more than a year before the CS2 process did because the CS2 process, as applied, emphasized cost and schedule integration without adequate regard for technical performance. This software is currently being tested by the Federal Aviation Administration and is scheduled to be used on the H-1 Helicopter Upgrade program. DOD has taken major steps to create an organizational environment that Conclusions and can facilitate making needed changes to the CS2 process. DCMC faces a Recommendations number of challenges as it begins its stewardship of the process. These include implementing initiatives to improve its utility to program managers and to streamline certification and reporting requirements, determining how best to manage the certification review process, and deciding on a number of proposed improvements. To be successful, DCMC will need to understand the resource implications of these challenges. Another challenge DCMC faces, perhaps more subtle than the above reforms, is to better balance the needs of the different communities that depend on earned value information. A common understanding of these basic needs will be instrumental to DCMC’s ability to protect each user’s basic needs from others’ secondary desires. Specifically, as DCMC endeavors to make CS2 more responsive to program managers, it will have to guard against basic oversight needs going unmet. We recommend that the Secretary of Defense (1) promulgate the basic needs of the organizations that depend on earned value information in some manner, such as in the implementing guidance for EVMS and (2) take steps to ensure that the “wants” of one organization do not encroach upon the basic needs of other organizations that depend on earned value information as the management of the CS2 process transitions to DCMC and as DCMC makes decisions on reforms in the future. In addition, several initiatives relevant to the CS2 process are ongoing, including EDI, IBRs, direct access, technical risk assessment, self-certification, and the application of statistical process control techniques to the surveillance process. Some of these are being demonstrated in varying degrees on different programs, while others are still in the policy stage. It is important that DOD ensures that as these initiatives are tested on individual programs, data is captured in a disciplined enough manner to support decisions on what to implement and how. Such data will not only help get the most out of each initiative, but Page 20 GAO/NSIAD-97-108 Earned Value Management B-276406 will also make it easier to recognize possible interactions among initiatives. DOD generally concurred with our conclusions and recommendations. It Agency Comments agreed with the need to make sure that the “wants” of one organization do not outweigh the needs of another. It cited the establishment of two groups that will help ensure that the needs of all organizations that use earned value information are met. These are (1) the Integrated Program Management Initiative Executive Steering Group, which includes representatives from the Office of the Secretary of Defense, the services, DCMC, and other organizations; and (2) the Performance Management Advisory Council under DCMC, which will have service representatives from the earned value community and from the project management or acquisition communities. According to DOD, the Council will also participate in a contractor cost data reporting initiative, along with the cost-estimating community. DOD agreed that the relationships among the organizations as well as their information needs should be made clear in its EVMS guidance. In the draft of this report, we recommended that DOD rebaseline the basic needs of the organizations that depend on earned value information. DOD believed that it did not need to formally rebaseline these needs because it had developed a good understanding of them in arriving at the significant reforms it is currently making to CS2 and in identifying the earned value skills needed by business, cost-estimating, and financial management specialists. We agreed to delete the recommendation from the final report with the proviso that DOD would reassess its progress on earned value reform and on meeting the needs of the key organizations. Accordingly, DOD stated that the Integrated Program Management Initiative Executive Steering Group would assess such progress. DOD also stated that the group will coordinate all earned value management improvement efforts with other initiatives, such as electronic access and risk management. To develop information for this report, we contacted, interviewed, and Scope and obtained documents from officials of the Office of the Secretary of Methodology Defense and DCMC because of the policy-making responsibilities and reform initiatives occurring at these levels. In addition, we obtained information from officials at the Office of Management and Budget; the Federal Aviation Administration; the Office of the Secretary of Defense Cost Analysis Improvement Group; service headquarters; Army Materiel Page 21 GAO/NSIAD-97-108 Earned Value Management B-276406 Command; Navy Air Systems Command; Program Executive Office for Air Anti-Submarine Warfare, Assault, and Special Mission Programs; Air Force Materiel Command; Aeronautical Systems Center; and Defense Plant Representative Office personnel from General Electric, Lynn, Mass; Boeing, Seattle, Wash; Lockheed Martin, Sunnyvale, Ca; and McDonnell Douglas, St. Louis, Mo. We contacted all program managers responsible for Acquisition Category 1D programs in engineering and manufacturing development. We received responses from all but 1 of these 16 programs. We also contacted officials from the governments of Australia and Sweden to obtain information on their requirements for cost schedule control systems. To obtain industry’s perspective on policy issues and implementation practices, we contacted representatives from the following industry or professional associations: National Security Industrial Association, Aerospace Industries Association, Performance Management Association, and Project Management Institute. We also discussed these issues with representatives from the following commercial and military contractors: Boeing, General Electric, Lockheed Martin, Loral, Magnavox, McDonnell Douglas, Motorola, Northrop/Grumman, Raytheon, Supply Tech, Inc., Texas Instruments, Textron, and United Defense Limited Partnership. To address historical information and obtain independent views on how current policy initiatives could affect future implementation practices, we contacted representatives from the Massachusetts Institute of Technology and Wright State University and the following consulting groups: Coopers & Lybrand LLP, KPMG Peat Marwick LLP, Humphreys & Associates, Fleming Management Consultancy, and Write Concepts. We also obtained historical information from the Management Systems Deputy, Air Force Assistant Secretary for Financial Management and Comptroller. We performed our review from June 1996 to March 1997 in accordance with generally accepted government auditing standards. Page 22 GAO/NSIAD-97-108 Earned Value Management B-276406 We are sending copies of this report to other interested congressional committees; the Secretary of Defense; the Commander, DCMC; and the Director of the Office of Management and Budget. We will also make copies available to others upon request. Please contact me at (202) 512-4383 if you or your staff have any questions concerning this report. The major contributors to this report were Paul Francis, Rae Ann Sapp, and Jeff Hunter. Katherine V. Schinasi Associate Director Defense Acquisitions Issues Page 23 GAO/NSIAD-97-108 Earned Value Management Appendix I Comparison of DOD and Industry Criteria DOD’s Criteria Industry’s Criteria Organization Organization 1. Define all authorized work and related Define the authorized work elements for resources to meet the requirements of the the program. A work breakdown structure, contract, using the framework of the tailored for effective internal management contract work breakdown structure. control, is commonly used in this process. 2. Identify the internal organizational Identify the program organizational elements and the major subcontractors structure, including the major responsible for accomplishing the subcontractors responsible for authorized work. accomplishing the authorized work, and define the organizational elements in which work will be planned and controlled. 3. Provide for the integration of the Provide for the integration of the contractor’s planning, scheduling, company’s planning, scheduling, budgeting, work authorization, and cost budgeting, work authorization, and cost accumulation systems with each other, the accumulation processes with each other, contract work breakdown structure, and the and as appropriate, the program work organizational structure. breakdown structure and the program organizational structure. 4. Identify the managerial positions Identify the company organization or responsible for controlling overhead function responsible for controlling (indirect costs). overhead (indirect costs). 5. Provide for integration of the contract Provide for integration of the program work work breakdown structure with the breakdown structure and the program contractor’s functional organizational organizational structure in a manner that structure in a manner that permits cost and permits cost and schedule performance schedule performance measurement for measurement by elements of either or both contract work breakdown structure and structures as needed. organizational elements. Planning & budgeting Planning, scheduling, & budgeting 6. Schedule the authorized work in a manner . . . . interdependencies required to meet that describes the sequence of work and the requirements of the program. identifies the significant task interdependencies required to meet the development, production, and delivery requirements of the contract. 7. Identify physical products, milestones, Identify physical products, milestones, technical performance goals, or other technical performance goals, or other indicators that will be used to measure indicators that will be used to measure output. progress. (continued) Page 24 GAO/NSIAD-97-108 Earned Value Management Appendix I Comparison of DOD and Industry Criteria DOD’s Criteria Industry’s Criteria 8. Establish and maintain a time-phased Establish and maintain a time-phased budget baseline at the cost account level budget baseline, at the control account against which contract performance can be level, against which program performance measured. Initial budgets established for can be measured. Budget for far-term this purpose will be based on the negotiated efforts may be held in higher level target cost. Any other amount used for accounts until an appropriate time for performance measurement purposes must allocation at the control account level. be formally recognized by both the Initial budgets established for performance contractor and the government. measurement will be based on either internal management goals or the external customer negotiated target cost including estimates for authorized but undefinitized work. On government contracts, if an over target baseline is used for performance measurement reporting purposes, prior notification must be provided to the customer. 9. Establish budgets for all authorized work Establish budgets for authorized work, with with separate identification of cost elements identification of significant cost elements (labor, material, etc.). (labor, material, etc.) as needed for internal management and for control of subcontractors. 10. To the extent the authorized work can be To the extent it is practical to identify the identified in discrete, short-span work authorized work in discrete work packages, establish budgets for this work in packages, establish budgets for this work terms of dollars, hours, or other measurable in terms of dollars, hours, or other units. Where the entire cost account cannot measurable units. Where the entire control be subdivided into detailed work packages, account is not subdivided into work identify the far-term effort in larger planning packages, identify the far-term effort in packages for budget and scheduling larger planning packages for budget and purposes. scheduling purposes. 11. Provide that the sum of all work package Provide that the sum of all work package budgets plus planning packages within a budgets plus planning package budgets cost account equals the cost account within a control account equals the control budget. account budget. 12. Identify relationships of budgets or No comparable provision. standards in underlying work authorization systems to budgets for work packages. 13. Identify and control level of effort activity . . . . Only that effort which is by time-phased budgets established for this unmeasurable or for which measurement is purpose. Only that effort which cannot be impractical may be classified as level of identified as discrete or as apportioned effort. effort will be classed as level of effort. (continued) Page 25 GAO/NSIAD-97-108 Earned Value Management Appendix I Comparison of DOD and Industry Criteria DOD’s Criteria Industry’s Criteria 14. Establish overhead budgets for the total Establish overhead budgets for each costs of each significant organizational significant organizational component of the component whose expenses will become company for expenses that will become indirect costs. Reflect in the contract indirect costs. Reflect in the program budgets, at the appropriate level, the budgets, at the appropriate level, the amounts in overhead pools that will be amounts in overhead pools that are allocated to the contract as indirect costs. planned to be allocated to the program as indirect costs. 15. Identify management reserves and Same. undistributed budget. 16. Provide that the contract target cost plus Provide that the program target cost goal the estimated cost of authorized but is reconciled with the sum of all internal unpriced work is reconciled with the sum of program budgets and management all internal contract budgets and reserves. management reserves. Accounting Accounting considerations 17. Record direct costs on an applied or Record direct costs in a manner consistent other acceptable basis in a formal system with the budgets in a formal system that is controlled by the general books of controlled by the general books of account. account. 18. Summarize direct costs from cost When a work breakdown structure is used, accounts into the work breakdown structure summarize direct costs from control without allocation of a single cost account to accounts into the work breakdown two or more work breakdown structure structure without allocation of a single elements. control account to two or more work breakdown structure elements. 19. Summarize direct costs from the cost Summarize direct costs from the control accounts into the contractor’s functional accounts into the contractor’s organizational elements without allocation of organizational elements without allocation a single cost account to two or more of a single control account to two or more organizational elements. organizational elements. 20. Record all indirect costs that will be Same. allocated to the contract. 21. Identify the basis for allocating the cost No comparable provision. of apportioned effort. 22. Identify unit costs, equivalent unit costs, . . . or lot costs when needed. or lot costs, as applicable. 23. The contractor’s material accounting For earned value management systems, system will provide for: the material accounting system will provide a. Accurate cost accumulation and for: assignment of costs to cost accounts in a Accurate cost accumulation and manner consistent with the budgets using assignment of costs to control accounts in recognized, acceptable costing techniques. a manner consistent with the budgets using recognized, acceptable, costing techniques. b. Determination of price variances by No comparable provision. comparing planned versus actual commitments. (continued) Page 26 GAO/NSIAD-97-108 Earned Value Management Appendix I Comparison of DOD and Industry Criteria DOD’s Criteria Industry’s Criteria c. Cost performance measurement at the . . . but no earlier than the time of progress point in time most suitable for the category payments or actual receipt of material. of material involved, but no earlier than the time of actual receipt of material. d. Determination of cost variances No comparable provision. attributable to the excess usage of material. e. Determination of unit or lot costs when No comparable provision. applicable. f. Full accountability for all material Full accountability for all material purchased for the contract, including the purchased for the program, including the residual inventory. residual inventory. Analysis Analysis and management reports 24. Identify at the cost account level on a At least on a monthly basis, generate the monthly basis using data from, or following information at the control account reconcilable with, the accounting system: and other levels as necessary for a. Budgeted cost of work scheduled and management control using actual cost budgeted cost of work performed. data from, or reconcilable with, the b. Budgeted cost of work performed and accounting system: applied (actual where appropriate) direct 1. Comparison of the amount of planned costs for the same work. budget and the amount of budget earned c. Variances resulting from the above for work accomplished. This comparison comparisons classified in terms of labor, provides the schedule variance. material, or other appropriate elements 2. Comparison of the amount of the budget together with the reasons for significant earned with the actual (applied where variances. appropriate) direct costs for the same work. This comparison provides the cost variance. 25. Identify on a monthly basis, in detail Identify budgeted and applied (or actual) needed by management for effective indirect costs at the level and frequency control, budgeted indirect costs, actual needed by management for effective indirect costs, and variances along with the control, along with the reasons for any reasons. significant variances. 26. Summarize the data elements and Summarize the data elements and associated variances listed in  and  associated variances through the program above, through the contractor organization organization and/or work breakdown and work breakdown structure to the structure to support management needs reporting level specified in the contract. and any customer reporting specified in the contract. 27. Identify significant differences on a Identify, at least monthly, the significant monthly basis between planned and actual differences between both planned and schedule accomplishment and the reasons. actual schedule performance and planned and actual cost performance, and provide the reasons for the variances in the detail needed by program management. 28. Identify managerial actions taken as a Implement managerial actions taken as the result of criteria items  through  result of earned value information. above. (continued) Page 27 GAO/NSIAD-97-108 Earned Value Management Appendix I Comparison of DOD and Industry Criteria DOD’s Criteria Industry’s Criteria 29. Based on performance to date, on Develop revised estimates of cost at commitment values for material, and on completion based on performance to date, estimates of future conditions, develop commitment values for material, and revised estimates of cost at completion for estimates of future conditions. Compare work breakdown structure elements this information with the performance identified in the contract and compare these measurement baseline to identify with the contract budget base and the latest variances at completion important to statement of funds requirements reported to company management and any applicable the government. customer reporting requirements, including statements of funding requirements. Revisions and access to data Revisions and data maintenance 30. Incorporate contractual changes in a Incorporate authorized changes in a timely timely manner, recording the effects of such manner, recording the effects of such changes in budgets and schedules. In the changes in budgets and schedules. In the directed effort before negotiation of a directed effort prior to negotiation of a change, base such revisions on the amount change, base such revisions on the estimated and budgeted to the functional amount estimated and budgeted to the organization. program organizations. 31. Reconcile original budgets for those Reconcile current budgets to prior elements of the work breakdown structure budgets in terms of changes to the identified as priced line items in the authorized work and internal replanning in contract, and for those elements at the the detail needed by management for lowest level of the DOD program work effective control. breakdown structure, with current performance measurement budgets in terms of (a) changes to the authorized work and (b) internal replanning in the detail needed by management for effective control. 32. Prohibit retroactive changes to records Control retroactive changes to records pertaining to work performed that will pertaining to work performed that would change previously reported amounts for change previously reported amounts for direct costs, indirect costs, or budgets, actual costs, earned value, or budgets. except for correction of errors and routine Adjustments should be made only for accounting adjustments. correction of errors, routine accounting adjustments, effects of customer or management directed changes, or to improve the baseline integrity and accuracy of performance measurement data. 33. Prevent revisions to the contract budget Prevent revisions to the program budget base except for government-directed except for authorized changes. changes to contractual effort. 34. Document internally, changes to the Document changes to the performance performance measurement baseline and measurement baseline. notify the procuring activity expeditiously through prescribed procedures. 35. Provide the contracting officer and the No comparable provision. contracting officer’s authorized representatives with access to the information and supporting documents necessary to demonstrate compliance with the cost/schedule control system criteria. Page 28 GAO/NSIAD-97-108 Earned Value Management Appendix II Comments From the Department of Defense Page 29 GAO/NSIAD-97-108 Earned Value Management Appendix II Comments From the Department of Defense See p. 21. Page 30 GAO/NSIAD-97-108 Earned Value Management Appendix II Comments From the Department of Defense See p. 21. See p. 21. (707153) Page 31 GAO/NSIAD-97-108 Earned Value Management Ordering Information The first copy of each GAO report and testimony is free. Additional copies are $2 each. 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Major Acquisitions: Significant Changes Underway in DOD's Earned Value Management Process
Published by the Government Accountability Office on 1997-05-05.
Below is a raw (and likely hideous) rendition of the original report. (PDF)