Cost Health Checks NAVY CEVM Aug 2013 NAVY CEVM Welcome to the CEVM presentation on suggested Cost Health Checks

Outline BCWP with no ACWP ACWP with no BAC Credibility of the Most Likely EAC Timely detail planning MR health Active Risk & Opportunity Management In this session, we’ll review some basic cost health checks that should be conducted regularly to help ensure the quality of the baseline and accuracy of the performance and forecast data it supports. We’ll address: Identification of BCWP without ACWP Identification of ACWP without BAC Credibility of the Most Likely EAC Timely detail planning MR health and Active Risk and Opportunity Management

How can work be performed without expending any effort? BCWP with no ACWP How can work be performed without expending any effort? BCWP earned without incurred ACWP may indicate a failure to integrate cost and schedule May also indicate mischarging Both cumulative and current month BCWP and ACWP should be reviewed monthly at the control account level The first recommended check is for the identification of BCWP incurred without ACWP. Performance claimed without any actual cost expenditure may be indicative of a failure to integrate cost and schedule. Both cumulative and current month BCWP and ACWP metrics should be reviewed monthly at the control account level to identify any potential misalignment or mischarging.

Why would effort be expended if not for budgeted scope? ACWP with no BAC Why would effort be expended if not for budgeted scope? ACWP incurred for un-budgeted effort represents a breakdown in the integration of budget, scope, and schedule Both cumulative and current month ACWP should be zero for any account or package with zero BAC. The second recommended check is for instances of ACWP without BAC. ACWP should never be incurred for effort which has not been budgeted. Such charges represent a breakdown in the integration of budget, scope, and schedule. Both cumulative and current month ACWP should be zero for any account or package with zero BAC.

Most Likely (ML) EAC Credibility Is ML-EAC reasonable given incurred performance? If the EAC requires future cost efficiency that is significantly better or worse than incurred cost efficiency, then the forecast is probably unrealistic At lower levels of the WBS, some examples of accounts with significant differences between incurred and forecast performance may exist and should be explained; however, instances should be limited To Complete Performance Index for the EAC (TCPIEAC) and cumulative Cost Performance Index (CPI) should be compared each month at the account and program levels to determine if they differ by 0.1 or more. If so, then the EAC in question is either extremely optimistic or pessimistic The next check is for EAC credibility. If the EAC requires future cost efficiency that is either significantly better or worse than incurred cost efficiency, then the forecast should be questioned. At lower levels of the WBS, the contractor may be able to justify some such instances, but generally speaking they suggest that the EAC is unrealistic. At the contract level such a situation would almost certainly invalidate the EAC. For each account and at each roll-up level, the TCPI_eac and CPI should differ by less than 0.1. If they differ by 0.1 or more, then the EAC is assumed to be invalid unless reasonable justification is provided.

Timely Detail Planning Are work packages planned far enough in advance? If the contractor is unable to detail plan effort sufficiently far in advance of execution (per their system description requirement), it calls into question their planning capability and general level of baseline control Potentially results in a situation where effort is being performed while the baseline is still being established. This undermines the objectivity of the baseline plan. Budgets in the defined freeze period should be reviewed each month to be sure that all planning package budgets have either been liquidated and detail planned or deferred to future months for subsequent planning The next check is for timely detailed planning. If the contractor is unable to detail plan effort sufficiently far in advance of execution, then it calls into question their overall planning capability and their level of baseline control. Most contractors have a defined near term freeze period for which no baseline changes may be processed. Each month the budget freeze period window should be reviewed to ensure that no planning package budgets exist within the window.

Can the program sustain the current level of MR use? MR Health Can the program sustain the current level of MR use? If the pace of MR distribution exceeds the pace of execution, then the contractor is likely to run out of MR for future risk mitigation and unknowns Monthly review of MR as a % of ETC is recommended to ensure that the contractor doesn’t distribute all MR early in the contract MR transaction justifications should also be reviewed to ensure that MR is used in accordance with the system description The next check is for the general health of program management reserve. Rather than MR balance, it’s the rate of MR use which can reveal a great deal about program cost health. If the pace of MR distribution exceeds the pace of execution, it raises concern that the contractor may quickly run out of MR for risk mitigation planning and unknowns. Each month, MR as a percentage of the ETC should be evaluated. Additionally, rationale or justification statements for MR distributions should be reviewed periodically to ensure that MR use is in accordance with the system description.

Active Risk & Opportunity Management Is the contractor actively managing and quantifying risk? If the contractor does not actively manage and/or has not developed cost estimates for identified risks and opportunities, then the EAC is likely understated Risk and Opportunity (R&O) Management Board minutes and the risk register/database should be reviewed to monitor: level of new/retired risk Updated valuations and probabilities for active risks and opportunities Ensure that R&O estimates are accounted for in the Most Likely EAC position The final check is for an active Risk and Opportunity Management process. If the contractor doesn’t actively manage or has not developed cost estimates for identified risks and opportunities, then the EAC is most likely understated. Each month R&OMB minutes or the risk register/database should be reviewed to monitor the level of new and retired risk and opportunity and the level of change in valuations and probabilities for active risks and opportunities

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