OSD Earned Value Management Activities Update Larry L. Axtell Senior Program Analyst Office of the Under Secretary of Defense (Acquisition, Technology and Logistics) Acquisition Resources and Analysis February 8, 2005

2 Agenda  Revised Earned Value Management (EVM) Policy/Guidance  Work Breakdown Structure (WBS) Handbook Update  Government/Industry EVM Working Group

Revised Earned Value Management (EVM) Policy/Guidance

4 Revised EVM Policy/Guidance: Summary of Changes  New dollar thresholds for cost/incentive contracts (no differentiation between development and procurement)  Revise Cost Performance Report (CPR) Data Item Description (DID) - rename “Contract” Performance Report  Eliminate Cost/Schedule Status Report (C/SSR) and CPR-No Criteria  Expand application of Integrated Master Schedule (IMS) and link to CPR  Integrated Baseline Reviews (IBRs) required when EVM required  EVM on Firm-Fixed Price (FFP) contracts is risk- based decision

5 Revised EVM Policy/Guidance: Status Overview  Actions Completed:  Released policy changes for government and industry comment  Adjudicated comments; modified policy documents accordingly  Conducted business case analysis  Formally coordinated revised policy within DoD  Finalized the CPR and IMS DIDs  Actions in Progress:  Revising DFARS clauses  Updating EVMIG (adding tailoring guidance and focusing on how to contract for EVM)  Updating Work Breakdown Structure (WBS) Handbook  Updating the DoDI and Defense Acquisition Guidebook

6 Revised EVM Policy/Guidance: Status Overview  Next Steps:  Obtain USD(AT&L) approval of revised policy  Release interim policy memorandum  Publish revised DIDs (CPR and IMS)  Publish changes to DoDI  Publish changes to Defense Acquisition Guidebook  Publish updated EVMIG  Publish updated WBS Handbook  Publish revised DFARS clauses (consider EVMS FAR clause)  Changes not retroactive, apply to contracts awarded in response to solicitations or RFPs issued on or after 30 days from the date of the signed policy memorandum

Work Breakdown Structure (WBS) Handbook Update Neil Albert MCR, LLC

8 Update MIL-HDBK Requirements  Update for DoD 5000 changes  Identify how the WBS can support each acquisition phases and the actions necessary to enter and exit successfully  Reflect changes to new and improved approaches to product development (i.e., spiral/evolutionary)  Show how WBS is developed and maintained throughout the life cycle to meet program management goals as well as cost, schedule, and technical objectives  Show how the WBS is the common link which will unify the planning, scheduling, estimating, budgeting, configuration management, and performance reporting disciplines

9 Task 1: Add/Improve upon WBS Definitions  Update definitions to reflect advancement of technology in design, development and manufacturing  Heavier reliance on software  Commercial-off-the-shelf items (Status: Completed)  Establish a Working Group consisting of Government and Industry to review at least the following appendices and provide comments and potential revisions  Aircraft – specifically UAVs (Status: Will be separate Appendix. Draft being coordinated in UAV Working Group)  Space – Multiple definitions – NASA, NRO, DoD, etc. (Status: Final draft in coordination with Space Systems Working Group)  Ships – Waived for CSDR – no longer (Status: Final draft in coordination with Ship Systems Working Group)  Other Appendices modified (Status): Aircraft to include Crew Station and Human Systems Integration Ordnance to include multiple stage frame Ground UV – consistent with Ground Vehicle Appendix Sea UV – To be determined Common Elements to include specific definitions for Aircraft, Space, Ships common elements unique to those systems

10 Task 2: Clarify how WBS is used with newer terms and processes  System of Systems/Family of Systems  Clarify terminology and highlight examples of how the WBS is created given the requirement for system interaction and interoperability  Show example of System of Systems WBS (Status: Working with OSD Systems Engineering staff to finalize definitions)  Spiral/Evolutionary Development (Hardware/Software)  Each spiral provides new functionality which could be considered product oriented, but better definition is required  Will define terminology and provide examples of how the WBS is created given an evolutionary requirement. (Process is already defined in the software WBS description --- most software engineers used spiral development to create software in the early 1990’s) (Status: Working with OSD Systems Engineering staff to finalize definitions)  Risk Analysis  Description of risk analysis use with WBS  System Engineering use to trade cost, schedule and technical risk of the system to meet end-item requirements (Status: Working with OSD Systems Engineering and PMI Risk SIG to to include appropriate definitions)

11 Task 3: Ensure the WBS is characterized as an Acquisition tool  To decrease the use of multiple WBSs used by different functional areas, define the WBS for all practical uses:  Cost Estimating  EVM  Database  Scheduling  Requirements planning, etc.  Establish group of system engineers, cost analysts, logisticians, earned value management technicians, program managers and contracts personnel to agree and commit to one approach defining and using the WBS for program support  Maintain a product oriented WBS reporting at level 3 (except for high cost, high risk or technology driving elements)  Communicate result by follow on training (Status: Coordinating with appropriate functions/associations and Government Reps)

12 Task 4: Support Budget, Cost, Schedule, Technical, Contractual and Performance Management  Identify DoD 5000 has mandated certain reporting functions that rely on the WBS  Contract Funds Status Report  Contractor Cost Data Reporting  Earned Value Management (Status: Implementing into Draft documentation)  Use example  Demonstrate how acquisition reports will track to each other if a single WBS is used  Show relationship to CLIN SOW Requirements IMP/IMS (Status: Finalizing flow diagram to show relationships)

13 Task 5: Integrates with PM and SE Documents, Contracts and Cost Estimating  Re-enforce the use of the WBS via example  Show that without the WBS, the IMP/IMS relationship to other acquisition artifacts would not be possible (Status: Implementing into Draft documentation considering new DID requirements)

14 Other Activities  Effort being extended to account for full DoD coordination effort  Required MIL-STD coordination  Expectation of completion – April 30, 2005  Briefing major organizations on changes  ASC/Industry Workshop  NDIA Program Management Subcommittee  CSDR Focus Group  SCEA  PMI – College of Performance Management

Government/Industry EVM Working Group

16 Government/Industry EVM Working Group  Established in response to DAEC tasking  Working-level forum to “assess EVM and broader program management issues and concerns by sharing improvement ideas and recommending solutions, capitalizing on existing industry practices”  Standing body that meets at least quarterly or as required  Membership includes representatives from OSD, military services, defense and intelligence agencies, National Defense Industrial Association, and large defense contractors  Meetings held in July, August, and November:  Discussed main concerns regarding policy changes  Developed draft action plan to address overarching DoD and industry issues  Next meeting scheduled for February 10, 2005

17 Government/Industry EVM Working Group  Major Issues Identified by Government/Industry EVM Working Group: 1.Policy, Validation, and Surveillance 2.Contract Requirements 3.Training 4.Contract Definitization 5.Management Acceptance 6.Process Integrity 7.Subcontractor Management  Working Group developing plan to define issues and strategies for implementing corrective actions  Revisions to EVM policy/guidance respond to Issue 1  EVM Functional Integrated Product Team activity underway to address Issue 3—will have ancillary benefits in other areas  NDIA Program Management Systems Committee teams actively working related initiatives from industry perspective  Working Group is a standing body that will continue to dialogue on concerns, share improvement ideas, and recommend and implement solutions

18 Government/Industry EVM Working Group  Next Steps:  Complete action plan  Seek appropriate approvals of near-term improvement actions  Assist in implementing improvement actions  Assess progress and update plan  Continue to dialogue on concerns, share improvement ideas, and recommend solutions

Back-Up Slides

20 Background  Contemporary EVM is the product of a technique formalized by DoD in the 1960’s  Criteria-based approach to management (Cost/Schedule Control Systems Criteria) was used for more than 35 years  1996 was a year of change…  Transitioned from C/SCSC (35 government criteria) to EVM (32 industry guidelines)  Compliance responsibility transferred from military services to DCMA  DoD recognized industry’s “ownership” of EVM  In 2003 problems came to light…  Industry concerns communicated in letter to USD(AT&L) (April 2003)  DoD concerns discussed at executive-level meeting (July 2003)  Concerns presented to Defense Acquisition Excellence Council (DAEC); action resulted to establish team to work the issues and provide periodic status to DAEC (October 2003)  OSD actions in response to concerns:  Established Government/Industry EVM Working Group  Developed proposed revised DoD EVM policy  Status update presented to DAEC on November 9, 2004

21 < $20M > $20M > $50M Thresholds Cost or Incentive Equal to Or Above Threshold Cost or Incentive Equal to Or Above Threshold Cost or Incentive Less Than Threshold Plus All FFP Contracts Requirements - Compliance with industry EVM standard - Formal validation of contractor’s EVM system - Contract Performance Report - Integrated Master Schedule - Integrated Baseline Review - Ongoing surveillance - Compliance with industry EVM standard - Formal system validation not required - Contract Performance Report (tailored) - Integrated Master Schedule (tailored) - Integrated Baseline Review (scope tailored) - Ongoing surveillance - EVM optional (risk-based decision) - Ongoing surveillance Revised EVM Policy/Guidance: New Application Thresholds

22 Revised EVM Policy/Guidance: Tailoring Guidance  Guidance for tailoring CPR and IMS for cost or incentive contracts $20M  Considerations when making a risk-based decision to require EVM on cost or incentive contracts <$20M; guidance for tailoring reporting  Considerations when making a risk-based decision to require EVM on FFP contracts; guidance for tailoring reporting  Will reside in Defense Acquisition Guidebook and Earned Value Management Implementation Guide (EVMIG)

23 Revised EVM Policy/Guidance: Business Case Analysis  Used contracts data supplied by DoD and industry; applied proposed new EVM application thresholds  Increase in lower threshold from $6.3M to $20M results in decrease in number of contracts requiring EVM (DoD data = 2,156; industry data = 1,297)  Decrease in upper threshold from $315M/$73M to $50M results in increase in number of contracts requiring a CPR and validated EVM system (DoD data = 535; industry data = 261)  Used incremental cost algorithm to establish equivalency between difference in level of effort for CPR, Tailored CPR (replacement for C/SSR), and C/SSR (C/SSR = 0.33 CPR; TCPR = 1.1 C/SSR)  DoD data – eliminate CPRs on 326 contracts  Industry data – eliminate CPRs on 235 contracts  Conclusion:  Policy changes will result in relatively significant cost avoidance; cost of eliminating C/SSRs more than offsets cost of additional CPRs  Few, if any, additional system validations will be required under the revised policy

24 Government/Industry EVM Collaboration Framework DAEC - Discussion forum - Oversees/promotes process OUSD(AT&L) - Prioritizes problems - Approves solutions NDIA - Represents industry - Prioritizes problems - Develops solutions Government/Industry Working Group - Identifies/defines problems - Recommends solutions - Assists in implementing solutions DoD Executive Management - Inputs to decisions - Implements solutions Industry Executive Management - Inputs to decisions - Approves/implements solutions