Continue EVM until the Program is Complete

Award Fee Criteria

(Sidebar)
Best practices indicate that award fee criteria should motivate the contractor to effectively manage its contract using EVM to deliver the best product possible. For example, programs should use criteria that reward the contractor for:

  • integrating EVM with program management,

  • establishing realistic budgets and schedules, and estimates of costs at completion

  • providing meaningful variance analysis,

  • performing adequate cost control, and

  • providing accurate and timely data.

In addition, experts agree that award fee periods should be tied to specific contract events like preliminary design review rather than monthly cycles.

It is bad management practice to use EVM measures, such as variances or indexes, as award fee criteria, because they put emphasis on the contractor’s meeting a predetermined number instead of achieving program outcomes. Award fees tied to reported EVM measures may encourage the contractor to behave in undesirable ways, such as overstating performance or changing the baseline budget to meet variance thresholds and secure potential profit. These actions undermine the benefits to be gained from the EVM system and can result in a loss of program control. For example, contractors may front-load the performance measurement baseline or categorize discrete work as level of effort, with the result that variances are hidden until the last possible moment. Moreover, tying award fee criteria to specific dates for completing contract management milestones, such as the IBR, is also bad practice, because it may encourage the contractor to conduct the review before it is ready.

Source: GAO. | GAO-20-195G

EVM detail planning continues until the program is complete. Rolling wave planning gives the contractor flexibility for planning the effort in detail and allows for incorporating lessons learned. Work may be planned by calendar dates, for example, in 6-month increments; all effort beyond 6 months is held in a planning package. Each month, near-term planning packages are converted to detailed work packages to ensure that 6 months of detailed planning are always available to management. This continues until all work has been planned in detail and the program is complete. However, rolling-wave planning based on calendar dates may result in insufficient detail. A best practice is to plan the rolling wave to a design review, test, or other major milestone rather than an arbitrary period, such as 6 months.

Continually planning the work supports an EVM system that will help management complete the program within the planned cost and proposed schedule. This is important because EVM data are essential to effective program management and can be used to answer basic program management questions such as those in table 25.

Table 25: Basic Program Management Questions That Earned Value Management (EVM) Data Help Answer
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Question Answer
How much progress has the program made so far?
  • Percent complete
What are the significant deviations from the plan?
  • Cost variance
  • Schedule variance
  • Variance at completion
How efficiently is the program meeting cost and schedule objectives? Cost performance index (CPI)
Schedule performance index (SPI)
Are cost and schedule trends getting better or worse? Plot cost and schedule variance, CPI, SPI, and the like
Will the program be completed within the budget? To complete performance index (TCPI) for the budget at completion (BAC)
Is the contractor’s estimate at completion (EAC) reasonable? TCPI for the contractor’s EAC
What other estimates are reasonable for completing the authorized scope of work? Independent EACs using statistical forecasting techniques based on various efficiency factors
What action will bring the program back on track? Acting on format 5 variance analysis information

Source: ICEAA (International Cost Estimating and Analysis). Cost Estimating Body of Knowledge. Vienna, Va.: 2013 | GAO-20-195G

From questions such as those in table 25, reliable EVM data can help inform the most basic program management needs. The questions also provide an objective way of measuring progress so that accurate independent assessments of EACs can be developed and presented to stakeholders.