Contract Performance Reports
Once the IBR is completed and the PMB is validated, EVM data can be collected and used to assess performance and project costs at completion. EVM data are typically summarized in a standardized contract performance report (CPR). A CPR is the primary source for program cost and schedule status and provides the information needed for effective program control. A CPR provides cost and schedule variances, comparing actual performance against the plan, which can be further examined to understand the causes and the degree of impact on the program. Management can use this information to make decisions regarding next steps. For example, if a variance stems from an incorrect assumption in the program cost estimate, management may decide to obtain more funding or reduce the scope.
Periodically reviewing CPR data helps track program progress, risks, and plans for activities. Because management may not be able to review every control account, relying on CPR data enables management to quickly assess problems and focus on the most important issues.
Management should use the EVM data captured by the CPR to:
integrate cost and schedule performance data with technical performance measures,
identify the magnitude and impact of actual and potential problem areas causing significant cost and schedule variances, and
provide valid and timely program status to senior management.
As a management report, the CPR provides a timely, reliable summary of EVM data to assess current and projected contract performance. The primary value of the CPR is its ability to reflect current contract status and reasonably project future program performance. When the data are reliable, the report can facilitate informed, timely decisions by a variety of program staff—engineers, cost estimators, and financial management personnel, among others. CPR data are also used to confirm, quantify, and track known or emerging problems and to communicate these to the contractor. As long as the CPR data accurately reflect how work is being planned, performed, and measured, they can be relied on for analyzing actual program status.
There are five parts, or formats, to a CPR.53 Each format should be tailored to ensure that information essential to management on cost and schedule is collected from contractors. The data reported in each format should be consistent with each other.
Format 1 provides cost and schedule data for each element in the program’s product-oriented WBS—typically hardware, software, and other services necessary for completing the program. Data in this format are usually reported to level three of the WBS, but high cost or high risk elements may be reported at lower levels to give management an appropriate view of problems.
Format 2 provides the same cost and schedule data as format 1 but breaks them out functionally, using the contractor’s organizational breakdown structure. Format 2 may be optional. It need not be obtained, for example, when a contractor does not manage along organizational lines.
Format 3 shows the budget baseline plan against which performance is measured, as well as any changes that have occurred. It also displays cumulative, current, and forecasted data, usually in detail for the next 6 months and in larger increments beyond 6 months. This format forecasts the time-phased budget baseline cost to the end of the program—in other words, the reported data primarily look forward and should be correlated with the cost estimate.
Format 4 forecasts the staffing levels by functional category required to complete the contract, and is an essential component to evaluating the EAC. This format—also forward looking—allows the analyst to correlate the forecasted staffing levels with contract budgets and cost and schedule estimates.
Format 5 is a detailed narrative report explaining significant cost and schedule variances and other contract problems and topics.
The majority of EVM analysis is conducted on the CPR’s format 1 and format 5. Format 1 is used to examine lower-level control account status to determine lower-level variances. Format 5 contains descriptions of causes for variances in format 1.
Table 22 describes some of the major data elements in format 1.
Table 22: Contract Performance Report Data Elements: Format 1
| Data element | Description |
|---|---|
| Contract data | |
| Contract budget base | Includes the negotiated contract cost plus the estimated cost of any authorized, unpriced work. |
| Negotiated cost | Includes the dollar value (excluding fee or profit) of the contractually agreed-to program cost. This is the definitized contract target cost for an incentive-type contracta Changes to the estimated cost consist only of estimated amounts for changes in the contract scope of work. |
| Estimated cost of authorized, unpriced work | The work that has been authorized in writing but for which the contract price has not been definitized. Excludes fee or profit. |
| Budget at completion (BAC) | The sum of the estimated budgets for all cost elements. At lower-levels, such as a control account or WBS element, it represents the budgeted cost for the individual element. |
| Estimated cost at completion (EAC) | The latest revised estimate of cost at completion including estimated overruns and underruns for all authorized work. It is calculated by adding the forecasted cost of work remaining (budgeted cost for work remaining) to actual costs using an appropriate forecasting method. Contractors are typically required to provide three EACs ’ a best case, a worst case, and a most likely case. |
| Variance at completion | Variance at completion is the difference between the BAC and EAC. Program variance at completion is the sum of variance at completion for all cost elements. |
| Performance datab | |
| Budgeted cost for work scheduled (BCWS) | The sum of the budgets for all work packages and planning packages scheduled to be accomplished within a given time period. |
| Budgeted cost for work performed (BCWP) | The sum of the budgets for completed work and completed portions of ongoing work within a given time period. |
| Actual cost of work performed (ACWP) | The costs actually incurred and recorded in the earned value management system for accomplishing the work performed within a given time period. |
| Cost variance | The difference between BCWP and ACWP. Cost variance measures work accomplishment compared with actual costs. A positive number is favorable and indicates that work was completed under budget. A negative number indicates that more money was spent to complete a task than was budgeted for the task. |
| Schedule variance | The difference between BCWP and BCWS. It measures work accomplishment compared with the work planned. A positive number indicates that planned work was completed ahead of schedule and a negative number indicates that the work was not completed as planned.c |
| Budgeted cost for work remaining | The planned work that still needs to be completed. It is the difference between the BCWP and the BAC. |
Source: DOD. | GAO-20-195G
aDefinitized cost or price = contract cost or contract price that has been negotiated.
bSome texts on earned value management use different terms for earned value parameters. We use BCWS (budgeted cost of work scheduled), ACWP (actual cost of work performed), and BCWP (budgeted cost of work performed.) Others use PV (planned value), AC (actual cost), and EV (earned value), respectively.
cSchedule variance in EVM analysis is expressed in dollar units, not time. Using EVM data, schedule variance reflects the fact that scheduled work has a budget; that is, work takes time to complete and requires resources such as money. Schedule variance should be assessed for whether the delay is occurring on the critical path.
Management can detect problems using the measures in format 1 at the control account level. The sooner a problem is detected, the easier it is to avoid or reduce its effects. However, it is also critical to know what is causing the problem. The purpose of format 5 of the CPR is to provide necessary insight into problems. Format 5 focuses on the corrections needed to avoid future cost overruns and schedule delays or the changes to cost and schedule forecasts when corrective action is not possible. In addition, format 5 describes the causes of variances and future risks and challenges. To provide good insight into problems, format 5 should discuss:
changes in management reserve;
differences in various EACs;
performance measurement milestones that are inconsistent with contractual dates, perhaps indicating an over-target schedule;
formal reprogramming or over-target baseline;
significant staffing estimate changes; and
a summary analysis of the program.
Format 5 should also discuss in detail each cost or schedule variance, including its nature and causes, its effect on immediate tasks and the total program, corrective actions taken or planned, the associated WBS number, and whether it is driven primarily by labor or material.
In summary, the format 5 variance report should provide enough information for management to understand the reasons for variances and the contractor’s response to them. It is critical for good information to be available on variances if EVM data are to have any value. If format 5 does not contain good information, then the EVM data will not be as useful as a management tool, as case study 24 illustrates.
The U.S. Navy invests significantly to maintain technological superiority of its warships. In 2005 alone, $7.6 billion was devoted to new ship construction in six ship classes—96 percent of which was allocated to four classes: Arleigh Burke class destroyer, Nimitz class aircraft carrier, San Antonio class amphibious transport dock ship, and the Virginia class submarine. For the eight ships GAO assessed, the Congress had appropriated funds to cover a $2.1 billion increase in the ships’ budgets. GAO’s analysis indicated that total cost growth on these ships could reach $3.1 billion or even more if shipyards did not maintain current efficiency and meet schedules.
While DOD guidance allows some flexibility in program oversight, GAO found that reporting on contractor performance was inadequate to alert the Navy to potential cost growth for the eight case study ships. With the significant risk of cost growth in shipbuilding programs, it is important that program managers receive timely and complete cost performance reports from the contractors. However, earned value management—a tool that provides both program managers and the contractor insight into technical, cost, and schedule progress on their contracts—was not used effectively. Cost variance analysis sections of the reports were not useful in some cases because they only described problems at a high level and did not address root causes or what the contractor plans were to mitigate them.
The Virginia class submarine and the Nimitz class aircraft carrier variance analysis reports discussed the root causes of cost growth and schedule slippage, and described how the variances were affecting the shipbuilders’ projected final costs. However, the remaining ship programs tended to report only high-level reasons for cost and schedule variances, giving little to no detail regarding root cause analysis or mitigation efforts. For example, one shipbuilder did not provide written documentation on the reasons for variances, making it difficult for managers to identify risk and take corrective action.
Variance analysis reporting was required and being conducted by the shipbuilders, but the quality of the reports differed greatly. DOD rightly observed that the reports were one of many tools the shipbuilders and DOD used to track performance. To be useful, however, the reports should have contained detailed analyses of the root causes and impacts of cost and schedule variances. CPRs that consistently provided a thorough analysis of the causes of variances, their associated cost impacts, and mitigation efforts would have allowed the Navy to more effectively manage, and ultimately reduce, cost growth.
GAO recommended that, to improve management of shipbuilding programs and promote early recognition of cost issues, the Secretary of Defense should direct the Secretary of the Navy to require shipbuilders to prepare variance analysis reports that identify root causes of reported variances, associated mitigation efforts, and future cost impacts. The Undersecretary of Defense for Acquisition, Technology, and Logistics directed components of the Department of Defense (DOD), including the Navy, to conduct a comprehensive review of earned value management system policies and practices in order to help improve the quality of cost and schedule reporting and surveillance in DOD programs. This review was intended to address recent audit findings and other identified deficiencies, such as the quality of variance analysis reports.The level of detail for format 5 is typically determined by specific variance analysis thresholds which, if exceeded, require analysis and narrative explanations. Therefore, each program has its own level of detail to report. Thresholds should be periodically reviewed and adjusted to ensure that they continue to provide management with the necessary view on current and potential problems. In addition, because the CPR should be the primary means of documenting ongoing communication between program manager and contractor, it should be detailed enough that cost and schedule trends and their likely effects on program performance are transparent.
Periodic EVM Analysis
EVM data should be analyzed and reviewed at least monthly so that problems can be addressed as soon as they occur and cost and schedule overruns can be avoided, or at least their effect lessened. Some labor intensive programs review the data weekly, using labor hours as the measurement unit, to proactively address specific problems before they get out of control.
Using data from the CPR, a program manager can assess cost and schedule performance trends. This information is useful because trends can be difficult to reverse. As we have noted in previous chapters, studies have shown that once programs are 15 percent complete, performance indicators can predict the final outcome. For example, a CPR showing an early negative trend for schedule status would mean that work is not being accomplished and the program is probably behind schedule. By analyzing the CPR and the schedule, one can determine the cause of the schedule problem, such as delayed flight tests, changes in requirements, or test problems. A negative schedule variance can be a predictor of later cost problems, because additional spending is often necessary to resolve problems. CPR data also provide the basis for independent assessments of a program’s cost and schedule status and can be used to project final costs at completion, in addition to determining when a program should be completed. CPR data can answer the following questions:
How much work should have been completed by now—that is, what is the budgeted cost for work scheduled (BCWS)?
How much work has been done—that is, what is the earned value or budgeted cost for work performed (BCWP)?
How much has the completed work cost—that is, what is the actual cost of work performed (ACWP)?
What is the planned total program cost—that is, what is the budget at completion (BAC)?
What is the program expected to cost, given what has been accomplished—that is, what is the estimated cost at completion (EAC)?
Analyzing the past performance captured in the CPR can provide great insight into how a program will continue to perform and can offer important lessons learned. Effective analysis involves communicating to all managers and stakeholders what is causing significant variances and developing trends and what corrective action plans are in place so informed decisions can be made. This information should be provided to managers and stakeholders on a regular basis, such as in program briefings, and be traceable back to the CPR formats. Analysis of the EVM data should be a team effort that is fully integrated into the program management process so results are visible to everyone.
Figure 30 is an example of a monthly assessment. It shows that the performance measurement baseline is calculated by summarizing the individual planned costs (BCWS) for all control accounts scheduled to occur each month. Earned value (BCWP) is represented by the amount of work completed for each active control account. Finally, actual costs (ACWP) represent what was spent to accomplish the completed work.
Figure 30: Monthly Program Assessment Using Earned Value
According to the data in figure 30, by the end of April the control account for concrete has been completed, while the framing and roofing control accounts are only partially done—60 percent and 30 percent complete, respectively. At the end of April, $39,000 worth of concrete, framing, and roofing work was planned to be completed. By comparing the total amount of work expected to be complete to the work that was actually accomplished—$27,000—one can determine that $12,000 worth of work is behind schedule. Likewise, by comparing the amount of work that was accomplished ($27,000) to the amount of money that was spent to accomplish it ($33,000), one can see that the work cost $6,000 more than planned.
Cumulative EVM data can be graphed for an overall program view, as in figure 31.
Figure 31: Overall Program View of Earned Value Management Data
Note: ACWP = actual cost of work performed; BAC = budget at completion; BCWP = budgeted cost for work performed; BCWS = budgeted cost for work scheduled; CBB = contract budget baseline; EAC = estimate at completion; PMB = performance measurement baseline.
Figure 31 shows that in October, the program is both behind schedule and overrunning cost. Cost variance is the difference between completed work (BCWP) and its cost (ACWP); schedule variance is the difference between completed work (BCWP) and planned work (BCWS). Positive variances indicate that the program is either underrunning cost or performing more work than planned. Conversely, negative variances indicate that the program is either overrunning cost or performing less work than planned.
From this performance information, various estimates at completion can be calculated. The EAC shows projected performance and expected costs at completion. The difference between the EAC and the budget at completion (BAC) is the variance at completion, which represents either a final cost overrun or an underrun.
DOD’s Integrated Program Management Report (IPMR) DI-MGMT-81861A replaces the standard CPR. It includes a format 6, which is the integrated master schedule and a format 7 which is an electronic history and forecast file that provides information intended to supplement format 5. Other agencies, such as DOE, may also use the IPMR format.↩︎