177 TUTORIAL SINGLE POINT ADJUSTMENTS: A NEW DEFINITION WITH EXAMPLES David C. Bachman Disciplined maintenance of the Performance Measurement Baseline is essential for Earned Value Management. A stable baseline provides the earned value (EV) analyst with the metrics needed to bound a project’s Estimate at Completion (EAC) range. A single point adjustment (SPA) is made when a contract’s existing cost and/or schedule variances are set to zero and all the remaining work is replanned with the goal of completing the project on schedule and on budget. The SPA obscures past performance, collapses the EAC range, and makes the resulting EAC unreliable. The origin of SPA, four recent project SPAs, and the SPA effect on the project’s EACs are examined. A new SPA definition is recommended for EV glossaries that currently omit this topic. Completion (EAC), and recommend a new SPA definition for earned value glos- saries that currently omit this topic. Al- though I review the Earned Value Man- agement (EVM) estimate at completion concept, I do not provide extensive review of basic EVM concepts that can be found in the Earned Value Guidebook (DCMA, 2000). SINGLE POINT ADJUSTMENTS HISTORICAL DEFINITION The origin of the term single point adjustment is found in historic U.S. Air Force (USAF) Cost/Schedule Control System Criteria (C/SCSC) documentation (USAF, 1986). The term single point recently joined the Ballistic Missile Defense Organization (BMDO) as an Earned Value Senior Program Analyst. One of my first BMDO assignments was to explain a term I was unfamiliar with — single point adjustment . The term single point adjustment (SPA) is not de- fined in current versions of the Defense Contract Management Agency’s (DCMA) Earned Value Management Implementa- tion Guide (DCMA, 2001), the Earned Value Guidebook (DCMA, 2000) or the Defense Systems Management College’s (DSMC) Earned Value Management Text- book (DSMC, 1999). In this paper I will share the historic origin of the term, the effects that contractor-initiated SPAs have had on actual BMDO contract Earned Value (EV) metrics and the Estimate at
Transcript
Single Point Adjustments
177
TUTORIAL
SINGLE POINT ADJUSTMENTS:A NEW DEFINITION WITH EXAMPLES
David C. Bachman
Disciplined maintenance of the Performance Measurement Baseline is essentialfor Earned Value Management. A stable baseline provides the earned value(EV) analyst with the metrics needed to bound a project’s Estimate atCompletion (EAC) range. A single point adjustment (SPA) is made when acontract’s existing cost and/or schedule variances are set to zero and all theremaining work is replanned with the goal of completing the project on scheduleand on budget. The SPA obscures past performance, collapses the EAC range,and makes the resulting EAC unreliable. The origin of SPA, four recent projectSPAs, and the SPA effect on the project’s EACs are examined. A new SPAdefinition is recommended for EV glossaries that currently omit this topic.
Completion (EAC), and recommend anew SPA definition for earned value glos-saries that currently omit this topic. Al-though I review the Earned Value Man-agement (EVM) estimate at completionconcept, I do not provide extensive reviewof basic EVM concepts that can be foundin the Earned Value Guidebook (DCMA,2000).
SINGLE POINT ADJUSTMENTSHISTORICAL DEFINITION
The origin of the term single pointadjustment is found in historic U.S. AirForce (USAF) Cost/Schedule ControlSystem Criteria (C/SCSC) documentation(USAF, 1986). The term single point
recently joined the Ballistic MissileDefense Organization (BMDO) as anEarned Value Senior Program Analyst.
One of my first BMDO assignments wasto explain a term I was unfamiliar with— single point adjustment. The termsingle point adjustment (SPA) is not de-fined in current versions of the DefenseContract Management Agency’s (DCMA)Earned Value Management Implementa-tion Guide (DCMA, 2001), the EarnedValue Guidebook (DCMA, 2000) or theDefense Systems Management College’s(DSMC) Earned Value Management Text-book (DSMC, 1999). In this paper I willshare the historic origin of the term, theeffects that contractor-initiated SPAs havehad on actual BMDO contract EarnedValue (EV) metrics and the Estimate at
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adjustment describes an event when acontract’s existing variances (ScheduleVariance [SV],1 Cost Variance [CV]2) arezeroed in a single reporting period andthe remaining portion of contractual workis rebudgeted to establish a new perfor-mance measurement baseline (PMB3)(Finefield, 2000). Unlike an over-targetbaseline, the goal of an SPA is to develop
a new PMBthat completesall the remain-ing work usingonly the re-maining bud-get from theoriginal PMB.No additional(over-target)
budget is added to the new PMB. Like-wise, SPA differs from a classic rebase-lining because the new PMB includes nonew work scope and is completed with-out a schedule slip. Tony Finefield pro-vides a historic origin for the term in anOffice of the Secretary of Defense (OSD)Earned Value Management Noteboardposting:
The term evolved from a state-ment in Air Force Regulation800-6/AFSC Supplement 1, dated31 December 1986. In the discus-sion concerning Over TargetBaselines [OTB], this supplementdescribes the conditions whereHeadquarters AFSC [Air ForceSafety Center] concurrence in theestablishment of an OTB was re-quired. One of these conditionswas stated as: “If the contractorproposes making adjustments tocurrent or past cost and schedule
variances at other than a singlepoint in time (current period).”Because of this requirement, thequestion concerning this “singlepoint adjustment” became part ofthe lexicon of C/SCSC. (Fine-field, 2000)
RECURRING THEMES INEARNED VALUE MANAGEMENT
Three recurring themes are foundthroughout much of the published worksdealing with Earned Value Management:1) program managers are optimists; 2)programs don’t improve; and 3) general-izations are made about a contract’s EACrange based upon selection of specificEAC equations (or performance factors).All three themes help explain the effectthat single point adjustments have onBMDO earned value metrics and theresulting estimate at completion calcula-tions.
A character trait shared by many pro-gram managers is a belief they will com-plete their project on schedule within bud-get. This optimism often leads to advo-cacy and the suppression of unfavorableestimates at completion. In the wake ofthe Navy’s A-12 Program, D.S. Christen-sen examined 64 contracts to evaluate costoverrun optimism (Christensen, 1994). Hefound both government and contractorestimates at completion to be overly op-timistic, with the average under estimateranging from 4 to 8 percent. In the samepaper, Christensen quoted a finding fromthe A-12 Administrative Inquiry (Beach,1990). C.P. Beach opined that the need topresent an optimistic picture was adominant consideration for suppressing
“A character traitshared by manyprogram managersis a belief they willcomplete theirproject on schedulewithin budget.”
Single Point Adjustments
179
more realistic estimates and that this wasan “abiding cultural problem” for majordefense programs. In later research, Chris-tensen demonstrated that government andcontractor EACs were correlated to thelower bound of an EAC range and thehigher and traditionally more accurateEACs were ignored (Christensen, 1996).
A strong argument for Earned ValueManagement is the ability to projecttrends. When a contract is more than 15percent complete, two highly researchedand generally accepted assumptions canbe made: 1) Overrun at completion willnot be less than overrun incurred to date;and 2) Percent overrun at completion willbe greater than percent overrun incurredto date (W. Abba, personal communica-tion, September, 1992; Christensen, 1989;Heise, 1991; Wilson, 1991).
A primary function of the earned valueanalyst is to evaluate program cost, sched-ule, and technical trends to generate anEstimate at Completion. Options availablefor computing EACs fall into three broadcategories: 1) risk-based EACs; 2) regres-sion-based methods; and 3) index-basedformulas. Risk-based EAC research is notas extensive as the other two categories.Risk-based EACs look forward rather thanbackward by computing a most-likely costapplying probabilities of best- and worst-case outcomes. After implementing risk-based EACs, Boeing Corporation realizedbig gains in the quality of analysis, EACaccuracy, and the overall usefulness ofEVM (Pakiz, 1998). Regression-basedmethods use complex regression analysis tomodel curvilinear cumulative cost growth.No overall superiority of this approach hasbeen established when compared to index-based formulas (Christensen, Antolini,and McKinney, 1995).
Index-based methods are a very com-mon technique for computing EACs, andthey are the primary technique used byBMDO. The disciplined maintenance ofthe PMB is essential for accurate index-based EACs. Essentially, all index-basedEACs are derived from one equation(Abba, 1991):
EAC4 = ACWP5 + [(BAC6 – BCWP7)/PF].(Formula 1)
Where ACWP is the sum of actual di-rect costs, plus indirect costs allocable tothe contract, and [(BAC - BCWP)/ PF]represents the estimated direct and indi-rect costs for the remaining authorizedwork. An EAC range is established byapplying different performance factors(PF) to the EAC equation. The cost per-formance index (CPI)8 and the scheduleperformance index (SPI)9 are the primaryEV metrics associated with EAC PFs.Performance factors are derived from theCPI (Table 2, Formula 2) and the SPI(Table 2, Formula 3) and take one of threeforms:
1. single indexes (e.g., CPIcum
, CPI3mth
,SPI
cum);
2. weighted indexes (called compositeindex in some papers, e.g., [0.8 CPI
cum
+ 0.2 SPIcum
], [0.3 CPImanufacturing
+ 0.4CPI
test + 0.3 CPI
procurement]); or
3. composite indexes (called schedulecost index [SCI] in some papers, i.e.,[CPI
cum x SPI
cum], [CPI
6mth x SPI
cum]).
Selecting the proper PF determines theultimate management value of anyEAC.
Acquisition Review Quarterly — Fall 2001
180
I selected the three PFs identified in theDSMC EVM textbook to evaluate theEAC range: CPI
cum; (0.8 CPI
cum + 0.2
SPIcum
); and (CPIcum
x SPIcum
). The resultsof two EAC studies indirectly support thecondition that using CPI
cum as the perfor-
mance factor establishes a lower boundfor the final contract cost (Christensen andHeise, 1993; Haydon, 1981). For contractswith unfavorable (less than 1.0) SPIs andCPIs, the composite performance factor(CPI
cum x SPI
cum) establishes an upper
bound. Review of 64 contracts shows thisPF to be the best predictor of actual finalcost (Christensen, 1996). This leaves theweighted performance factor (0.8 CPI
cum
+ 0.2 SPIcum
) to hold the middle position.The Headquarters Air Force Material
Command’s, Guide to Analysis of Con-tractor CostData recom-mends usingthe weightedperformancefactor because“various stud-ies have shownthis to be a re-liable forecast-
ing formula” (Department of the AirForce, 1994). This assertion is not sup-ported by academic EAC research(Christensen, Antolini, and McKinney1995). The four SPAs examined in thispaper fall into the two contract statuscategories listed in Table 1. ApplyingChristensen’s research, both categoriesgenerate the same EAC relationship —the composite PF generates the highestEAC, and the CPI
cum PF generates the low-
est EAC.
METHODOLOGY
The data in this paper are normalizedto standardize results and conceal actualprogram identities. BMDO has 13 activeprojects providing earned value manage-ment data. Four of those programs havebeen selected to highlight different typesof single point adjustments. The projectdescriptions are generic in nature and ac-tually apply to a number of differentBMDO efforts. The earned value metricsof BCWS,10 BCWP, and ACWP are rep-resented by Percent Scheduled11 (Table 2,Formula 4), Percent Complete12 (Table 2,Formula 5) and Percent Spent13 (Table 2,Formula 6), respectively. These metricsnormalize the data and indicate where inthe project SPAs were made. PMBchanges appear as step functions in thePercent Scheduled, Percent Complete andPercent Spent metrics. EACs are repre-sented by the Percent Variance At Com-pletion14 (VAC) metric (Table 2, Formula7). The Percent VAC metric is specificallyselected because its interpretation remainsunchanged by PMB changes.
Each program has two figures and onetable. Figure A plots BCWS, BCWP, andACWP normalized as indicated above.The cumulative dollar values for BCWS,BCWP, and ACWP are divided by thePMB dollar value at the end of the givenmonth (using Table 2, Formulas 4–6). Avalue of 100% always represents all thework of the PMB. As work scope is addedto the PMB, the 100% value remains con-stant and the Percent Scheduled, PercentComplete, and Percent Spent (represent-ing BCWS, BCWP, and ACWP) valuesare correspondingly reduced to representthe new higher budgets. Note that thePMB, not the Contract Budget Baseline
“The data in thispaper are normal-ized to standardizethe results and toconceal the actualprogram identities.”
Single Point Adjustments
181
(CBB),15 is used in all three of thesemetrics.
Figure B plots the three Percent VACvalues. Like Figure A, the Percent VAC isbased on the PMB not the CBB. ThreeEACs are generated using Formula 1 withthe performance factors: 1) Single In-dex—CPI
cum;
2) Weighted Index—(0.8
CPIcum
+ 0.2 SPIcum
); and 3) CompositeIndex—(CPI
cum x SPI
cum). The three Per-
cent VACs are computed using Formula7 with the three respective PFs. Tables 3through 6 highlight key data points be-fore and after the SPAs. Note that nega-tive Percent VACs represent projectedcontract overruns.
CASE 1Cost as an Independent Variable
(CAIV) single point adjustment. The con-tract is a >$100 million RDT&E contractfor software development with a 38-month period of performance. The soft-ware is being written and tested using anincremental development model. InMarch 1999, the contract is 34% completeand 40% spent, and the EAC indicates anoverrun between 20% and 60%. The con-tractor implements a classic single pointadjustment in May 1999 when BCWP andBCWS are both set equal to ACWP. InJune 1999, work scope is decreased as partof a CAIV effort.
CASE 2Work Breakdown Structure (WBS)
Level 4 single point adjustment. Thecontract is a >$1.5 billion RDT&E con-tract with a 36-month period of perfor-mance. It has numerous subcontractefforts. One >$400 million subcontract isrepresented in the Cost Performance Re-port (CPR)16 as a Level 4 WBS element.
This subcontract initially has significantscope and under funding issues. Abaseline is not established until the sub-contract is 35% spent. The prime contrac-tor almost immediately projects and re-ports a 100% overrun EAC. Two monthsafter establishing the PMB, with the sub-contract 50% spent, the subcontract has a–10.4% unfavorable cost variance. Amonth later theprime contrac-tor makes asingle point ad-justment to zerothe cost vari-ance by settingBCWP equal toACWP (BCWS was not adjusted). Thisimproves the subcontract’s CPI resultingin on-budget EAC calculations. Despitethe recognized need, no over-targetbaseline is established. Over the next twomonths, the CV worsened to –10.6% andthe SV worsened to –9.6%. At this pointthe original PMB is 86% spent and sub-contract scope and funding issues areresolved increasing the PMB by 150%.The program office then directs that theLevel 4 WBS be rebaselined. Adjustmentsare made to BCWS and BCWP that resultin starting the new baseline with a +1.8%favorable cost variance and a –1.1%unfavorable schedule variance. Theseadjustments result in EAC calculationssuggesting a 1% or 2% underrun.
CASE 3Single point adjustment of BCWS only.
The contract is a >$400 million RDT&Eenhancement to an existing weapon systemwith a 42-month period of performance.Numerous small contract modificationsoccur throughout the contract’s life and
“This subcontract[Case 2] initiallyhas significantscope and underfunding issues.”
Acquisition Review Quarterly — Fall 2001
182
the contract budget base has increased62% as of the date on these charts. In June1999, at the 57% complete and 61% spentpoint, the contract is rebaselined as partof the significant increase in scope. Thisadjustment is not included in this analy-
sis. For the sixmonths afterrebaselining,the unfavor-able cost vari-ance is stableat –2% to –4%,but the sched-ule variance is
constantly worsening and is –6.4% unfa-vorable in January 2000. The contractorreschedules all remaining work in Feb-ruary 2000. He also makes a single pointadjustment to his PMB by setting BCWSequal to BCWP, resulting in an SPI of one.
CASE 4Single point adjustment underrun. The
contract is a $50 million RDT&E integra-tion study contract with a 24-month periodof performance. In November 1999, at50% complete and 48% spent, the con-tract is on schedule with a +4% favorablecost variance. At this point, the govern-ment has removed requirements and re-duced the contract budget baseline by 8%.For this contract modification, the con-tractor adjusts the PMB without using asingle point adjustment. In March 2000,the contract is 74% complete with a –1%unfavorable schedule variance and a +4%favorable cost variance. These numberssupport a $42 million or $43 million EAC.The government, desiring to lock in thisunderrun, advises the contractor thatcontract funding will be limited to theprojected EAC. This unilateral contract
modification is not accompanied by anywork scope reduction or adjustment to thecontract budget baseline. The contractoris only advised that he should adjust thecontracted work scope to complete thecontract for the revised funding. In April2000, the contractor initiates a single pointadjustment by setting BCWS and BCWPequal to ACWP. This recategorizes about$1.4 million worth of completed work(BCWP) as work remaining (BCWR),17
and the subsequent EAC grows to theoriginal contract budget baseline.
RESULTS
The single point adjustments observedon BMDO contracts are not consistentwith the historic definition. The key as-pects of the historic definition are: 1) bothSV and CV are zeroed in a single report-ing period; and 2) the remaining portionof contractual work is replanned withoutadding new budget authority or slippingthe original schedule to establish a newPMB.
1. In Case 1, SV and CV are zeroed in asingle month, but the contract isdescoped as part of a CAIV effort.
2. In Case 2, the SPA and rebaseliningefforts only meet the second aspect ofthe historic definition. Only the CV isreset to zero in Case 2’s SPA. In therebaselining, the new PMB is estab-lished with a significant favorablevariance for this element.
3. In Case 3, only the SV is reset to zeroby an SPA.
“The singlepoint adjustmentsobserved on BMDOcontracts are notconsistent with thehistoric definition.”
Single Point Adjustments
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4. In Case 4, only the first element of thedefinition is met. With regard to thesecond element, the remaining workis not only replanned but $1.4 millionof completed work is also reclassifiedas incomplete.
Single point adjustments distort earnedvalue trend information and collapse theEAC range.
1. Case 1 – EAC rangeBefore SPA
–21% to –63% unfavorableAfter SPA
–1% to –2% unfavorable
2. Case 2 – EAC rangeBefore SPA
–9% to –10% unfavorableAfter SPA
–0% to –2% unfavorable
3. Case 3 – EAC rangeBefore Rebaseline
–11% to –13% unfavorableAfter Rebaseline
+1% to +2% favorable
(Note that in Case 3, contrary to EACresearch, the CPI
cum PF is no longer the
floor of the EAC range.)
4. Case 4 – EAC rangeBefore SPA
+4% (No EAC range)After SPA
0% (No EAC range)
Single point adjustments appear to bemade to address contract-reporting is-sues rather than to address programmanagement concerns.
1. In Case 2, the single point adjustmentsare made when variances, cost orschedule, become 10% unfavorable.Even though the contractor’s EAC isknown and reported to be twice thePMB, no over-target baseline isestablished.
2. In Case 3, Table 5 clearly demonstratesthat an SPA of BCWS collapses theEAC range, making the CPI
cum EAC
(traditional low) and the CompositeEAC (traditional high) equal. Fourmonths after the SPA, the EAC rangeis back to the pre-SPA level.
3. Case 4 demonstrates the old cliché“that no good deed goes unpunished.”During the first half of the contract,the contractor maintains schedule andhas a favorable cost variance that re-sults in a budget cut. With the contrac-tor continuing this favorable trendthroughout the third quarter of the con-tract, the government seeks a secondreduction—this time without eliminat-ing any contract requirements. With nogovernment direction, the contractorinitiates an SPA that eliminates 18months of favorable variances. Fourmonths later, the project generates anoverrun for the first time. (During thereview of this paper, the project wascompleted with a +4.0% VAC high-lighting the unreliability of index-based EACs following SPAs.)
CONCLUSIONS
1. Statistically significant conclusionscannot be made from only four datapoints. Especially when these data
Acquisition Review Quarterly — Fall 2001
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points are selected to highlight a vari-ety of baseline adjustments describedin CPRs as single point adjustments.
2. The term single point adjustment istaking on a variety of new definitions.The SPAs observed on BMDO con-tracts are different than the old AirForce Systems Command definition.
3. The favorable results of Case 1 sug-gest that SPAs should be used only inconjunction with scope, schedule, orbudget adjustments that redefineproject baselines. Specifically, think in
CAIV termswhere eitherwork scope orschedules aremodified toachieve a spe-cific cost ob-jective. SPAsshould not beused just be-cause addi-
tional work scope has been added orsubtracted to the PMB.The findings areconsistent with C. P. Beach’s opinionthat “the need to present an optimisticpicture was a dominant considerationfor suppressing more realistic esti-mates” (Beach, 1990). Clearly theSPAs in Cases 2 and 3 are made tosupport lower EACs, suggesting theSPA has become a tool to suppressunfavorable EACs.
4. Because single point adjustments dis-tort EV metrics and, in the short term,lower EACs and reduce the EAC rangefollowing SPAs, other EAC strategies
(risk-based EACs or regression-basedEACs) are needed to project realisticEACs. The unique characteristics ofthe PMB changes made by BMDOcontractors highlight the importance ofthe CPR Format 3 – Baseline16 and theneed for Integrated Product Teams in-volved in project management to havean analysis-level understanding ofearned value management.
5. Additional research into the policy andprogrammatic and contractual impli-cations of single point adjustments iswarranted.
RECOMMENDATIONS
1. The following definition should beadded to earned value references:Single Point Adjustment – An arbitrarybaseline adjustment at any level of thework breakdown structure whereBCWS is set equal to BCWP, BCWPis set equal to ACWP, or both BCWSand BCWP are set equal to ACWP; andincomplete work is replanned to becompleted on schedule and within theoriginal PMB budget. Single point ad-justments distort earned value cost andschedule metrics and make index-based earned value EAC computationsunreliable.
2. Program offices should consider add-ing language to EVM contracts requir-ing customer notification and concur-rence before single point adjustmentsare made to baseline reporting docu-ments such as the CPR.
“Single pointadjustments distortearned value costand schedule metricsand make index-based earned valueEAC computationsunreliable.”
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REFERENCES
Christensen, D. S., Antolini, R. C., &McKinney, J. W. (1995, Spring). Areview of estimate at completionresearch. The Journal of Cost Analy-sis, 41–62.
Christensen, D. S., & Heise, S. R. (1993,Spring). Cost performance index sta-bility. National Contract Manage-ment Journal, 25, 7–15.
Defense Contract Management Agency.(2000, August). Earned value guide-book. Alexandria, VA: Department ofDefense.
Defense Contract Management Agency.(2001, June). Earned value manage-ment implementation guide. (DCMAHandbook 2.2-1) Alexandria, VA:Department of Defense. Defense Sys-tems Management College. (1999,December). Earned value manage-ment textbook. Fort Belvoir, VA:Department of Defense.
Abba, W. (1991). Analysis and use of data.(Presentation material, ContractorPerformance Measurement Course,14:1–43). Fort Belvoir, VA: DefenseSystem Management College.
Beach, C. P., Jr. (1990, November 28). A-12 Administrative Inquiry (Report tothe Secretary of the Navy). Washing-ton, DC: Department of the Navy.
Christensen, D. S. (1989, Fall). Manage-ment control systems theory and cost/schedule control systems criteria.National Estimator, 29–34.
Christensen, D. S. (1994, Winter). Costoverrun optimism: Fact or fiction?Acquisition Review Quarterly, 25–38.
Christensen, D. S. (1996, Spring). Projectadvocacy and the estimate at comple-tion problem. The Journal of CostAnalysis, 35–60.
David C. Bachman is a senior program analyst with Engineering ManagementConcepts, Inc., providing Earned Value Management (EVM) support to theBallistic Missile Defense Organization. Bachman was twice assigned to theGlobal Positioning System (GPS) Joint Program Office, first as the projectofficer for the B-52 GPS integration, and then as the Nuclear DetonationDetection System program manager. He recently retired from the U.S. Air Forceafter twenty-eight years of service. He culminated his military career at theDefense Systems Management College, Fort Belvoir, VA, where he taught EVM.Bachman has a master’s degree in education from Marymount University, anMBA from Rutgers University, and a B.S. degree in ceramic engineering fromPenn State University.
Department of the Air Force. (1986,December 31). Air Force Regulation800-6/AFSC Supplement 1, AndrewsAir Force Base, MD: Department ofDefense.
Department of the Air Force. (1994, April4). Guide to analysis of contractordata (Air Force Material CommandPamphlet No. 65-501). WrightPatterson Air Force Base, OH:Department of Defense.
Finefield, T. (2000, May 18). Single pointadjustment? [Message posted to theEarned Value Management Note-board]. http://www.acq.osd.mil/pm/noteboard/messages/1803.html
Haydon, J. J., & Reither, R.O. (1981). Astudy to determine indicators andmethods to compute estimate atcompletion (EAC). Virginia ManTechInternational Corporation, VA:Author.
Heise, S. R. (1991, September). A reviewof cost performance index stability(AFIT/GSM/LSY/91S-12). Master’sthesis, School of Systems and Logis-tics, Air Force Institute of Technol-ogy, Wright Patterson Air Force Base,OH.
Pakiz, J.J. (1998, October 18–22). Sum-mary level variance analysis inte-grated with risk based EAC. Paperpresented at the 10th Annual Interna-tional Integrated Program Manage-ment Conference, Tysons Corner, VA.
Wilson, B. D. (1991). An analysis of con-tract cost overruns and their impacts(AFIT/GCA/LSY/92S-8). Master’sthesis, Air Force Institute of Technol-ogy, Wright Patterson Air Force Base,OH.
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ENDNOTES
5. Actual Cost of Work Performed(ACWP)—The costs actually incur-red and recorded in accomplishing thework performed within a given timeperiod.
6. Budget at Completion (BAC)—Thesum of all established contractbudgets.
7. Budgeted Cost for Work Performed(BCWP or Earned Value)—The sumof the budgets for completed workpackages and completed portions ofopen work packages; plus the appli-cable portion of the budgets for levelof effort and apportioned effort.
8. Cost Performance Index (CPI)—Thisis an indication of the cost efficiencythat work has been accomplished. ACPI can be calculated for both cur-rent and cum-to date data. An effi-ciency index of 1.0 indicates that costis on target whereas an index of 1.1would indicate a cost underrun(higher efficiency).
9. Schedule Performance Index (SPI)—This is an indication of the scheduleefficiency that work has been accom-plished. An SPI can be calculated forboth current and cum-to date data.An index of 1.0 indicates that thesupplier is performing on schedulewhereas an index of 1.1 indicates anahead of schedule condition (higherefficiency).
1. Schedule Variance (SV)—A metricfor the schedule performance on aprogram. It is the algebraic differencebetween earned value and the budget(Schedule Variance = Earned Value –Budget). A positive value is a favor-able condition whereas a negativevalue is unfavorable.
2. Cost Variance (CV)—A metric for thecost performance on a contractorprogram. It is the algebraic differencebetween earned value and actual cost(Cost Variance = Earned Value –Actual Cost). A positive value indi-cates a favorable position and a nega-tive value indicates an unfavorablecondition.
3. Performance Measurement Baseline(PMB)—The time-phased budgetplan from which contract perfor-mance is measured. Budgets assignedto scheduled control accounts and theapplicable indirect budgets form thePMB. For future efforts, not plannedto the control account level, the per-formance measurement baseline alsoincludes budgets assigned to higherlevel CWBS elements and undistrib-uted budgets. It equals the total al-located budget less managementreserve.
4. Estimate at Completion (EAC)—Actual direct costs, plus indirect costsallocable to the contract, plus theestimate of costs (direct and indirect)for authorized work remaining.
Acquisition Review Quarterly — Fall 2001
188
10. Budgeted Cost for Work Scheduled(BCWS or Planned Value)—The sumof the budgets for all scheduled workpackages, planning packages, and soon (including in-process work pack-ages); plus the level of effort and ap-portioned effort amounts scheduled tobe accomplished within a given timeperiod.
11. Percent Scheduled—This is the rela-tionship of the budget scheduled todate (BCWS) to the amount of bud-get planned for the total contract(BAC).
12. Percent Complete—This the rela-tionship of the amount of budgetaccomplished to date (BCWP) to theamount of budget planned for the totalcontract (BAC).
13. Percent Spent—This is the relation-ship of the amount spent to date(ACWP) to the amount of budgetplanned for the total contract (BAC).
14. Percent Variance at Completion(VAC)—The difference between thetotal contract budget (WBS element,organizational entity, or cost account)and the estimate at completion. Vari-ance at Completion = Budget atCompletion – Estimate at Comple-tion. It represents the amount ofexpected overrun or underrun.
15. Contract Budget Base (CBB)—Thenegotiated contract cost plus the esti-mated cost of authorized unpricedwork.
16. Cost Performance Report (CPR)—Acontractually required report, pre-pared by the contractor, that containsinformation derived from internalEVMs and provides the status of thecontract’s progress. The report is de-livered in five formats: Format 1 –Work Breakdown Structure, (WBS)reports performance to date based onthe WBS; Format 2 – OrganizationalCategories, reports performance todate based on the contractor’s orga-nizational structure; Format 3 –Baseline, reports the planned futureperformance measurement baseline;Format 4 – Staffing, reports theplanned future personnel loading; andFormat 5 – Explanations and ProblemAnalyses, provides a narrative discus-sion of contract status, problems andplanned corrective actions.
17. Budget Cost of Work Remaining(BCWR)—The difference betweenthe total contract (BAC) and theamount of budget accomplished todate. Budget Cost of Work Remain-ing = Budget at Completion – BudgetCost for Work Performed.
Single Point Adjustments
189
Table 1. Inequality Equations
Contract Status Performance EAC RelationshipIndex Status
