Contractor Performance Measurement Summary

The following learning objectives are covered in this lesson:

• Given performance data, select and compute appropriate performance status indicators.
• Given performance data, detect and analyze the impact of significant problem areas, based on the status indicators.
• Given performance data, calculate an estimate of cost at completion.
• Recognize the importance of Earned Value data in external reporting.

1. There are various performance status indicators used in earned value management to tell whether a program is on track or not.

Budgeted Cost of Work Scheduled (BCWS)

indicates the value of work planned to be accomplished or planned value.

Budgeted Cost of Work Performed (BCWP)

indicates the value of work accomplished or the earned value.

Actual Cost of Work Performed (ACWP)

indicates the cost of work accomplished or actual cost.

Schedule Variance (SV)

equals the difference between the work accomplished the value of work accomplished to the value of work planned to be accomplished. It is calculated by subtracting the budgeted cost of work scheduled from the budgeted cost of work performed or earned value:

SV = BCWP : BCWS

A negative schedule variance in dollars is unfavorable and indicates that less work was accomplished than planned, while a positive schedule variance shows that more work was accomplished than planned. The program's critical path schedule must be reviewed to determine the impact of these schedule variances to the program.

Cost Variance (CV)

indicates whether the work accomplished cost more or less than planned. It is calculated by subtracting the actual cost of work performed from the budgeted cost of work performed:

CV = BCWP : ACWP

A negative cost variance in dollars is unfavorable and indicates that more money was spent for the work accomplished than was planned. This has the potential to put the program over budget if the trend continues, and may require the government to provide additional money to complete the program. A positive cost variance is favorable and indicates that the work accomplished cost less than planned.

2. We can also identify performance trends to see whether performance is improving or worsening over time and at what rate. This can be done for the overall program or for a specific activity within the program.

Schedule Performance Index (SPI)

indicates the efficiency with which the work has been accomplished in comparison to a specific value of work planned. For example, we may be functioning at only 0.8 or 80% efficiency of what we had planned to accomplish. It is calculated by dividing the budgeted cost of work performed by the budgeted cost of work scheduled:

SPI = BCWP/BCWS

Cost Performance Index (CPI)

tells the cost efficiency. It compares the value of work that has been accomplished to the actual cost of the accomplished work. For example, if our CPI is 0.75, we are accomplishing only 75 cents worth of work for every dollar we spend. It is calculated by dividing the budgeted cost of work performed by the actual cost of work performed:

CPI = BCWP/ACWP

Ideal CPI for a project is 1.0. Any activity with a CPI of less than 1.0 will rarely be improved over time. In fact, a program's CPI performance of less than 1.0 is often non-recoverable.

Cumulative CPIs and SPIs are usually less than 1.0 for most programs. Current period SPIs and CPIs for individual tasks can exceed 1.0, and exhibit positive and negative elements. When cumulative performance (CPI and SPI) fall below 1.0, the government needs to discuss the performance status with the contractor as part of risk management. Earned Value industry guidelines specifically state that management reserve will NOT be used to offset negative variances.

3. Budget at Completion (BAC) is the sum of all authorized budgets for the contract scope of work. The project's scope of work forms the performance measurement baseline (PMB), which projects the cost to do the entire program. The BAC equals the sum of all the allocated budgets plus any undistributed budget (management reserve and profit/fee not included).We use the BAC to determine the percent of the program spent and completed.

Percent Spent

: indicates how much of the program funds have been spent to date relative to the total amount of the project's budgeted funds. It is calculated by dividing the actual cost of work performed by the total amount expected to be spent on the program, the budget at completion:

% Spent = ACWP/BAC

Percent Complete --

indicates how much of the total program has been completed to date relative to the total amount of work to be performed. It is calculated by dividing the dollar amount of work performed to date, the budgeted cost of work performed, by the total amount expected to be spent on the program, the budget at completion:

% Complete = BCWP/BAC

Percent Scheduled :

indicates where the program should be based on a point in time. It is calculated by dividing the dollar amount of work scheduled to date, the budgeted cost of work scheduled, by the total about expected to be spent on the program, the budget at completion:

% Scheduled = BCWS/BAC

If the Percent Spent is greater than the Percent Complete, the program is going to run out of funds before the end of the project if it continues on the current trend. Conversely, if the Percent Complete is greater than or equal to the Percent Spent, the project has sufficient funds if it continues on the current trend. For example, if the percent complete is 50% and percent spent is 66%, we know we have a problem because we are spending at a faster rate than the project's work is being completed.

Note: don't confuse Percent Spent and Percent Complete with the SPI and CPI. Percent Complete and Percent Spent indicate program status, looking at the entire program from beginning to end. SPI and CPI indicate efficiency trends and look at a program up to a certain point in time.

4. Estimate at Completion (EAC) is the 'current' estimate of what the program will cost when completed. The EAC is based on the actual cost of work performed to date plus an estimate of the work remaining. It is calculated by adding the actual cost of work performed to the estimated cost to complete the remaining work of the program.

EAC = ACWP + Estimated Cost to Complete

The EAC can be calculated as follows: EAC is equal to the ACWP plus the BAC minus the BCWP divided by a performance factor such as the product of the CPI and SPI.

EAC = ACWP + [(BAC : BCWP)/(CPI x SPI)]

Both the Government and the contractor calculate EACs. The contractor's EAC is often referred to as the Latest Revised Estimate (LRE).

5. To Complete Performance Index for the Budget at Completion {TCPI(BAC)} shows what efficiency is required to accomplish the remaining work within the contract budget. This index attempts to quantify the efficiency required to deliver the project within the authorized funds for the remainder of the project.

The TCPI is correlated with the cumulative CPI; it takes the cost efficiency experienced to date, as reflected by the cumulative CPI, and determines what level of performance efficiency will be required to complete the project within available budget. If the cumulative CPI is 0.8 or 80%, in order to stay within our budget, we must achieve a performance factor of 1.2, or work at an efficiency of 120% for all the remaining work in order to complete the project at the BAC. This means the contractor must work 40% more efficiently than its current cumulative CPI of 80%.

To calculate TCPI (BAC) we divide the value of the work remaining by the value of the budget remaining. In other words, we subtract the BCWP from the BAC then divide that difference by the difference between the BAC and the ACWP.

TCPI (BAC) = BAC - BCWP
                         BAC - ACWP

The TCPI can also be based on an EAC which is most often used to validate the contractor or government EAC. DoD analysts have determined that after 20% into a program, the cumulative CPI rarely improves. Therefore, achieving a TCPI that is greater than 5% of the CPI is unlikely; this means we may have to restructure the program in order to obtain an executable program.