Compliant EVMS in SAP

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1 Overview Dassian is SAP s key development partner in the area of Earned Value. SAP provides a fundamental basis and process for Project Management. Dassian provides tools which reside in the SAP solution to fill functional requirements specific to the 32 EVMS criteria. The Dassian tools are not bolt-ons or interfaces, but true programs which reside in and utilize the existing SAP instance. These tools only require transport into the customers SAP box. There are no additional servers or interface technologies. The Dassian tools referenced in this document include DP010 (Project Planning Composite), DP51 (MS Project Integration), and DP007 (Manufacturing Earned Value). Earned Value is utilized in Project Management as a statistical tool to evaluate a project s performance against its plan, and then to utilize that performance to forecast the remaining plan. Industry standards show that this method of forecasting is extremely accurate once 25% of the project has been completed. This ability to accurately forecast the outcome of the project is vital if a project is to be successful. The potential for success brought by Earned Value is in the timeliness of the information. Projects which are 70% or more complete have very little window of opportunity to make changes to improve the outcome of the project. A project which can identify an issue at 25% complete has time to make changes to fix the issues and get back on plan. The Dept. of Defense, Office of Management & Budget, and numerous private corporations require the use of Earned Value on the projects they sponsor. There are numerous documents available discussing the calculations and uses of Earned Value data. This document will address the fundamental requirements for each of the criteria of a compliant EVMS solution and define specifically how that is accomplished in SAP. SAP ERP software provides a unique opportunity to leverage Centric Project Management processes to enable accurate and timely Earned Value data. Although we will not discuss Centric Project Management in this document, the concept is important to understand the value and accuracy of the data provided for the EV statistical analysis. SAP by definition is an ERP system, which means all data and processes, which the customer has residing in SAP (vs external to SAP) can be integrated into one data source. When Project Management is performed in SAP, all project support processes are dynamically integrated to the project. For example, Subcontract work is planned and executed in a project plan. The plan tasks become purchasing documents. Invoices against those purchasing documents become actual costs on the project. This occurs throughout all scope items in the project. This concept makes SAP unique in Project Management tools. This concept will be detailed in a follow on publication. The document is laid out according to the 32 criteria for a compliant EVMS tool. Each criterion is stated, sample audit questions are provided, and the SAP/Dassian solution is defined. Page 1

2 748 Organization Criteria 1 Define the authorized work elements for the program. A work breakdown structure (WBS), tailored for effective internal management control, is commonly used in this process. Is only one CWBS used for the contract? Is all contract work included in the CWBS? Are the following items included in the CWBS: Contract line items and end items? Standard SAP Project Systems provides the user with a single WBS to organize the project scope. The WBS may also be linked to the Contract line items in the Sales & Distribution module to allow for project data to support billing creation. Organization Criteria 2 Identify the program organizational structure including the major subcontractors responsible for accomplishing the authorized work, and define the organizational elements in which work will be planned and controlled. Page 2

3 Are all authorized tasks assigned to identified organizational elements? Is subcontracted work defined and identified to the appropriate subcontractor within the proper WBS element? Standard SAP allows the identification of Organizational data through the assignment of Company Codes, Plants, and other Organizational data. Organization Criteria 3 Provide for the integration of the company s planning, scheduling, budgeting, work authorization and cost accumulation processes with each other, and as appropriate, the program work breakdown structure and the program organizational structure. Are the contractor's management control systems listed above integrated with each other, the CWBS, and the organizational structure at the Total Contract Level? Are the contractor's management control systems listed above integrated with each other, the CWBS, and the organizational structure at the Cost Account Level? Standard SAP provides many of these functions. In some cases there are better tools. SAP provides authorization through the use of Status Management. Until a piece of work is approved to be worked on the Status can prevent charges of hours and dollars, yet maintain the plan data. SAP allows for the creation of a Budget amount, which can be selected for Availability Control or not. Scheduling is generally considered cumbersome in SAP. Most companies use a 3 rd party scheduling tools. This is not to say SAP is not functional. SAP provides robust functionality for CPM scheduling. Dassian offers an integrated MS Project desktop solution. This solution is loaded into SAP and requires no interface or additional servers. This product integrates scheduling of WBS, Network Activities, and PM Orders. This product (DP051 MS Project Interface) is also integrated into Dassian s (DP010 Project Planning Composite) product. Page 3

4 Organization Criteria 4 Identify the company organization or function responsible for controlling overhead (indirect costs). Are the following organizational elements and managers clearly identified:( l ) Those responsible for the establishment of budgets and assignment of resources for overhead performance? Are the following organizational elements and managers clearly identified: (2) Those responsible for overhead performance control of related costs? SAP standard provides for planning cost and receiving actual cost for overhead and indirect costs. SAP performs this function in Project Systems utilizing Costing Sheets to perform percentage and qty based allocations of indirect costs. Dassian s DP010 Project Planning Composite provides advanced capabilities for managing indirect costs by providing the user the ability to maintain an indirect rate reportable to the Page 4

5 company and an external rate for reporting to external customers. These different rates support both plan and actual indirect costs. Organization Criteria 5 Provide for integration of the program work breakdown structure and the program organizational structure in a manner that permits cost and schedule performance measurement by elements of either or both structures as needed. Is each cost account assigned to a single organizational element directly responsible for the work and identifiable to a single element of the CWBS? Are the following elements for measuring performance available at the levels selected for control and analysis: o (1) Budgeted cost for work scheduled? o (2) Budgeted cost for work performed? o (3) Actual cost of work performed? SAP standard provides for limited integration of the WBS and OBS. In standard SAP a code field is used for a fairly flat (2-level) OBS. Dassian s DP010 Planning Composite allows for a robust functionality for defining multiple OBS s. The OBS can be an alternate full structure with descriptions (like IPT) and/or an OBS based on the type of costs (a functional OBS). Theses OBS hierarchies can then be use to support OBS and IPT reporting in the standard CPR format reports. Page 5

6 Planning, Scheduling, & Budgeting Criteria 6 Schedule the authorized work in a manner which describes the sequence of work and identifies significant task interdependencies required to meet the requirements of the program. Does the scheduling system contain (Prepare exhibit showing traceability from contract task level to work package schedules.) (1) A master program schedule? Does the scheduling system contain Intermediate schedules, as required, which provide a logical sequence from the master schedule to the cost account level? Does the scheduling system contain detailed schedules which support cost account and work package start and completion dates/events? Does the scheduling system provide for the identification of work progress against technical and other milestones, and also provide for forecasts of completion dates of scheduled work? Are work packages formally scheduled in terms of physical accomplishment by month, week, or day as appropriate? Page 6

7 Compliant EVMS in SAP SAP standard supports Project Scheduling, although it is very cumbersome and limited. Most companies utilize a 3 rd party scheduling tool. The open issue is getting the 3 rd party tool integrated with the SAP tasks. There are several interface tools which provide import/export of data. These require a separate server for the scheduling tool and interface. The validation of the data being created in SAP occurs only at the point where the data is imported. These solutions are very cumbersome in themselves and in some cases very expensive and difficult to set up and maintain. Dassian provides solutions which are integrated to SAP. In this case, the DP51 (MS Project Tool) provides seamless integration with MS Project desktop and SAP PS and PM. We launch MS Project engines from within SAP, link SAP tables to MS Project fields, and allow CPM scheduling across PS WBS, Networks, and PM orders. Dassian s DP51 product also integrates with the DP010 product for Project Planning. Planning, Scheduling, & Budgeting Criteria 7 Identify physical products, milestones, technical performance goals, or other indicators that will be used to measure progress Are meaningful indicators identified for use in measuring the status of cost and schedule performance? Does the contractor's system identify work accomplishment against the schedule plan? Are current work performance indicators and goals relatable to original goals as modified by contractual changes, replanning, and reprogramming actions? SAP standard supports sequential milestones for Projects. Dassian s DP010 Planning Composite is much more flexible. DP010 allows the user to define multiple milestones and weight each milestone. When taking progress, the milestone can be earned at a percentage (generally known as POC weighted milestones). Page 7

8 Planning, Scheduling, & Budgeting Criteria 8 Establish and maintain a time-phased budget baseline, at the control account level, against which program performance can be measured. Initial budgets established for performance measurement will be based on either internal management goals or the external customer negotiated target cost including estimates for authorized but undefinitized work. Budget for farterm efforts may be held in higher level accounts until an appropriate time for allocation at the control account level. On government contracts, if an over-target baseline is used for performance measurement reporting purposes, prior notification must be provided to the customer Are meaningful indicators identified for use in measuring the status of cost and schedule performance? Does the performance measurement baseline consist of the time-phased cost account budgets? Does the performance measurement baseline consist of the Higher level CWBS element budgets (where budgets are not yet broken down into cost account budgets)? Does the performance measurement baseline consist of Undistributed budgets, if any? Does the performance measurement baseline consist of Indirect budgets, if not included in the above? Is the entire contract planned in time-phased cost accounts to the extent practicable? Page 8

9 In the event that future contract effort cannot be defined in sufficient detail to allow the establishment of cost accounts, is the remaining budget assigned to the lowest practicable CWBS level elements for subsequent distribution to cost accounts? Does the contractor require sufficient detailed planning of cost accounts to constrain the application of budget initially allocated for future effort to current effort? (Explain constraints.) Are cost accounts opened and closed based on the start and completion of work contained therein? SAP with Dassian s DP010 supports this requirement. There is a basic planning functionality within core SAP, but being able to control a baseline with updates is cumbersome at best. DP010 provides add-on applications to make it easier to control the baseline. DP010 provides a robust change log capability and allows a very controlled process of managing the baseline plan(s). SAP Core does not provide Over Target Baseline functionality (S=P) or (S=P=A). This is available in DP010. Page 9

10 Planning, Scheduling, & Budgeting Criteria 9 Establish budgets for authorized work with identification of significant cost elements (labor, material, etc.) as needed for internal management and for control of subcontractors. Are the budgets assigned to cost accounts planned and identified in terms of the Material and/or subcontract dollars? SAP with Dassian s DP010 support this requirement. There is a basic planning functionality within core SAP, but being able to control a baseline with updates is cumbersome at best. DP010 provides add-on applications to make it easier to control the baseline. DP010 provides a robust change log capability and allows a very controlled process of managing the baseline plan(s). Page 10

11 Planning, Scheduling, & Budgeting Criteria 10 To the extent it is practicable to identify the authorized work in discrete work packages, establish budgets for this work in terms of dollars, hours, or other measurable units. Where the entire control account is not subdivided into work packages, identify the far term effort in larger planning packages for budget and scheduling purposes. Do work packages represent the way work will be done? Are they meaningful products or management subdivisions of higher level work? Are detailed work packages planned as far in advance as practicable? Page 11

12 Is work detailed as requirements are defined? Is future work planned and scheduled to the lowest extent possible? Are work packages reasonably short in duration or have adequate milestones? Are budgets assigned to work packages in dollars, hours, or other measurable units? Are work packages assigned to performing organizations? Is learning used to develop the budget and appropriately time phased in the project plan? SAP with Dassian s DP010 support this requirement. There is a basic planning functionality within core SAP, but being able to control a baseline with updates is cumbersome at best. DP010 provides add-on applications to make it easier to control the baseline. DP010 provides a robust change log capability and allows a very controlled process of managing the baseline plan(s). Planning, Scheduling, & Budgeting Criteria 11 Provide that the sum of all work package budgets plus planning package budgets within a control account equals the control account budget Do the detail work packages total the budget in the cost accounts? SAP with Dassian s DP010 support this requirement. There is a basic planning functionality within core SAP, but being able to control a baseline with updates is cumbersome at best. DP010 provides add-on applications to make it easier to control the baseline. DP010 provides a robust change log capability and allows a very controlled process of managing the baseline plan(s). Page 12

13 Planning, Scheduling, & Budgeting Criteria 12 Identify and control level of effort activity by time-phased budgets established for this purpose. Only that effort which is unmeasurable or for which measurement is impracticable may be classified as level of effort. Are Level of Effort plans controlled by type of resource or material or other category? Is work properly defined as measured effort, LOE or apportioned, and separated from other types of work? SAP with Dassian s DP010 support this requirement. There is a basic planning functionality within core SAP, but being able to control a baseline with updates is cumbersome at best. DP010 provides add-on applications to make it easier to control the baseline. DP010 provides a robust change log capability and allows a very controlled process of managing the baseline plan(s). SAP provides some EVMS calculations including level of effort. This functionality is limited in some of the acceptable practices. For example POC adjustments may change historical BCWP amounts. DP010 provides the functionality that core SAP provides plus additional functionality for more robust BCWP calculations. Page 13

14 Planning, Scheduling, & Budgeting Criteria 13 Establish overhead budgets for each significant organizational component of the company for expenses which will become indirect costs. Reflect in the program budgets, at the appropriate level, the amounts in overhead pools that are planned to be allocated to the program as indirect costs. Are overhead budgets established across the entire organization at least annually? Are overhead budgets established for each organization which can incur overhead costs? Are elements of indirect expense defined to overhead budgets? Are overheads being handled according to the disclosure statement? Is the anticipated business base developed in a consistent manner? Are overhead budgets created based on the anticipated direct business base? Page 14

15 Are overhead pools formally identified? Are the organizations and items of cost assigned to each pool identified? Are projected indirect pool costs and direct costs used to establish allocation rates to the contracts? Are projected overhead rates applied to the contract beyond the current year? If so, what is used as the business base? Are overhead pools adjusted in a timely manner to reflect changes? (organizational, base, pools) SAP supports this requirement through the use of Costing Sheets. Overhead amounts are determined from a percentage of the defined cost or quantity base. Dassian s DP010 takes this ability further by providing calculations of this data at the customers rates. This allows the project to report Earned Value and Baseline data to the customer using the customers cost numbers instead of the contractors Internal cost numbers. Planning, Scheduling, & Budgeting Criteria 14 Identify management reserves and undistributed budget. Is the Management Reserve identified and kept separate from the baseline? Are records maintained to show the use of Management Reserve? Is Undistributed Budget limited to contract efforts which cannot be planned, yet? Are records maintained to show the use of Undistributed Budget? SAP with Dassian s DP010 support this requirement. There is a basic planning functionality within core SAP, but being able to control a baseline with updates is cumbersome at best. DP010 provides add-on applications to make it easier to control the baseline. DP010 provides a robust change log capability and allows a very controlled process of managing the baseline plan(s). Page 15

16 SAP does not handle Management Reserve (Contingency) or Undistributed Budget. Dassian s DP010 handles these appropriately. Specifically, Management Reserve is a below the line item and is managed in a standalone Version, therefore, it is not normally reported in the Project reports. The CPR reports pull that data from the Management Reserve version and apply it below the line. Planning, Scheduling, & Budgeting Criteria 15 Provide that the program target cost goal is reconciled with the sum of all internal program budgets and management reserves Does the overall project budget include the baseline and Management Reserve? Does the detail cost plan for Undistributed Budget, Management Reserve, and detail work packages total the overall project budget? This is a Business Process and not specific to the tool. However, SAP provides the reports to verify this business process. Accounting Criteria 16 Record direct costs in a manner consistent with the budgets in a formal system controlled by the general books of account Are the costs charged to the project auditable? Are costs charged to the project accumulated to the correct budget accounts? SAP is likely the best of breed when it comes to fulfilling this requirement. The Direct costs to the project are in many instances automatically charged to the original planning object, since the planning object is likely what started the process to begin with. For example, an External Network Activity automatically creates a Purchase Requisition, which is assigned to the Network Page 16

17 Activity. All subsequent documents and invoices are automatically charged back to the Network Activity. Accounting Criteria 17 When a work breakdown structure is used, summarize direct costs from control accounts into the work breakdown structure without allocation of a single control account to two or more work breakdown structure elements Is it possible to summarize the direct costs from the Cost account level through the WBS without allocation of lower level costs? Standard SAP supports this requirement. If the user defines the lowest level WBS as the Control Account, then it can have only one parent assignment up the structure. If the user defines the Network Activity as the Control Package, the Activity can have only one Parent WBS. Accounting Criteria 18 Summarize direct costs from the control accounts into the contractor s organizational elements without allocation of a single control account to two or more organizational elements Is it possible to summarize direct costs to the highest organizational level with allocation? SAP with the use of Dassian OBS solutions assigns a single OBS lowest level to a single WBS Element. Standard SAP may also utilize user fields to define the assignment to the OBS. Accounting Criteria 19 Record all indirect costs which will be allocated to the contract Page 17

18 Can indirect costs be summarized to the contract total without further allocation? Are indirect costs accumulated to comparison to appropriate budgets? Are indirect costs charged to the correct pools and organizations? Are bases and rates for allocating indirect costs from each pool applied consistently? Are bases and rates for allocating costs applied equally for commercial and government work? Are rates for allocation adjusted to ensure a realistic monthly allocation of indirects without significant annual year-end adjustments? Are procedures for indirect allocations formally documented? Standard SAP handles Actual costs and reporting of those costs very nicely. Including indirect and allocated charges. Accounting Criteria 20 Identify unit costs, equivalent unit costs, or lot costs when needed. Does the system provide for unit costs in terms of labor, material, other directs, and indirects? Is there a procedure for handling recurring and non-recurring costs? Standard SAP supports this function especially well. For example, hours of work are planned and the unit costs are defined and integrated with the schedule of the activity and the amount of hours. Accounting Criteria 21 For EVMS, the material accounting system will provide for: Page 18

19 Accurate cost accumulation and assignment of costs to control accounts in a manner consistent with the budgets using recognized, acceptable, costing techniques. Cost performance measurement at the point in time most suitable for the category of material involved, but no earlier than the time of progress payments or actual receipt of material. Full accountability of all material purchased for the program including the residual inventory Are material costs accumulated in an accurate fashion and consistent with the budget? Are material costs reported in the same period as that in which BCWP is earned for that material? Does the system allow for determination of price variances between plan and actual commitments? Does the system allow for determination of material variances caused by excess usage? Does the system provide unit or lot costs when applicable? Are records kept to show all material cost for the project and residual inventory? Material Earned value is a very complex issue and SAP only attempts in some cases to calculate BCWP for material. Materials planned in Project Systems using SAP can be assigned to any type of Activity. SAP allows for a single EV Method for each Activity. In this case, Materials would not be allowed to assign to a Internal Activity as that is where the labor occurs and labor has its own EV Method. For Manufactured parts or end items, SAP provides no solution for Earned Value. Dassian utilizes two products to meet the requirements of Material Earned Value. For Projects, DP010 Planning Composite treats the Materials as a separate planning object, with its own unique EV Method. For Make parts and subsequent assemblies, Dassian offers DP007 Manufacturing Earned Value which works with SAP s Production Planning (PP) module. Utilizing MRP, Production, and Procurement data DP007 calculates the active Earned Value of the Make Part and all sub-assemblies. Make Part EV in DP007 Page 19

20 Buy Part EV in DP007 Page 20

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