Managing the changing of rates for an in-flight EVM project is a frequent headache for almost every EVM project team. The volatility of certain burdens, particularly the General and Administrative (G&A) rate, is a regularly debated issue; and absolute best practice solutions are not always easy to agree upon.
In some extreme cases we’ve seen quarterly changes to the G&A being published by the finance group, keeping the EVM team in an almost continuous spin. So what is the best way to handle rate change and how do we model it in Deltek Cobra?
Free Deltek Cobra Training Download
For the answer to the second part of that question, you can download a free Ten Six Deltek Cobra 5 example training lesson that gives you the detailed steps used to manage rate changes in the software.
Click here to download your free Ten Six Deltek Cobra 5 training lesson for managing rate changes.
The remaining sections of this article talk about the most common surrounding the process and guidelines for rate change management in your EVMS.
Managing Rate Changes
Rate changes are tricky because their true nature seems ambiguous. Should rate changes be treated the same as a formal baseline change or should it only be considered a forecasting issue?
In order to get the most qualified perspective on this issue, I spoke with a leading industry expert in the field of EVM, Mr. Bob Rodgers. With more than forty years of experience, Bob’s knowledge spans almost the entire evolution of earned value methodologies and best practice. His perspective is outlined in the following paragraphs along with commentary from other EVM industry leaders.
Baseline change, Forecast change; or both?
When new rates are published, but before they are approved by the customer, they can be modeled using a forecast. Once approved, they can be applied to the baseline provided that a formal Baseline Change Request (BCR) or other named change management process is followed. It is also worth pointing out that increases in rates can be legitimately funded from Management Reserve (MR), again provided that they are formally approved. It is also preferable that the risk register reflects and quantifies the potential for rate changes at the outset of the project.
Changes in G&A can be quantified using a Deltek Cobra forecast class to see what the impact on the EAC is, compared to the current BAC. A fairly unique feature of Deltek Cobra is the ability to use more than one rate file for a project. It does this by allowing you to assign alternative rates files to a particular cost class.
Retroactive rate changes?
Another common question is whether or not rate changes can be retroactively changed; i.e. changed in prior periods of the EVMS. Simple answer is no. Never change history in an EVMS, for any reason.
Indeed this question came up during a Ten Six Presentation at the 2014 EVMP Conference in Crystal City, VA. The questioner asked if there were any circumstances in which it would be allowable to change history in an EVMS. In response, Corporate Senior Director of EVM at SAIC, Mr. Dale Gillam clearly stated, “You should never change earned value history. Your EV reports have already been submitted and changes to history would invalidate these reports. It would also impact your deltek wInsight or other reporting systems. So you should only ever make adjustments to the current period.”
“Finance published the new rates six months ago but the customer has yet approved them. How should this be managed?”
If approval is become a protracted process and you are encountering increased variance as a result, you should document this fact with examples and get senior management sign-off on the need to introduce the new rates to the EVMS. You should then communicate with the customer as to the intent of deploying the new rates to the EV system to avoid administrative variances. Again, only work with current and future period adjustments and keep a good audit trail of what you changed and when. If in doubt – write it out. At the end of the day, your customer just needs to know that you are following the guidelines and managing your EVMS with the utmost of realism, accountability and integrity.