This policy provides guidance to ensure that Commerce’s major Information Technology (IT) investments are managed effectively and that the performance of those investments is measured and reported to Departmental management on a regular basis. This policy applies to all Commerce operating units as well as the Office of the Secretary.

Why is a policy on performance management required?

This policy is required because the success of major IT investments is critical to the achievement of Commerce’s mission and goals. Effective management of the Department’s major IT investments is key to delivering IT services of the highest quality while controlling cost to the taxpayer, and the accurate measurement and reporting of the performance of those investments is an important part of the management process.

The management and monitoring of the performance of our major IT investments is a critical part of the Department’s Capital Planning and Investment Control (CPIC) process. The CPIC process is built on a foundation of strategic and operational IT planning that is integrated with processes for the selection, control, and evaluation of IT investments. The performance management processes and Departmental monitoring of IT investment performance are vital parts of the control and evaluation phases of the CPIC process, and the roles and responsibilities of those involved in the management of our IT investments are spelled out in the CPIC Process.

What is performance management?

Performance management is the activity of tracking performance against a target and identifying opportunities for improvement. The focus of performance management is the future - what do you need to be able to do and how can you do things better? Managing performance is about managing for results. Performance-based management at any level in the organization should demonstrate that:

you know what you are aiming for,
you know what you have to do to meet your objectives,
you know how to measure progress toward your objectives, and
you can detect performance problems and remedy them.
important components of performance management within the Department of Commerce are the establishment of a performance measurement baseline, regular periodic measurement of performance against that baseline, and reporting the status of that performance to operating unit and Departmental management.

The Office of Management and Budget’s (OMB) Circular A-11, Part 7 Supplement, “Capital Programming Guide” defines performance measurement as a “means of evaluating efficiency, effectiveness, and results. Performance measurement should include program accomplishments in terms of outputs (quantity of products or services provided) and outcomes (results of providing outputs in terms of effectively meeting intended agency mission objectives).”

Performance reporting of Commerce’s major IT investments provides a means for the Department’s senior management to remain apprised as to whether and how those investment initiatives satisfy defined requirements and attain identified results.

What does this policy require?

This policy requires that the project sponsor establish a performance measurement baseline for any major IT investment within Commerce, that the project manager regularly measure and report performance against that baseline, and that the project sponsor only change the established baseline in accordance with Departmental guidance and with appropriate approval.

What is a major IT investment?

A major IT investment is defined by the Commerce Office of the Chief Information Officer (OCIO) as a system or project meeting one or more of the following criteria: systems meriting special attention due to their sensitivity, mission criticality, or risk potential; Department-wide systems; systems where resources are shared between operating units and/or the Department; and systems with life cycle costs over $25 million.

What is a performance measurement baseline?

A performance measurement baseline is a primary tool for measuring project performance and identifying risk. The baseline identifies the work that will be accomplished on a project, and defines the cost and schedule for accomplishment of that work.

The performance measurement baseline, which consists of the cost, schedule, and scope baseline, is derived from the scope of work described in a hierarchical Work Breakdown Structure (WBS) – which, in turn, decomposes the entire project into a logical structure of tasks and activities tied to deliverables and to assigned responsibilities – and the associated WBS dictionary. The performance measurement baseline comprises:

The cost baseline, which defines the approved, projected, time-phased, life-cycle costs for acquiring, operating, and disposing of the physical and/or logical system represented by the scope baseline.
The schedule baseline, which is the approved timeline for acquiring, operating, and disposing of the physical and/or logical system.
The scope baseline, which represents the configuration of the product of the project as developed and described in the project’s technical documentation.

The baseline is integrated where the time-phased cost baseline is consistent with the schedule baseline, and the costs are related to acquiring, operating, and disposing of the physical and/or logical system represented by the scope baseline.

The official baseline for any major IT investment project is the latest documented baseline approved by the Commerce CIO, along with any approved changes to cost, schedule, or scope. It is important to note that the cost, schedule, and scope baselines represented in the Performance Measurement Baseline must be fully risk-adjusted and must be integrated with the risk management process. Refer to section I.5.2 of the Capital Programming Guide for a more in-depth discussion of the need for risk-adjustment in developing a Performance Measurement Baseline.

What types of performance measurement and performance reporting are required by this policy?

The project manager of any major IT investment within Commerce must use Earned Value Management to measure and report the performance of the Development, Modernization, and Enhancement portion of the IT investment and conduct an Operational Analysis on the steady state portion of the investment. Earned Value Management and Operational Analysis are two methods of performance measurement applicable to IT capital investments. They are analytical processes used to measure objectively how well a project or program is accomplishing its mission.

What is Earned Value Management?

Earned Value Management (EVM) is a performance measurement tool commonly used in developmental IT projects that relates project and resource planning to actual cost and schedule achievements. All work is planned, budgeted, and scheduled in time-phased "planned value" increments that constitute a cost and schedule measurement baseline. EVM is practiced through the use of an Earned Value Management System (EVMS) that provides an integrated picture of the cost and schedule performance of a project and allows a project manager to analyze deviations from plans, forecast completion of events, and implement corrective actions in a timely manner. Two major objectives of an EVMS are:

to ensure that Commerce’s project managers and contractors use effective internal cost and schedule management control systems, and
to provide the government with timely cost and schedule performance data in order to allow project managers to effectively monitor and control their projects.

When and how must I employ Earned Value Management?

Project managers must use Earned Value Management in the management of the Development, Modernization, and Enhancement (DME) portion of all Department of Commerce major IT projects with total DME costs of $25 million or more. The EVM methodology employed must be part of an EVMS that meets the criteria specified in the latest version of the Electronic Industries Alliance standard, “ANSI/EIA 748, Earned Value Management Systems,” including the requirement to conduct a monthly assessment of cost and schedule performance.

The EVMS employed on Commerce projects must include both government and contractor costs and schedules, and those costs and schedules must be based on a Work Breakdown Structure that describes both government and contractor activities. The Earned Value Management calculations (e.g., cost and schedule variances) produced by the EVMS must also be calculated against the OMB Approved Current Baseline which includes both government and contractor costs.

What are the specific requirements for incorporation of Earned Value requirements into major IT developmental contracts?

Contracting Officers must include in all contracts for major DME investments a requirement that the contractor and all applicable subcontractors have and use an EVMS determined to be compliant with ANSI/EIA 748 or have taken the necessary steps to meet milestones in the contractor’s EVMS plan for providing EVMS data that complies with ANSI/EIA 748. Commerce’s requirements for inclusion of EVMS clauses in contracts are specified in the Procurement Memorandum issued by the Department’s Office of Acquisition Management, and specifically require that Earned Value Management clauses be incorporated in all contracts for major DME investments in accordance with the Federal Acquisition Regulation (FAR) Subpart 34.2.

Project managers are also required to conduct an Integrated Baseline Review (IBR) on contracts with an EVMS requirement, before or after award as appropriate, in order to establish and document a performance measurement baseline agreed to by all parties and against which performance will be measured. In conducting the IBR, the project manager should use the National Defense Industrial Association (NDIA) Program Manager’s Guide to the Integrated Baseline Review Process as a resource document. Because it is an integral component of the overall risk management process, the IBR process and documentation of the baseline must be repeated whenever there are major changes to the baseline.

In addition to including a requirement for an EVMS in contracts for major DME investments, the Contracting Officer and project manager also must demonstrate, through a compliance review, that the Earned Value data and analysis used to measure and report the contractor’s work progress are produced by an EVMS that meets the guidelines in the ANSI/EIA 748 standard.

The NDIA Program Management Systems Committee (PMSC) Intent Guide provides additional insight into the earned value EVMS guidelines included in the ANSI/EIA 748 standard and is recommended for use in performing the initial compliance review. The Intent Guide defines in detail the management value and intent for each of the guidelines listed in the ANSI/EIA 748 standard. The Contracting Officer and project manager are encouraged to use the Intent Guide as a resource document to conduct the compliance review.

Beyond the initial compliance review, the Contracting Officer and project manager must also, on a triennial basis, conduct a surveillance review of the EVMS to ensure it continues to meet the requirements of ANSI/EIA 748. A standardized approach to surveillance benefits all parties because it ensures a common understanding of expectations and gives consistent guidance for implementation of the ANSI/EIA 748 EVMS guidelines. The NDIA PMSC Surveillance Guide provides such a standardized approach to surveillance and is recommended for all stakeholders in the EVMS process. The Contracting Officer and project manager are encouraged to use the Surveillance Guide to conduct the triennial review.

What is Operational Analysis?

Operational Analysis is a method of examining the current performance of the steady state portion of an investment, measuring that performance against an established set of performance parameters, and examining opportunities for improvement in operational performance. Beyond the typical developmental performance measures of “Are we on schedule?” and “Are we within budget?,” an Operational Analysis should seek to answer more subjective questions in the specific areas of:

Customer Results,
Strategic and Business Results,
Financial Performance, and
Innovation.

Operational Analysis is another phrase for "process improvement,” and should trigger considerations of how the investment’s objectives could be better met, how costs could be saved, and whether, in fact, the organization should even be performing a particular function.

When must I conduct an Operational Analysis?

Investment managers must conduct a full Operational Analysis of the steady state portion of their major IT investment initiatives annually. Annual Operational Analyses of steady-state investments must address the four specific areas of Customer Results, Strategic and Business Results, Financial Performance, and Innovation and must include the investment’s performance measurement baseline and actual performance measurement information to determine if the investment is continuing to provide realizable benefits.

In addition to the annual full Operational Analysis, investment managers of steady state investments must conduct a quarterly performance review that compares planned vs. actual expenditures and planned vs. actual performance results.

Who is responsible for conducting performance measurement and performance reporting?

Project managers of all major IT investments must provide monthly Earned Value performance measurement reports on the DME portion of the investment, and quarterly status reports and annual Operational Analysis reports on the steady state portion.

Project managers of IT investments not classified as major may also be required to submit Earned Value performance reports or Operational Analysis reports. These investments will typically be those that are identified by the Departmental CIO as high risk or that are named in the Department’s Strategic IT Plan as requiring management attention.

How, when, and to whom must I provide performance measurement reporting?

Project managers must provide the required performance measurement reports to the Commerce OCIO.

Earned Value performance measurement reports are due on a monthly basis. Monthly Earned Value performance reports are due on the last day of each month and must include performance data through the end of the previous month. The IT Investment Performance Reporting Data Call issued by OCIO provides information on the reports’ required content and format.

If at any time during project execution, cost, schedule, or scope performance varies from the approved project baseline by more than 10 percent, the project sponsor must report the variance to the Departmental CIO, detailing the baseline component (cost, schedule, or scope) responsible for the variance, as well as the dollar amount and percentage of the variance. The project sponsor must also provide to the CIO either a baseline change request or a corrective action plan that specifies what actions will be taken to address the performance variance and ensure it will not recur.

Additionally, whenEarned Value data for a project indicates that cost, schedule, or scope performance will vary from the approved project baseline by more than 10 percent at project completion, project sponsors must present to the CIO a baseline change request or recommend other action to correct the project’s variance from the approved baseline. A corrective action plan that specifies what actions will be taken to address the variance and ensure it will not recur must accompany the baseline change request.

Full Operational Analysis reports are due annually and must address all four factors (Customer Results, Strategic and Business Results, Financial Performance, and Innovation) of the investment during the immediately preceding year. Quarterly performance reviews of steady state investments must address financial and technical performance of the investment during the previous quarter. Due dates for annual Operational Analysis reports and quarterly performance reports are as specified in the latest IT Investment Performance Reporting Data Call.

How do I request a rebaselining of a major IT investment?

Requests for baseline changes of major IT investments must be submitted in writing to the Departmental CIO. In requesting a rebaselining of a major IT investment, the project sponsor must address the following issues:

The reason for rebaselining. Projects will typically be rebaselined for one of two reasons; (1) either the scope of the project has changed from the original plan, and the performance measurement baseline is no longer valid; or (2) the project’s cost and/or schedule variance(s) at completion are projected to be outside a tolerant range (typically 10%). In either of these cases, the performance measurement baseline is no longer a valid management tool, and the project should be rebaselined.
The process for developing a new performance measurement baseline. The rebaseline request must describe in detail the portions of the performance measurement baseline that are to be rebaselined by comparing the currently approved baseline to the requested baseline. The level of detail required is as follows:
If budget or reserves are to be changed, provide a side-by-side comparison of the previously approved budget vs. the proposed rebaseline.
If the project completion date is to be extended, provide a side-by-side comparison of the previously approved master schedule vs. the proposed rebaselined master schedule.
If project success criteria or technical objectives are to be modified (e.g., descoped), provide a detailed side-by-side comparison of the previously approved scope baseline vs. the proposed rebaseline.
If acquisition strategy is to be modified, describe any changes in the proposed rebaselined acquisition plan.
The process for validating and documenting the new baseline. Project managers must validate the new baseline by conducting an IBR to establish a new performance measurement baseline agreed to by all parties and against which performance will be measured. In conducting the IBR, the project manager should use the NDIA Program Manager’s Guide to the Integrated Baseline Review Process as a resource document. As with the development of an initial baseline, a revised baseline must also be documented and approved by the Departmental CIO (refer to the definition of an official baseline under the “What is a performance measurement baseline?” section of this document.

How does the Department use the performance measurement reports I submit?

The monthly Earned Value performance reports and annual Operational Analysis reports are used by Departmental managers in the control and evaluation phases of the CPIC process. The Office of the CIO reviews the monthly Earned Value performance reports and annual Operational Analysis reports and reports to the Deputy Secretary on investments that deviate from cost, schedule, or performance goals by more than 10% or that are in other ways troublesome. The OCIO also ensures that, where necessary, corrective action is taken to mitigate unacceptable variances and monitors ongoing corrective action to ensure that projects continue to meet cost and schedule goals.

Are there any exceptions to this policy?

In rare instances where performance risk is low, exceptions may be granted to the requirements for monthly submission of Earned Value performance measurement reports or annual submission of Operational Analyses. Such exceptions will apply only to the reporting of Earned Value and Operational Analysis, not to the requirement to use Earned Value management and Operational Analysis in the management of major investments.

How do I request an exception to this policy?

A project sponsor may request an exception to the requirement to submit monthly Earned Value performance measurement reports or quarterly steady state status reports and annual Operational Analyses by submitting a request in accordance with the instructions provided in the latest IT Investment Performance Reporting Data Call . In the request for an exception, the project sponsor must explain fully how the performance risk of the investment initiative has been mitigated sufficiently to justify the exception.

Where can I get information on Earned Value Management and Operational Analysis?

The requirements of an EVMS are spelled out in ANSI/EIA 748, “Standard for Earned Value Management Systems.” This Standard is copyrighted and is available for purchase from Global Engineering Documents, Inc . While copyright provisions preclude the Standard’s availability on the Web, NDIA has published an Intent Guide , which delineates the criteria for, and typical attributes of, an EVMS. The NDIA Program Management Systems Committee has also produced a number of other publications and supplemental guidance to assist governmental agencies with EVMS implementation. The guides can be found on the Committee's Web site, but are most easily accessed on the Defense Acquisition University’s Web site under OMB Recommended References .

Information on Operational Analysis can be found in the Management-In-Use section of OMB Circular A-11, Part 7 Supplement, “Capital Programming Guide .” More detailed information on the Operational Analysis process and specific guidance on content required for Operational Analyses of Commerce’s major steady state IT investments can be found on the OCIO Web site, under Operational Analysis and Performance Reporting .

Also, contact the following specialists:

Commerce’s IT Capital Planning and Investment Control process: Office of IT Policy and Planning, Stuart Simon, 202-482-0275, ssimon@doc.gov .

EVM and Operational Analysis content requirements and characteristics: Office of IT Policy and Planning, Jerry Harper, 202-482-0222, jharper@doc.gov .

Who can address questions regarding this policy?

Contact Jerry Harper, 202-482-0222, jharper@doc.gov .

Supersedes policy dated: December 14, 2007

Revision Date: August 7, 2008
Approved by: Suzanne Hilding, Chief Information Officer, September 10, 2008

Last Updated:: September 15, 2008

Questions regarding this section may be directed to the IT Capital Planning & Investment Control Administrator

OCIO

Policy and Programs

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