How to Estimate and Use Management Reserve in an EVM System
When using an Earned Value Management System (EVMS), a Management Reserve (MR) is both expected and a ‘best practice’. But the misunderstanding of how to establish it, what it is for and how to use it, extends from government agencies to contractors.
MR is defined as “An amount of the total budget withheld for management control purposes, rather than being designated for the accomplishment of a specific task or set of tasks” (ANSI/EIA 748-B)
MR not formally recognized by the Federal Acquisition Regulations (FAR) yet it is expected to be used for the management of major government programs. This conflict has perpetuated mindset that MR should be “buried” within allowable cost elements proposed.
Once the contract is negotiated, contractor then sets aside an amount from Contract Budget Base/Total Allocated Budget (CBB/TAB) for MR. This raises the question of how this should be estimated, when it should be planned and how it should be used. Another rule that is often violated is from the ANSI 748 standard that says – “MR is not a contingency that can be eliminated from prices during subsequent negotiations or used to absorb the cost of program changes. The budget being held in reserve must not be viewed by a customer as source of funding for added work scope”.
This presentation will provide the latest direction from the government and the best practices for the establishment, tracking, use, and reporting of MR. This presentation will also describe how the use of MR is interpreted by agency customers (if you use it too fast you will get questioned).
There are rules or standards and there are ‘best practices’. As a ‘best practice’ this presentation will discuss that;
• MR establishment / use should be directly related to risk
• MR is re-evaluated constantly for the life of the project
• Amount of MR allocated during execution of contract should be directly tied to amount associated in Risk Management Plan with each identified risk
• When risks are retired, associated MR is either formally transferred to other risks or retained as “non-specific”
Ultimately there is a discussion of how MR is used. How is it used in replanning, rebaselining and reprogramming. What happens to MR if there is any left at the end of the contract?
These questions and more will be answered with examples.
Mr. Infanti has 30+ years of experience in project management as a practitioner, consultant and software representative for aerospace, defense, engineering/construction and IT organizations.
He has been a featured instructor and speaker at public training sessions, conferences and association meetings.
He was a featured speaker at the Potomac Forum “Earned Value Management (EVM) Workshop for Government Executives Managers, Staff & Industry Partners”, Deltek’s “How to Lead a Project Dream Team” and others.
Mr. Infanti has a Business degree from the University of Texas at El Paso.