Deficient Contractor Business Systems: Applying the Value at Risk (VaR) Model to Earned Value Management Systems

Report Number: NPS-CM-13-015

Series: Contract Management

Category: Earned Value Management System (EVMS)

Report Series: Sponsored Report

Authors: Desiree S. Dirige, Larry H. Yu

Title: Deficient Contractor Business Systems: Applying the Value at Risk (VaR) Model to Earned Value Management Systems

Published: 2013-06-01

Sponsored By: Acquisition Research Program

Status: Published--Unlimited Distribution

Research Type: Graduate Student

Full Text URL: http://www.acquisitionresearch.net/files/FY2013/NPS-CM-13-015.pdf

Keywords: contractor business systems, value at risk (VAR) model, earned value management system (EVMS)

Abstract:

The focus of our MBA project is on the Earned Value Management System (EVMS). This MBA project objectively and quantitatively portrays EVMS risk in a way that supports a monetary withhold decision and can withstand push-back (to include litigation) from the defense contractor. The government is authorized to withhold 5% of progress payments from the contractor to mitigate the risk of significant deficiencies. We evaluated the rank order of severity for 13 EVMS guidelines that the Defense Contract Management Agency (DCMA) requested we focus on and consider high risk to the government. Results show that the rank order of severity for the 13 EVMS guidelines provides a means for the DCMA to focus their limited resources on the surveillance of high-risk guidelines. By gathering EVMS corrective action data, we were able to apply the operational value at risk (VaR) model in which a monetary risk value was calculated to withhold contractor progress payments. The results suggest that the operational VaR model could be used by DCMA personnel as a defensible risk value model for withholding contractor payments.