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  • Question

    Can I determine the burn rate by looking at a Cost Performance Report and utilizing the EVM data? Is the formula for Burn Rate = 1 / CPI? Please provide as much detail as possible in how to determine the burn rate as well as why it is essential to know. Thank you Joe Edwards 540 653-9293


    Answer

    An approach to determine a potential impact of a proposed budget reduction would be to focus on the contractor’s monthly “burn rate” (i.e., the monthly average of cost being incurred on the work effort).In doing this, it allows the program to understand how fast or slow a contract is billing the government, and can help gage 1) how well the contract work is executing when compared to the obligation and expenditure plan the program’s budget office submitted, and 2) what potential impact would a proposed budget reduction effect the contract work effort’s ability to complete its task within the current fiscal year.
     
    Based on your question, you can calculate burn rate based as follows:
     
    Calculate the contractor’s monthly “burn rate” (i.e., the monthly average of cost being incurred on the work effort) and the potential impact to the contract work effort. When this method is appropriate, divide the annual amount planned to be placed on the contract by the number of contract months in the fiscal year; that is the average burn rate.
     
    Assuming you had a proposed budget reduction, you would do the following:
     
    Divide the proposed budget reduction by that monthly burn rate; that is the approximate number of work-months the contractor will not be able to perform if the proposed budget reduction requires taking funds from the contract.

     
    Your question in whether or not you can use 1/CPI is not correct.  CPI is a cost performance index measures cost efficiency.  EV data could be used with caution, but you would need monthly Actual Cost of Work Performed (ACWP).  When comparing it to your financial managers Obligation/Expenditure Plan, you will have to ensure you are comparing the same work effort (apples to apples comparison of your Spend Plan to what is Actually Being Spent) .
    As always, this is a Department of Defense response.  For further information, please consult your local Comptroller and Program Management Office Control –Earned Value Management office in how to handle your particular situation.

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