Performance Measurement Baseline (PMB)

The Performance Measurement Baseline (PMB) is fundamental to Earned Value Management (EVM). The PMB includes the Undistributed Budget (UB), all Summary Level Planning Package (SLPP) budgets, and all Control Account (CA) budgets. It does not include Management Reserve (MR). It establishes the contract level timed phased baseline against which contract level earned value metrics are computed. It incorporates the scope, schedule, and budget targets for the program.

The integrated baseline review (IBR) is the culminating event of the PMB development process. At this review, the contractor and government program managers agree that they understand the contract requirements and associated risks. To truly manage this risk, the development of the PMB must be a participative continuous process, work scope must be planned as objective and measurable work packages, and budgets and schedules must be properly integrated, realistic and achievable.

The performance measurement baseline is best explained by understanding its relationship with the Total Allocated Budget (TAB). The TAB includes the budgets for all contractually authorized work. The TAB does not include profit or fee. Simply put the TAB represents the estimated budget for all work associated with a contract.

The contract price has two elements (see Figure 1). The first element is profit or fee; fixed price contracts include profit, cost reimbursement contracts include fee. The second element is the TAB which represents the contract cost. It’s important to understand the difference between cost and price. Price includes profit or fee while cost does not. Earned Value Management (EVM) is always at the cost. At the beginning of the contract, the TAB is equal to the Negotiated Contact Cost (NCC) and the Contract Budget Base (CBB).

From the TAB, most contractors first set aside a small percentage for Management Reserve (MR) to cover unknown unknowns. The remaining budget becomes the performance measurement baseline. The PMB consists of three elements. The first is the Undistributed Budget (UB). This is a temporary holding budget that should be allocated as soon as practical to either the second element of the PMB, Summary Level Planning Packages (SLPPs), or to the third and final PMB element, Control Accounts (CAs). SLPPs are traditionally established for far term work. Early in a contract, it would be unreasonable to expect a detailed control account with work package descriptions and detailed schedules for the manufacture of something that had yet to be designed. But it is not only unreasonable that a top level manufacturing budget and schedule be established for said manufacturing and the SLPP serves this function. For near term and well defined work, earned value CAs are established. A CA may have hundreds of work and planning packages. An EVM concept called a rolling wave is often used to move work from summary level planning packages to control accounts and from control account planning packages to control account work packages.

For most contract changes, the need for the change is often time critical. When this occurs, the contracting officer may issue an undefinitized change order or Authorized Unpriced Work (AUW). This allows the contractor to start the work while a proposal and contract modification are being negotiated. At this point in time the TAB is equal to the CBB which is now equal to the NCC plus the AUW. Once the modification is negotiated, the NCC, CBB and TAB will all once again be equal. On some contracts, cost growth or cost overruns can reach a point where the negotiated contract cost becomes meaningless. At this point in time, an Over Target Baseline (OTB) may be established. The TAB is now equal to the OTB. The establishment of an OTB does not change the NCC or CBB.