Publication date: 12/01/2013
The Government Manager’s Guide to Earned Value Management
THE FUNDAMENTALS OF EVM
Earned value management (EVM) as we know it today might not exist without the federal government’s instigation and support. In the 1960s, the U.S. government commissioned a project reporting system composed of 35 requirements called the cost/schedule control systems criteria (C/SCSC). The objective of that system was to provide a common basis for reporting and decision-making by both the project initiator and the project contractor. That is, the project owner (the federal government) needed information that established a valid relationship among cost, schedule, and technical requirements in a summarized and meaningful format from the people actually performing project work so timely decisions could be made.
After the U.S. government spearheaded the development of objective project reporting, industry groups joined the effort and C/SCSC was modified into today’s 32 EVM criteria. The first industry-approved EVM standard, ANSI/EIA 748-A, was published by the Government Electronics and Information Technology Association (GEIA) in 1998 and adopted by the federal government in 1999. In 2007, ANSI/EIA-748-B (the EVM standard) was approved. Through association mergers, GEIA later became a part of TechAmerica. An ANSI-accredited national standards developer, TechAmerica released ANSI/EIA-748-C in March 2013. The ANSI/EIA-748 version in force at the time contracts are signed, as elaborated and interpreted by various government documents, is the version that governs contractor EVM systems.
ANSI/EIA-748 has been through several revisions; the version in force when a contract is signed is the governing version for that contract.
EARNED VALUE DEFINED
An earned value management system (EVMS) is universally defined as a project management system that, at a minimum, complies with the 32 criteria set forth in ANSI/EIA-748. “Earned value” is the primary metric for reporting progress on a project or program. Work “earned” is the amount of budgeted work scheduled that has been completed.
EVMS is an integrated project management system that includes the planning and execution of a project or program. From a high-level view, as shown in Table 1-1, it seems quite simple.
Basic Elements of an EVMS
|Planning||A detailed definition of the work elements and their relationships that are required to complete the project’s objectives.||Work Breakdown Structure|
|Assignment of the organizational entities for work performance.||Organizational Breakdown Structure|
|A schedule of the work to be performed with milestones and deliverables.||Project Plan|
|Integration of the cost and schedule in a baseline plan.||Time-phased Baseline Budget|
|Execution||Accumulation of costs.||Actual Costs Incurred|
|Measurement of progress.||Earned Value|
|Analysis of variances from the plan.||Cost Variance; Schedule Variance|
|Reporting to management.||IPMR * Formats 1–7|
|Forecasting of schedule and cost completion data.||Estimate to Complete; Estimate at Completion|
|Disciplined maintenance of the plan data and proposed revisions.||Change Control Plan|
* Integrated Management Report Program
“Earned value” is the metric that represents the amount of scheduled project work that actually has been completed.
The Department of Defense (DoD) presents a complete description of EVMS in Part 1, Section 1, of its 2006 Earned Value Management Implementation Guide:
Earned Value Management (EVM) is a program management tool that integrates the technical, cost, and schedule parameters of a contract. During the planning phase, an integrated baseline is developed by time phasing budget resources for defined work. As work is performed and measured against the baseline, the corresponding budget value is “earned.” From this earned value metric, cost and schedule variances can be determined and analyzed. From these basic variance measurements, the program manager (PM) can identify significant drivers, forecast future cost and schedule performance, and construct corrective action plans to get the program back on track. EVM therefore encompasses both performance measurement (i.e., what is the program status) and performance management (i.e., what we can do about it). EVM is program management that provides significant benefits to both the Government and the contractor. 1
U.S. government entities, such as DoD, the National Aeronautics and Space Administration (NASA), the Department of Energy, and the Office of Management and Budget (OMB), as well as international government entities, have set the basic definitions, concepts, and requirements for EVMS through their contract management agencies. Many implementation and intent guides have been published and revised, but the basic EVM requirements (with the exception of some rewording to clarify meaning) have remained unchanged.
Although DoD will continue to review contractors’ EVM systems, it encourages contractors and the entire industrial sector to assume growing responsibility for EVM processes. Numerous EVM consulting and training assistance groups stand ready to assist in EVM implementation, execution, reporting, or any other facet.
In April 2013, DoD issued a supplement to the Defense Federal Acquisition Regulation (DFARS) in which Subpart 234.2 further confirmed the system requirements for use of an EVMS. Those requirements include the following:
- Optional compliance with ANSI/EIA-748 for cost or incentive contracts and subcontracts valued at less than $20 million, with a decision to comply voluntarily with EVM guidelines documented in the contract file along with a risk-benefit analysis
- Compliance with ANSI/EIA-748 for cost or incentive contracts for contracts and subcontracts valued at $20 million or more
- “Confirmed” (determined by the cognizant federal agency) compliance with ANSI/EIA-748 for cost or incentive contracts for contracts and subcontracts valued at $50 million or more
- Strong discouragement (a waiver is required) of the use of ANSI/EIA-748 for firm-fixed-price contracts for contracts and subcontracts of any value.
Other sections of Subpart 234.2 cover the details of exactly how the contractor’s EVMS will be evaluated, how deficiencies are noted for correction, and how a final “accept” or “reject” decision is made. Subpart 234.2 also describes how inspection results at various stages of the investigation must be reported.
Government requirements for a contractor’s use of EVM vary depending on the size and type of contract.
Special provision may be made for temporary use of EV systems that are not compliant with ANSI/EIA-748, but cost or incentive contracts valued at $20 million or more must follow the provision at 252.234–7001 (not FAR 52.234-2 and FAR 52.234-3).
THE 32 EVMS CRITERIA SUMMARIZED
The EVMS criteria are usually divided into five sections:
- Planning and budgeting
- Accounting considerations
- Analysis and management reports
- Revisions and data maintenance.
The 2006 revision of the ANSI/EIA criteria added “scheduling” to the second section; the sections of the 2013 revision remain essentially unchanged.
The 32 EVM criteria are generally divided into sections that represent five basic project management concepts.
This five-step division is intended to address basic management concepts, but many of the concepts overlap. The criteria are presented fully in Appendix I with the latest version notations. The following are the key aspects of each criterion.
1. Define the work with a work breakdown structure (WBS).
2. Identify organizational breakdown structures (OBSs) that will do the work specified by the WBS.
3. Provide for integration of company processes and the program structure.
4. Identify the function for controlling overhead.
5. Provide integration that permits performance measurement from the WBS.
Planning and Budgeting
6. Schedule the work with task sequence and appropriate logic linkages between all tasks.
7. Identify indicators of measurable progress.
8. Establish and maintain a time-phased budget baseline at the control account level.
9. Establish budgets with identification of significant cost elements.
10. Identify and establish budgets in discrete work packages within control accounts and identify far-term work in larger planning packages.
11. Ensure that the sum of the work package budgets and planning package budgets within a control account equals the total control account budget.
12. Identify and control any work defined as level of effort.
13. Establish overhead budgets.
14. Identify management reserves and undistributed budget.
15. Ensure that the project’s target cost equals the sum of all budgets and reserves.
16. Record direct costs (those costs traceable only to the project/program) in a formal system.
17. Summarize direct costs from control accounts to the WBS elements.
18. Summarize direct costs from control accounts into the contractor’s organizational elements.
19. Record all indirect costs.
20. Identify unit costs (if producing multiple physical units).
21. Provide accountability for a material accounting system.
Analysis and Management Reports
22. Generate management control information at the control account level.
23. Identify and explain differences between actual and planned schedule and cost performance.
24. Identify budgeted and applied indirect costs.
25. Summarize data and variances through program organization or work breakdown structures.
26. Implement managerial actions.
27. Revise estimates of cost at completion based on performance to date.
Revisions and Data Maintenance
28. Incorporate authorized changes.
29. Reconcile current budgets to prior budgets.
30. Control retroactive changes to records.
31. Prevent unauthorized revisions to the program budget.
32. Document changes to the performance measurement baseline.
The next chapter introduces the basic EVM metrics. Subsequent chapters provide additional detail about EV implementation, execution, reports, and analyses.
1. Department of Defense, Earned Value Management Implementation Guide (2006), www.acq.osd.mil/evm/resources/guidance-references.shtml (accessed August 2013).
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