USING EARNED VALUE MANAGEMENT
IN GOVERNMENT CONTRACTING
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Presented by
Stephen J. Yuter, CPCM, CFCM, PMP
Jan Feb Mar Apr May Jun
Overview
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Definition & Principles of EVM
EVM Process & Key Questions
Traditional Management Systems vs. EVM
Performance Measurements
FAR & Agency EVM Requirements
Contractor’s Requirements for EVM
Contracting Officer’s Responsibilities for
EVM
Why Is There a Need for EVM?
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Need for accurate and
consistent status information
Numerous complex (and
interrelated) projects
70% of projects are over
budget and behind schedule
52% of all projects finish at
189% of their initial budget
What is EVM?
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Earned value is the value of the work that has been
completed – it represents the amount of the overall
project budget that has been “earned” based on the
percentage of the work that has been accomplished
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EVM enables both the government and the contractor
to have clear visibility into technical, cost and schedule
planning, performance, and progress on their contracts
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EVM…
 requires that each element of work be budgeted
 as each element is completed with clearly defined
deliverables, its budgeted costs are earned
 by placing a cost value on status, a project's
performance can be evaluated and communicated
What is EVM? (cont’d.)
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Proper use of EVM can provide early warning (forecasting) of
impending problems, leaving ample time for corrective action
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EVM DOES NOT determine a course of action; instead, it
simply isolates the cause of project problems or confirms that
tasks are progressing as planned
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EVM is normally not appropriate for contracts that are not
performance-based (e.g. FFP or T&M) or where the nature
of the work is not measurable (e.g. level of effort, and/or in
steady state operations and support); optimal for services
contracts providing development & integration
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Applying EVM principles properly can provide for better
control of program/project performance, along with greater
accountability and a reduction in risk
Basic Principles of EVM
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Break down the work scope into discrete, measurable
elements and assign responsibility
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Plan and integrate the scope, schedule, and cost into a
time-phased plan and control changes to the plan
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Objectively assess progress and accomplishments
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Use actual costs
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Analyze variances from the plan
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Use the information to manage
Key Attributes of EVM
The Earned Value Process
Define the Work
Plan the Work
Work the Plan
Collect Results
Measure
Performance
Change Control
External
Changes
Analyze
Deviations
Take Corrective
Action
Why Use Earned Value
Management?
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Ensures a clear definition of work prior to beginning that
work
Presents a logical plan for accomplishing the work
Provides an objective measure of accomplishments
Early and accurate identification of trends and problems
Accurate picture of contract status
 cost, schedule, and technical
Basis for course correction
Supports mutual goals of contractor and customer
 bring project in on schedule and cost
EVM Measures Progress
Progress = movement towards a goal
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to measure progress, there
must be a standard against
which the movement may be
compared
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EVM establishes that
standard as the Performance
Measurement Baseline and
measures progress against
that baseline
What Do We Measure Progress
Against?
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Performance measurement baseline: integrates three
key measurements
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budget is spread over . . .
time, to accomplish the scope of
work against which progress can be measured
compares the PLANNED amount of work with what has
actually been COMPLETED, to determine if COST, SCHEDULE,
and WORK ACCOMPLISHED are progressing as planned
work is “earned” or credited as it is completed (expressed in
dollar or hours); the value earned is the WBS budgeted cost of
the activity completed to date
Key Questions EVM Answers
We analyze past performance………to help us control the future
PAST
PRESENT
Are we on schedule?
Are we on cost?
What are the significant variances?
Why do we have variances?
Who is responsible?
What is the trend to date?
FUTURE
When will we finish?
What will it cost at the end?
How can we control the trend?
The Two Key Questions
1. Did we get what we wanted for what we spent?
2. At the end of the project, is it likely that the cost will
be less than or equal to the original estimate?
Ways of Earning Value
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Should be quantitative and discrete whenever
possible
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Discrete = tangible end product
e.g. delivery of a specification, vendor parts contract
awarded, foundation completed
Should be integrated with success criteria or
technical measures
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e.g., successful completion of clean-up, a specific
test, reliability growth curve
Traditional Management Systems
In these systems, you budget work and then record actual expenditures.
Example: I budget 5 widgets at 100 hrs per widget.
At the end of the month 400 hrs had been expended.
GREAT! I'm 100hrs
under budget
Budget
vs.
500
Actual
400
=
Variance
100
But what does this mean? Is this really the true status of work?
What did I accomplish?
Management Systems Measurement
of Expenditures
Well, I’ve spent 400 hrs,
does that mean I’ve
accomplished 400 hrs
of work?
Actual Cost is not an indication of work progress, only an indication
of hours/money spent.
Management Using Earned Value
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Earned Value is an objective measure of how much work has been
accomplished
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Example:
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I plan to build 5 widgets this month
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Each widget should take 100hrs
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I will measure Earned Value based on # widgets completed
At Month End...
3
2
1
Budget Plan
500
Earned Value
300
(3 Widgets * 100 hrs)
Actual
400
Earned Value Adds a New Dimension to
Traditional Tracking Systems
Budget Plan
500hrs
Earned Value
300hrs
Actual
400hrs
Schedule
Variance
Cost
Variance
(200)
(100)
I better figure out what is going on.
I’ve got 200 hours worth of work to
catch up on, and I’ve already
overspent by 100 hours.
Using Performance Data for
Decision-Making
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Behind Schedule
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How critical is schedule?
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Can I afford to work overtime to recover?
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Can I do tasks concurrently?
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Are there technical innovations which could speed up the
process?
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Am I “gold plating” instead of just meeting requirements?
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Should I do a schedule risk assessment to project impact
to program?
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Over Cost
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Can I reschedule tasks? (time phasing)
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Is there a less costly facility I can use?
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Are there tasks which can be deleted?
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Should the element be added to my risk management
profile?
Five Basic Performance Questions &
Answers in EVM
Question
Answer
Acronym
How much work did
we plan to do?
Budgeted Cost for Work
Scheduled
BCWS = PV
How much work got
done?
Budgeted Cost for Work
Performed
BCWP = EV
How much did the
completed work cost?
Actual Cost of Work Performed
ACWP = AC
What was the total job Budget at Completion
supposed to cost?
BAC
What do we now
expect the total job to
cost?
EAC
Estimate At Completion
Variance Calculations in EVM
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Schedule Variance (SV) = EV – PV
 the difference between Earned Value (EV) and
Planned Value (PV)
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Schedule Performance Index (SPI) = EV/PV
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SPI<1 means project is behind schedule
Cost Variance (CV) = EV - AC
 the difference between EV and Actual Cost (AC)
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Cost Performance Index (CPI) = EV/AC
 CPI<1 means project is over budget
Making Projections with EVM
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Cost Schedule Index (CSI) = CPI x SPI
the further CSI is from 1.0, the less likely project recovery
becomes
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Once a project is 10% complete, the overrun at completion
will not be less than the current overrun
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Once a project is 20% complete, the CPI does not vary from its
current value by more than 10%
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The CPI and SPI are statistically accurate indicators of final
cost results
Using Performance Data To Validate
Estimates
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New EACs take on more meaning when you employ performance
information
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the EAC can be “predicted” by the performance index
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Why do we need accurate EACs?
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Variance at Completion vs. Contractor Loss
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Positive VAC:
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EAC < BAC
underrun
Negative VAC:
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EAC > BAC
share area
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EAC > ceiling overrun
contractor gain
contractor partial loss
contractor loss
Government develops top-level EAC for comparison:
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Government should limit progress payments if EAC is greater than
contract ceiling
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Government needs accurate forecast of fund requirements
Earned Value Problem Indicators
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GOAL: to verify that effective variance analysis processes
are applied to identify, correct, and report problems
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Potential Problem Indicators:
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Zero variances
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Monthly trends turning negative or downward
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Schedule variances generally indicate cost will follow
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Actuals > Latest Revised Estimates (LRE)
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BCWP increases with no increase in ACWP
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Negative data elements
Statutes Related to EVM
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The requirement for EVM as it is practiced today can be traced
to three public laws:
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Government Performance and Results Act of 1993 (GPRA)
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Federal Acquisition Streamlining Act, Title V of 1994 (FASA V)
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Establish performance standards for Federal budget
Report cost, schedule, and performance goals and evaluate
progress
Information Technology Management Reform Act of 1996/
Clinger-Cohen Act (ITMRA/Clinger-Cohen)
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Report performance information systems acquisition
EVM Requirements
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OMB Circular A-11, Part 7 requires the use of EVM in the performance
management of major investments and major systems in development,
modernization, or enhancement (DME) or in mixed life-cycle
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"Agencies must use a performance-based acquisition management system
to measure the achievement of cost, schedule, and performance goals, and
achieve (on average), 90% of those goals”
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Contractors’ Earned Value Management System (EVMS) must comply with the
guidelines set forth in the American National Standards Institute
(ANSI)/Electronic Industries Alliance (EIA)-748 Standard
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FAR 52.234-2 (Pre-IRB), 52.234-3 (Post-IRB), and 52.234-4 (EVMS)
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Federal agencies requires its use on major programs (i.e. IT and non-IT
investments $100M or greater) and on their associated contracts with a
contract price of $20M or greater; continued surveillance to ensure compliance
EVM Requirements (cont’d.)
Contract
Total Value
EVM
Compliance
CWBS & IMS
CPR (monthly)
CFSR
(quarterly)
$50M and
greater
Required
Required
Required
Required
$20M and
greater but
less than
$50M
Required
Required
Required
Required
Less than
$20M
Optional
Required if
PM requires
(at
discretion of EVM
PM)
Required if PM Required
requires EVM
Integrated Baseline Review (IBR)
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Determines that the Performance Measurement
Baseline is responsive to the scope of work required
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Joint assessment of
 Coverage of SOW
 Scheduling of work
 Resource allocation
 Earned Value methodologies
 Technical content of PMB
 Realism and Risks
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Should be conducted pre-award but no later than 180
days post-award
The Contractor’s EVMS
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Describes system in sufficient detail to determine compliance
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Includes prior Certification/Acceptance
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If no EVMS is in place, Contractor must submit a comprehensive plan
for compliance
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System description
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Necessary modifications
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Compliance map
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Process descriptions
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Recent evaluation or self-assessment results
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Identify major subcontracts for application of criteria
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Verify baseline integrity is maintained
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Contains plan and procedures for surveillance and self assessment
The Contractor’s EVMS (cont’d.)
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Surveillance Plan
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Methods and techniques
Inclusion of new scope
Customer coordination
Schedule
Analysis
Ensure that reliable and timely cost, schedule, and
technical performance information is generated
Baseline Budget Control Accounts
Baseline Schedule
Work Measurement by Control Account
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Work-hours, dollars, units, etc.
EVMS Is Important to Effective
Contract Administration
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EVMS gives early warning of potential problems
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As a Contract Specialist or Contracting Officer,
you are a member of the Integrated Project
Team (IPT)
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It is your job as the CS/CO to protect the
Government’s rights if performance does not
show satisfactory progress!
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You must work with the other IPT members and
the Contractor to avoid or mitigate performance
problems
What Are the CO’s Responsibilities
Regarding EVMS?
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Contracting Officer’s Pre-Award Responsibilities as a
Member of the IPT:
 Identify application of the Earned Value
Management System in acquisition plans,
solicitations and contracts
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Define reporting and electronic submission
requirements
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Define evaluation criteria for source selections
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Factor EVMS into contract management planning
What Are the CO’s Responsibilities
Regarding EVMS? (cont’d.)
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Contracting Officer’s Post-Award Responsibilities as a
Member of the IPT:
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Integrate performance monitoring with EVMS into
Award/Incentive plans
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Monitor performance with IPT using the EVMS
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Act when performance is at risk (communication with
contractor, show cause and cure notices, etc.)
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Evaluate the Contractor’s EVMS implementation plan
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Evaluate the Contractor’s EVM systems for compliance with the
standard
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Conduct Integrated Baseline Reviews to ensure all the work
scope is included in the baseline
EVM Impact on Mission
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By utilizing EVM properly, an agency can…
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improve its ability to track and report on investment cost,
schedule, and performance variances (agency projects must
stay within a 10% variance)
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allow PMs and project team members to optimize resources
and deliver capital investment projects on-time, on-budget,
and within scope
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operate by tracking its programs’ health beyond pure
financials
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ensure its customers’ requirements are satisfied
Summary
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EVM helps reduce the guesswork in:
 measuring performance
 forecasting
Aids in getting beyond misleading measures of
progress - provides a common denominator for
work scope, schedule, and resources
Reasons to use EVM:
 Good project management practices
 OMB/FAR requirement
Should be incorporated into contracts for major
acquisitions (cost-reimbursement)
Q&A