# Presentation: 768050

## Module 10 –Earned Value Management

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- Module 10 –Earned Value Management

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- Topic 1 –
- Introduction/Objectives

## What is EVM?

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- DEFINITION: An industry standard method of measuring a project’s progress at any given point in time, forecasting its completion date and final cost, and analyzing variances in the schedule and budget as the project proceeds.

## What is EVM? (cont.)

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- Compares planned amount of work with actual work completed
- Determines if cost, schedule, and work are progressing as planned
- As work is completed it is considered “earned”.
- Requires considerable overhead
- Reserved for larger projects ($20 million)
- If used on smaller projects, it is a risk-based decision made by the project manager.

## Project Manager’s Role

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- Retains responsibility for the outcome of project
- Usually EVM work is done by someone other than the project manager.
- Project manager is responsible for establishing requirements
- On smaller, non-EVM projects, project managers complete most tasks, including financial analysis.

## Project Manager’s Role (cont.)

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- Project manager is responsible for requirements if the EVM work is done by someone else
- EVM likely to follow ANSI/EIA 748-A standard
- Project manager interprets results
- Project manager “owns” results and has the responsibility to act on those results

## Planning for EVM

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- Planning begins with formulation of acquisition strategy
- EVM – Essential element of Pre-Award and Post-Award Contract Management
- Helps ensure that projects do not get too far off track
- If project’s CPI is .90 worse after 15% of budget has been expended, project’s CPI never improves

- EVM applies throughout acquisition life cycle when government and contractor share risk

## Implementation

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- The contract management organization tasked with executing the acquisition is responsible for implementing EVM.

## Learning Objectives

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- 	Project Management
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- State the earned value management (EVM) technique that is used in performance measurement.
- Discuss the use of EVM to combine measurements of performance.
- Demonstrate how EVM as a tool can show the progress of a current project.

- At the end of this module, you will be able to:

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- Topic 2 –
- Calculating Earned Value

## Earned Value Analysis (EVA)

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- DEFINITION: Snapshot in time which can be used as a management tool that detects deficient or endangered progress

- Ensures clear definition of work
- Objective measure of accomplishments
- Early and accurate picture of contract status
- Can be as simple as an elemental cost estimate breakdown or calculated and tracked

## EVA Answers Two Questions

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- At the end of the project, is it likely that the cost will be less than, equal to, or greater than the original estimate?
- Will the project likely be completed on time?

## EVA and EVM

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- EVM is the implementation of EVA to manage the progress of a contract.
- It is most effective when a WBS is used.

## Work Breakdown Structure

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- Basic building block for planning
- Product oriented division of project tasks that ensures the entire scope of work is captured
- Breaks down work scope into appropriate elements (planning, budgeting, scheduling, etc.)

## WBS (cont.)

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- Two best choices for WBS systems:
- Functional Structure
- Authority rests with functional heads
- Project Structure
- Autonomous project team, existing independently of the rest of the organization

## Three Public Laws

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- EVM policy controlled by three public laws:
- Government Performance and Results Act of 1993 (GPRA)
- Federal Acquisition Streamlining Act of 1994 (FASA V)
- Information Technology Management Reform Act of 1996 (ITMRA/Clinger-Cohen)

## What EVM Does

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- Ensures that contractor cost, schedule, and performance information is provided
- Relates budgets to specific contract tasks
- Indicates work progress

## What EVM Does (cont.)

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- Properly relates cost, schedule, and technical accomplishment
- Valid, timely, and able to be audited
- Supplies managers with information at a practical level of summarization
- Derived from the same management systems used by contractor to manage contract

## Question

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- 	Project Management
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- Why should your EVM implementation be derived from the same management systems used by the contractor to manage the contract?

## Question

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- 	Project Management
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- When should you use Earned Value Management?

## Question

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- What can be used in lieu of earned value?

## Three Key Values

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**Planned Value (PV):** portion of cost estimate planned to be spent on the given activity
**Actual Cost (AC):** total of costs incurred accomplishing work during given period
**Earned Value (EV):** value of work actually completed

- EVM measures progress against a baseline.  It involves calculating three key values:

## Commonly Used Values

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- Most commonly used values are:
- Cost Variance (CV) = EV - AC
- Schedule Variance (SV) = EV - PV

- Key values are used to determine whether or not work is being accomplished as planned

## Meaning of Values

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- _Positive schedule variance_ = on or ahead of schedule
- _Negative schedule variance_ = behind schedule
- _Positive cost variance_ = under budget
- _Negative cost variance_ = over budget

## Cost-Efficiency Indicators

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- CV and SV can be converted into efficiency indicators
- Reflect cost and schedule performance
- Most Common is the cost performance index (CPI)
- CPI = EV / AC

## Cost Performance Index

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- DEFINITION: measure, expressed as a percentage or other ratio, of actual cost to budget plan

- Represents _ratio_ of work accomplished vs. work cost incurred for a specified time period
- It is an _efficiency rating_ for work accomplished for resources expended.

## Schedule Performance Index (SPI)

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- Sum of EV budgets divided by sum of ACs is known as the cumulative CPI
- Used to forecast cost to complete a project
- SPI = EV / PV
- It is Often used with the CPI to forecast overall project completion estimates

## Question

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- What does a positive and negative **schedule variance** mean?
- What does a positive and a negative **cost variance** mean?

## Question

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- Are you familiar with these EVM formulae and variances?  Have you used them before?  If so, please share a “story” about your experience and what you found helpful or unhelpful.

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- Topic 3 –
- Earned Value Management Systems (EVMS)

## EVMS

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- No single universal system for technical, cost, and schedule control
- EVM community established a framework of EVMS guidelines
- Provide basis for determining whether contractors’ EVM systems are acceptable
- Contractors must use compliant EVMS systems to facilitate performance measurement
- Contractor’s EVMS compliance is used as an evaluation factor for award

## EVMS Guidelines

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- 32 EVMS guidelines
- Defined in the American National Standards Institute/Electronic Industries Alliance (ANSI/EIA) Standard 748-1998
- Guidelines are:
- Broad enough to allow for common sense application
- Comprehensive enough to assure reliable performance data

## Basics of EVMS

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- A Methodical, organized, thorough, and complete WBS
- A Baseline Schedule
- A Baseline budget, organized into control accounts
- A Measurement of the work by control account

- Listed in Section A-11, Part 7 of the ANSI Standard 748, EVM basics:

## Basics of EVMS (continued)

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- Baseline schedule integrates all the technical, cost, and schedule aspects of the work
- Time-phased budget baseline is also necessary
- Assignment of budgets to work activities results in a base plan
- Referred to as the Performance Measurement Baseline (PMB)
- Should be established as early as possible

## Performance Measurement Baseline

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- Includes:
- Direct hours/dollars.
- Direct material dollars.
- Equipment and any other direct costs.
- Any indirect costs for the agreed scope, design, oversight, and management

- Represents the formal plan for project manager to accomplish all the work in time and under budget

## PMB (cont.)

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- One form is a network precedence diagram such as a PERT
- All tasks and their dependencies are shown together with the budget and schedule for each
- One illustrative example can be seen at:
- _[http://www.answers.com/topic/program-evaluation-and-review-technique?cat=biz-fin](http://www.answers.com/topic/program-evaluation-and-review-technique?cat=biz-fin)_

## Question

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- Why is the Performance Measurement Baseline (PMB) a critical component of Earned Value Management?

## Importance of PMB

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- Answers the question, “What is the project status?”
- A satisfying form of the answer is when actual activity is compared to baselined plan

## Example

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- “We just completed xyz task on schedule and are holding within a 3% variance for both cost and schedule for the project” is an example of the kind of answer you can receive when using an EVMS and measuring against a PMB.
- It is less than satisfying when the response is in the order of “We are almost done” or, worse, yet, “We do not know.”  These are the likely responses when progress is not measured against a PMB.

## Value of EVMS

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- Ensures that contractors have and use adequate management systems
- Provides better overall planning and control discipline on government contracts
- Properly used, compliant EVMS provides project manager with valid progress information

## EVMS Guidelines

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- The EVMS guidelines cover the following:
- Organizing
- Scheduling
- Work/Budget Authorization
- Accounting Systems
- Indirect Management
- Managerial Analysis
- Change Incorporation
- Material Management
- Subcontract Management

## Question

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- What impact does EVM and EVMS have on your management of projects?

## When Does EVMS Come Into Play?

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**Pre-Solicitation Phase**
- Determine if EVMS is required. Include EVMS requirements in RFP
**Solicitation, Evaluation & Award**
- Evaluate Contractor's EVMS proposals
**Contract Management**
- Utilize EVMS to track progress

## EVM Related Requirements for RFP

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- Section C - Include EVM in Statement of Work
- Section I - Include EVMS/FAR Clauses
- Section J - Include the EVMS Data Items
- Section L - Include EVMS descriptions in proposal
- Section M - Include EVMS as an evaluation factor

## Solicitation, Evaluation, and Award

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- During this phase, SOW tasks and FAR contract clauses become part of the contract

- Require contractor to:
- Use and maintain an EVMS that meets ANSI/EIA-748 guidelines
- Support a government/contractor Integrated Baseline Review (IBR)

## Integrated Baseline Review (IBR)

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- Determines how often to review EVM data
- Conducted within six months of contract award
- Good idea to require that IBR be conducted and analyzed and reported back to project manager

- DEFINITION: joint risk assessment of the EVM PMB that can be conducted by the project manager and contractor

## Question

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- Why is it important to use a contractor’s earned value management system as an evaluation factor for award?

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- Topic 4 –
- Review

## Learning Objectives

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- 	Project Management
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- State the earned value management (EVM) technique that is used in performance measurement.
- Discuss the use of EVM to combine measurements of performance.
- Demonstrate how EVM as a tool can show the progress of a current project.

- Recall the learning objectives for this module:

## Key Points

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- Determines if cost, schedule, and work accomplished are progressing as planned
- works most effectively when it is broken down into an organized Work Breakdown Structure (WBS)
- Uses indicators to determine if acquisition is on schedule, on budget, and work-performed is efficient
- Indicators are CV, SV, and CPI

- We learned that the EVM technique used in performance measurement is called Earned Value Analysis

## Key Points (cont.)

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- EVMSs follow 32 guidelines established by ANSI/EIA Standard 748
- Guidelines address nine management processes
- Model used should be derived from same system used by contractor
- Begins with the formulation of the acquisition strategy
- Continues through the Contract Management phase until contract closeout