# Presentation: 512864

## Understanding Earned Value Management & Analysis

- Abba Consulting

***Federal Acquisition***
***Conference & Exposition***
***Washington, DC***
***June 19-20, 2007***

**Wayne**** ****Abba**
- (703) 658-1815
- abbaconsulting@cox.net

## Understanding Earned Value Management

- EVM = Resource Management
- Resources are labor, material and other direct and indirect costs required to execute the program
- FAA applies EVM at Program level to include prime and sub contractors, government FTEs and support contractors
- Managed in dollars, hours, or any measurable unit
- Government accounting systems may not support EVM-based program/project management

## Ensuring Planned Resources are AdequateUsing an Integrated Baseline Review (IBR)

**300**

**200**

**100**

**Ensuring Planned Resources are Adequate****Using an Integrated Baseline Review (IBR)**

**Program/Contract IBR is critical planning process**

## EVM and Baseline Discipline

- Effective performance management requires disciplined baseline management
- Initial baseline reflects go-ahead decision
- Scope, schedule, resources, risk
- Approve program/contract baseline changes to
- Revise work scope (increase or decrease)
- Restore meaningful performance management
- Manage funding reductions (“salami slices” or prioritized cuts?)
- Balance scope, schedule, cost, risk assumptions
- Do not approve baseline changes to
- “Get to Green”
- Eliminate cost and schedule variances

## Understanding Earned Value Analysis

- Earned Value Analysis = Understanding the relationships among the EVM data elements
- EVM discipline provides confidence that:
- Contractor and PM management systems are adequate to provide effective monitoring and control
- Data are summarized from the Control Account level, where technical/schedule/cost integration occurs
- When data are used for management and oversight
- Data quality becomes “self-policing”
- Allows Management to ask questions and be informed, critical consumers

**EVM data should inform decisions – but cannot make decisions**

## Cumulative Trend Analysis

**Cost Variance**

**Approx. Time Variance**

**F**

**Time**

**Resources**

**400**

**300**

**200**

**100**

**Time Now**

**ACWP (Actual Cost)**

**BCWS**
**(Planned Value)**

**BCWP (Earned Value)**

**M**

**Schedule Variance**

**Management Reserve**

**Prog**
**Budget**

**▲**

**Standard graphics for all programs**

## Cost/Schedule Variance Trend Analysis

**Time**

**Cost Variance at Completion**

**Schedule Variance at Completion**

**0**

**Cost Variance ****---**

** ****Schedule Variance**

**Unfavorable**

**Favorable**

**Management****Reserve****Consumption**

**Schedule Slip**

**Notes:**
Purpose:  To relate contract performance to profitability.
Description:  This chart shows variance trends with respect to the fee structure.

## Evaluating Future Performance

**Time**

**0**

**Cost Variance     ****-----**

**Unfavorable**

**Favorable**

**PM Variance****at Completion**

** ****When/how will performance improve?**
** ****Review at appropriate time**
** ****Tie PM evaluation to predictability**

**Time Now**

## EVA and Funds Management

**M**

**Time**

**Resources**

**400**

**300**

**200**

**100**

**Time Now**

**D**

**Prog**
**Budget**

**Approved/Planned Funding**

**BCWP (Earned Value)**

**BCWS**
**(Planned Value)**

**ACWP (Actual Cost)**

## EVA and Profitability Analysis on Flexibly Priced Contracts

**Time**

**0**

**Unfavorable**

**Favorable**

**Min/Max****Fee**

**Contractor Loss**

**Time Now**

**Cost Sharing**

**Cost Variance ****levels cf:**

## EVA and Profitability Analysis on Flexibly Priced Contracts

**Time**

**0**

**Unfavorable**

**Favorable**

**Min/Max****Fee**

**Contractor Loss**

**Time Now**

**Cost Variance ****levels cf:**

**Cost Sharing**

## EVM/A and Effective Contracting

- Program and Contract WBS
- Essential to get it right – this is Job #1
- Contract type
- “Do I have to do EVM on FFP?” is the wrong question
- Evaluate risk and complexity – EVM is scalable
- Purpose of EVM/A
- Excellent management
- Objective, timely reporting – “Early Warning” to inform decisions
- Linking incentives to reported Cost/Schedule Performance Indices (CPI/SPI) can cause undesirable behavior
- If used – link to observable outcomes such as Preliminary/ Critical Design Review and Contract completion

## Summary

- Understand EVM/A and Resource Management
- From a single database, use EVM to
- Manage the program
- Measure program performance
- Take appropriate management actions
- Report to senior management and to customers
- Fix the problem, not the blame
- Encourage timely problem identification and objective reporting
- Incentivize desirable behavior, not undesirable behavior
- Don’t necessarily equate program and PM performance
- Develop organizational history and “IQ”
- Resources
- FAA – Bob Rovinsky/Keith Kratzert
- Project Management Institute’s College of Performance Management – EVM Community of Interest (CoEye)
- National Defense Industrial Association’s Program Management Systems Committee