For the federal government, capital investments include development and acquisition of major capital assets, such as equipment (e.g., hardware for weapons systems, satellites, and information technology (IT)); structures (e.g., the Capitol Visitor Center); intellectual property (e.g., software); and combinations thereof. A capital investment can play a critical role, therefore, in the accomplishment of agency missions and the success of public policies. Congress has often taken a strong interest in the performance, cost, and schedule of major capital investments. In addition, Congress has taken a strong interest in establishing and maintaining accountability mechanisms to ensure that the President, Office of Management and Budget (OMB), and agencies fulfill statutory duties, accomplish prescribed public policy goals, report transparently and fully, and act as careful stewards of public resources. Earned Value Management (EVM), which is the subject of this report, is a management technique that provides metrics to help inform assessments of whether a capital investment is "on track" from three perspectives: planned cost, time schedule, and functionality (the latter concept often referred to as "performance," "technical performance," "capability," "scope of work," or "planned value"). Using these three perspectives, EVM compares the planned cost, schedule, and functionality against an (ideally) accurate measurement of what is actually happening. Frequently, EVM metrics serve to raise potential issues that require further investigation or study, rather than provide the full picture of a project's progress and status. EVM may be of increasing salience in executive branch practices and, implicitly or explicitly, in presentations to Congress. EVM might also be used as an oversight tool for Congress. This report provides an overview of EVM terminology and concepts by using a hypothetical example and illustrating a few potential oversight issues. To place EVM in context, however, it is necessary to discuss first the risks associated with major capital investments, how capital investments are often evaluated and monitored throughout their life cycles, and how EVM appears to be increasingly adopted by executive branch agencies. After providing the hypothetical EVM example and some related caveats, the report concludes with potential oversight questions for Congress regarding EVM. The planning and implementation of a major capital investment are not simple tasks. Consequently, major capital projects in both the public and private sectors are considered to be inherently risky. For purposes of capital asset investment, risk might be described as the probability that adverse events will occur or favorable opportunities will not be exploited. Unless a project is carefully managed, risk might increase substantially in both of these senses. Adverse events that might occur include schedule delays, cost overruns, and performance shortfalls or failures. Favorable opportunities that might not be pursued (or noticed) could include chances to complete a project more quickly, at less cost, and with better than planned performance in achieving the mission or one or more goals. In response, agencies must make substantial efforts to plan effectively and manage risk in order to achieve successful outcomes. Given the complexity and inherent risk of major capital investments, however, it should be noted that problems cannot always be avoided, even in well-planned and implemented projects. Many stakeholders—including Congress, the President, agency employees, and the public—often take a strong interest in the performance, cost, and schedule of major capital investments. The interest stems directly from the mission-critical nature of many investments. Furthermore, interest in specific capital investments can become heightened when something has gone wrong. Indeed, the consequences of a poorly managed capital investment project can be significant, and when investments in major capital assets fail, they can fail spectacularly. Journalists, inspectors general (IGs), and the Government Accountability Office (GAO) are sometimes the first actors to disclose publicly that a major capital investment by the U.S. government has gone awry. Nonetheless, such disclosures are often lagging indicators of problems, rather than leading or coinciding indicators. Furthermore, capital investment problems themselves can be lagging indicators of more fundamental problems with management capacity, transparency, and accountability. In tracking the planned versus actual progress regarding the planned cost, schedule, and functionality of a major capital asset, EVM attempts to address several significant monitoring and evaluation issues. EVM does not, however, address all important monitoring and evaluation issues that could contribute to an assessment of an investment's status and progress. Therefore, EVM's use as a management and oversight tool for major capital investments arguably should be considered within a larger context. A variety of techniques can be used to monitor and evaluate major capital investments prospectively, concurrently, and retrospectively. Furthermore, these activities can occur throughout the life cycle of a capital asset—that is, during initial planning, the acquisition or development process, and operational use, as well as after disposal. Because EVM is intended to inform assessments of whether a capital investment is on track with respect to planned cost, schedule, and functionality, EVM takes place primarily during the acquisition process for a new asset (or modification of an existing asset), but can also occur during planning. Figure 1 provides illustrative lists of capital planning and programming activities that agencies often undertake during each of the four phases of a capital investment's life cycle. The figure also shows corresponding lists of the monitoring and evaluation activities, including EVM, that are often used to support the agency activities. Concerns about project risks are not new, nor are efforts to mitigate risks of major capital investments and prevent failures. For example, the first edition of OMB's Capital Programming Guide for agencies was published in 1997. Before then, Congress had enacted statutory provisions that were related to major capital investments, including, among others, a provision amending the Federal Property and Administrative Services Act of 1949 (41 U.S.C. § 263(a)), which now declares that "[i]t is the policy of Congress that the head of each executive agency should achieve, on average, 90 percent of the cost, performance, and schedule goals established for major acquisition programs of the agency"; provisions to require the Secretary of Defense and heads of all executive agencies to establish cost, performance, and schedule goals for major acquisition programs; and the Clinger-Cohen Act of 1996 ( P.L. 104-106 , later codified and amended), which gave OMB and agencies explicit duties for monitoring the progress of information system investments. The duties included a requirement for agencies to provide the means for senior management personnel of the executive agency to obtain timely information regarding the progress of an investment in an information system, including a system of milestones for measuring progress, on an independently verifiable basis, in terms of cost, capability of the system to meet specified requirements, timeliness, and quality[.] OMB has issued a number of requirements and directions to executive agencies that specifically concern EVM. For example, OMB included in its Circular A-11 —an annual document that communicates budget formulation and execution requirements to agencies—detailed directions for agencies to use EVM for major capital assets (Part 7). Among other things, the circular directed agencies to submit an "exhibit 300" ("Capital Asset Plan and Business Case Summary") for each "major investment" as part of their annual budget submissions to OMB, for the White House's use when formulating the President's annual budget proposal for congressional consideration. The circular also said that an exhibit 300 is "designed to coordinate OMB's collection of agency information for its reports to the Congress required by the Federal Acquisition Streamlining Act of 1994 (FASA Title V) and the Clinger-Cohen Act of 1996." The circular defined EVM as follows, citing an industry standard to which agencies would be expected to adhere: Earned value management (EVM) is a project (investment) management tool that effectively integrates the investment scope of work with schedule and cost elements for optimum investment planning and control. The qualities and operating characteristics of earned value management systems are described in American National Standards Institute (ANSI)/Electronic Industries Alliance (EIA) Standard—748—1998, Earned Value Management Systems, approved May 19, 1998. It was reaffirmed on August 28, 2002. A copy of Standard 748 is available from Global Engineering Documents (1-800-854-7179). Information on earned value management systems is available at http://www.acq.osd.mil/pm . Citing "room for improvement in the execution of our IT projects," OMB has also provided directions concerning major IT capital investments to agency Chief Information Officers in an August 2005 memorandum. The memorandum stated that, at the time, agencies were "already required to meet four principal criteria" for IT capital investments. The criteria included, along with two others, (1) the establishment and validation of a performance measurement baseline with clear cost, schedule, and performance goals; and (2) the management and measurement of projects to within 10% of baseline goals through the use of an earned value management system compliant with the ANSI standard cited in Circular A-11 . The memorandum also added new expectations for agencies, including directions to (1) ensure that cost, schedule, and performance goals for new major IT projects are "independently validated for reasonableness" before beginning development; and (2) provide, for all ongoing major IT projects with development efforts, for independent validations of then-current cost, schedule, and performance baselines by March 31, 2006, and submission of proposed changes of baselines for OMB approval. EVM requirements have also been added to executive branch acquisition regulations. On July 5, 2006, three agencies promulgated a final rule on behalf of the Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council to amend the Federal Acquisition Regulation (FAR).