The Government Manager's Guide to Earned Value Management

Charles I. Budd, Charlene S. Budd

• Publisher: Berrett-Koehler Publishers
• Year: 2013
• ISBN:
  9781567264401
• Edition: 1
• Topic: Business
• Subtopic: Governmental Accounting
• Index: Business

This volume presents practical guidance for the government manager on earned value management (EVM), from basic calculations to how to find the most useful information online. Emphasis is on the relevant reports that contractors are required to submit to the federal government as part of their compliance with mandated EVM on projects. Because the data submitted on reports do not translate automatically into recommendations for actions to be taken, information is included on how to analyze and evaluate contractor reports. This book is a must-read for understanding EVM on government projects.

Chapter 1

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.

Manager Alert

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.

TABLE 1-1
Basic Elements of an EVMS

Project Phase	Description	Requirement
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

Manager Alert

“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

EVM ADOPTION

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.

GOVERNMENT-REQUIRED USE

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.

Manager Alert

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:

1. Organization
2. Planning and budgeting
3. Accounting considerations
4. Analysis and management reports
5. 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.

Manager Alert

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...