1. USING EARNED VALUE MANAGEMENT IN GOVERNMENT CONTRACTING
Presented by
Stephen J. Yuter, CPCM, CFCM, PMP

2. Overview 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

3. Why Is There a Need for EVM?
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

4. What is EVM?
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
EVM enables both the government and the contractor to have clear visibility into technical, cost and schedule planning, performance, and progress on their contracts
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

5. What is EVM? (cont’d.)
Proper use of EVM can provide early warning (forecasting) of impending problems, leaving ample time for corrective action
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
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
Applying EVM principles properly can provide for better control of program/project performance, along with greater accountability and a reduction in risk

6. Basic Principles of EVM
Break down the work scope into discrete, measurable elements and assign responsibility
Plan and integrate the scope, schedule, and cost into a time-phased plan and control changes to the plan
Objectively assess progress and accomplishments
Use actual costs
Analyze variances from the plan
Use the information to manage

7. Key Attributes of EVM

8. The Earned Value Process
Define the Work
Plan the Work
Work the Plan
Collect Results
Measure Performance
Change Control
Analyze Deviations
Take Corrective Action
External Changes

9. Why Use Earned Value Management?
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

10. Progress = movement towards a goal
EVM Measures Progress
Progress = movement towards a goal
to measure progress, there must be a standard against which the movement may be compared
EVM establishes that standard as the Performance Measurement Baseline and measures progress against that baseline

11. What Do We Measure Progress Against?
Performance measurement baseline: integrates three key measurements
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

12. Key Questions EVM Answers
We analyze past performance………to help us control the future
PAST PRESENT FUTURE
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?
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?

13. Ways of Earning Value
Should be quantitative and discrete whenever possible
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
e.g., successful completion of clean-up, a specific test, reliability growth curve

14. 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.
Actual
Variance
500
400
100 =
But what does this mean? Is this really the true status of work?
What did I accomplish?

15. 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.

16. Management Using Earned Value
Earned Value is an objective measure of how much work has been accomplished
Example:
I plan to build 5 widgets this month
Each widget should take 100hrs
I will measure Earned Value based on # widgets completed
At Month End... 1 2 3
Budget Plan
Earned Value
Actual
500
300
400
(3 Widgets * 100 hrs)

17. Earned Value Adds a New Dimension to Traditional Tracking Systems
Budget Plan
Earned Value
Actual
500hrs
300hrs
400hrs
Schedule
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.

18. Using Performance Data for Decision-Making
Behind Schedule
How critical is schedule?
Can I afford to work overtime to recover?
Can I do tasks concurrently?
Are there technical innovations which could speed up the process?
Am I “gold plating” instead of just meeting requirements?
Should I do a schedule risk assessment to project impact to program?
Over Cost
Can I reschedule tasks? (time phasing)
Is there a less costly facility I can use?
Are there tasks which can be deleted?
Should the element be added to my risk management profile?

19. Five Basic Performance Questions & Answers in EVM
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 supposed to cost?
Budget at Completion
BAC
What do we now expect the total job to cost?
Estimate At Completion
EAC

20. Variance Calculations in EVM
Schedule Variance (SV) = EV – PV
the difference between Earned Value (EV) and Planned Value (PV)
Schedule Performance Index (SPI) = EV/PV
SPI<1 means project is behind schedule
Cost Variance (CV) = EV - AC
the difference between EV and Actual Cost (AC)
Cost Performance Index (CPI) = EV/AC
CPI<1 means project is over budget

21. Making Projections with EVM
Cost Schedule Index (CSI) = CPI x SPI
the further CSI is from 1.0, the less likely project recovery becomes
Once a project is 10% complete, the overrun at completion will not be less than the current overrun
Once a project is 20% complete, the CPI does not vary from its current value by more than 10%
The CPI and SPI are statistically accurate indicators of final cost results

22. Using Performance Data To Validate Estimates
New EACs take on more meaning when you employ performance information
the EAC can be “predicted” by the performance index
Why do we need accurate EACs?
Variance at Completion vs. Contractor Loss
Positive VAC:
EAC < BAC underrun contractor gain
Negative VAC:
EAC > BAC share area contractor partial loss
EAC > ceiling overrun contractor loss
Government develops top-level EAC for comparison:
Government should limit progress payments if EAC is greater than contract ceiling
Government needs accurate forecast of fund requirements

23. Earned Value Problem Indicators
GOAL: to verify that effective variance analysis processes are applied to identify, correct, and report problems
Potential Problem Indicators:
Zero variances
Monthly trends turning negative or downward
Schedule variances generally indicate cost will follow
Actuals > Latest Revised Estimates (LRE)
BCWP increases with no increase in ACWP
Negative data elements

24. Statutes Related to EVM
The requirement for EVM as it is practiced today can be traced to three public laws:
Government Performance and Results Act of 1993 (GPRA)
Establish performance standards for Federal budget
Federal Acquisition Streamlining Act, Title V of 1994 (FASA V)
Report cost, schedule, and performance goals and evaluate progress
Information Technology Management Reform Act of 1996/ Clinger-Cohen Act (ITMRA/Clinger-Cohen)
Report performance information systems acquisition

25. EVM Requirements
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
"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”
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
FAR (Pre-IRB), (Post-IRB), and (EVMS)
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

26. EVM Requirements (cont’d.)
Contract Total Value
EVM Compliance
CWBS & IMS
CPR (monthly)
CFSR (quarterly)
$50M and greater
Required
$20M and greater but less than $50M
Less than $20M
Optional
(at discretion of PM)
Required if PM requires EVM

27. Integrated Baseline Review (IBR)
Determines that the Performance Measurement Baseline is responsive to the scope of work required
Joint assessment of
Coverage of SOW
Scheduling of work
Resource allocation
Earned Value methodologies
Technical content of PMB
Realism and Risks
Should be conducted pre-award but no later than 180 days post-award

28. The Contractor’s EVMS
Describes system in sufficient detail to determine compliance
Includes prior Certification/Acceptance
If no EVMS is in place, Contractor must submit a comprehensive plan for compliance
System description
Necessary modifications
Compliance map
Process descriptions
Recent evaluation or self-assessment results
Identify major subcontracts for application of criteria
Verify baseline integrity is maintained
Contains plan and procedures for surveillance and self assessment

29. The Contractor’s EVMS (cont’d.)
Surveillance Plan
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
Work-hours, dollars, units, etc.

30. EVMS Is Important to Effective Contract Administration
EVMS gives early warning of potential problems
As a Contract Specialist or Contracting Officer, you are a member of the Integrated Project Team (IPT)
It is your job as the CS/CO to protect the Government’s rights if performance does not show satisfactory progress!
You must work with the other IPT members and the Contractor to avoid or mitigate performance problems

31. What Are the CO’s Responsibilities Regarding EVMS?
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
Define reporting and electronic submission requirements
Define evaluation criteria for source selections
Factor EVMS into contract management planning

32. What Are the CO’s Responsibilities Regarding EVMS? (cont’d.)
Contracting Officer’s Post-Award Responsibilities as a Member of the IPT:
Integrate performance monitoring with EVMS into Award/Incentive plans
Monitor performance with IPT using the EVMS
Act when performance is at risk (communication with contractor, show cause and cure notices, etc.)
Evaluate the Contractor’s EVMS implementation plan
Evaluate the Contractor’s EVM systems for compliance with the standard
Conduct Integrated Baseline Reviews to ensure all the work scope is included in the baseline

33. EVM Impact on Mission By utilizing EVM properly, an agency can…
improve its ability to track and report on investment cost, schedule, and performance variances (agency projects must stay within a 10% variance)
allow PMs and project team members to optimize resources and deliver capital investment projects on-time, on-budget, and within scope
operate by tracking its programs’ health beyond pure financials
ensure its customers’ requirements are satisfied

34. Summary 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)

35. Q & A