Earned Value Management (EVM) is a systematic program/project management process that helps managers to measure program performance. In government contracting, the guideline used in setting up and implementing EVM is EIA-748 Earned Value Management Guidelines.
Earned Value Management (EVM) removes the guesswork from program performance by using a program’s performance metrics to provide accurate data. EVM integrates cost, schedule and technical performance data throughout a program. This makes analysis easier to accomplish and provides consistent information to program managers and their teams. With EVM, you can predict future program performance, minimizing risk and satisfying internal and external stakeholders.
There are five basics steps or processes used to implement Earned Value Management (EVM). Each step logically builds upon each other to complete the process.
There are several key steps in organizing work to implement EVM: scope definition, Work Breakdown Structure (WBS) development and organizational assignment of key team members.
Program scope is defined in a Statement of Work (SOW). This is a contractual document that states what is to be developed and its associated schedule of deliverables. The SOW document should be agreed upon by the whole team and forms the starting point for all other efforts.
An example of the scope of a program could be the design of a new aircraft. This would include all components needed to complete the program. For example, aircraft weight, size, speed, durability, fuel capacity and efficiency, range, take-off, landing distances as well as loading capabilities of the aircraft.
Work Breakdown Structure
The Work Breakdown structure (WBS) should include all the elements defined in the ‘Scope’ of the program. Typically, a WBS is represented by a hierarchical tree diagram and breaks down all products into manageable pieces. There are guidelines for different WBS’ depending on your organization, for example, the construction industry offers several standards based on the type of program you are starting.
When developing a WBS for a defence program requiring EVM, the US government offers WBS Guidelines (MIL-HDBK-881). MIL-HDBK-881 has appendices that can be utilized for all types of programs whether DOD, DOE, capital investment, etc.
At the end of the effort, the goal is to have developed a pictorial representation of the total program that logically identifies all the major elements and their supporting elements. This breaks down to a point where the next lower logical breakdown would be represented in the detail schedules. These schedules would be used to manage the work to be performed – a definition of ‘What’ is to be done.
Organizational Breakdown Structure
The Organizational Breakdown Structure (OBS) is an essential part of Earned Value Management as it determines who is responsible for each element of the program. This can also be represented visually by a hierarchy tree diagram so that the program team can pinpoint who is responsible for each area of the program scope.
Every company has an organization structure that will, to some degree, be utilized in the performance of each program. Normally individuals from the company’s organization will be assigned key roles in the accomplishment of the contractual obligations of the assigned program. At the end of this effort, you will have defined ‘Who’ is responsible to get the work accomplished that you defined under the WBS/Scope definition phases defined above.
The Control Account is a key management point for the program. This is where:
- The responsibility to define and accomplish scope is assigned.
- The detail schedules required to break down the scope in order to get it accomplished logically are developed and monitored.
- The budget for each item in the schedule is determined and where actual costs are
A Responsibility Assignment Matrix (RAM) is used to assign responsibility for the different areas of the program. The Control Account can be defined as the intersection of the WBS (what’s to be done) and the OBS (who is responsible to get it done).
The individuals assigned to manage these intersections are referred to as the Control Account Managers, or CAMs. It is the CAM’s responsibility to make sure that each of the Control Accounts assigned to them goes through each of the Earned Value processes defined.
Budgeting and Planning Processes
At this point, the program schedule needs to be developed. The schedule should contain all the activities required to accomplish the scope defined in the WBS and to produce deliverables consistent with the contractual deliverable schedule. To accomplish this, you and the program team would have all activities, their durations and relationships. The result is an Integrated Master Schedule (IMS).
Tips for Creating an IMS
- Take each element from your scope (SOW/WBS) and at the WBS’s lowest level broken down into its supportive
- At this point you can use your scheduling software, create all of the activities and use logic to establish the relationships between each activity, hence creating your program
- Scheduling logic is the determination of which activities precede and succeed an activity and what kind of logical relationship they should have. For example, if an activity can start only after its predecessor has been completed, it uses a start to finish relationship. There are other relationship considerations, but those can be covered as necessary.
- An additional product of these steps is the ability to generate what’s called the Critical Path Schedule. This is the single contiguous path of activities in the schedule that goes from start to completion. The key point here is that any delays on any of these critical activities results in the inability to complete the program on time.
- It’s also important to make sure that any linkages to major contract milestones have been considered in establishing your IMS. This is to assure that contractual deliverables are accomplished on cost, on schedule and meet the customer’s technical requirements.
- The IMS & its Critical Path Schedule needs to be reviewed and updated at regular intervals throughout the program life cycle. It will map directly to the WBS, where the program team has a single point of reference for all activities. By updating the IMS regularly, the program team will be able to identify activities that are both ahead and behind schedule.
- One cannot over-emphasize the importance of the development and maintenance of the programs IMS. It is the foundation that generates valid and accurate EVM performance metrics, or Earned Value (EV) which will be discussed later.
The Budgeting process can begin once the IMS has been developed. The program team assigns budgets that specify when labor, materials, subcontracts and Other Direct Costs (ODC) will be required to be spent based upon the IMS. These time-phased budgets allow the program team to identify how much they need to spend at different periods of the program life cycle. Resource loading the schedule is considered a best practice for EVM.
The benefits of Resource Loaded Schedules include the following:
- Resource loading sets out clear guidelines on what resources are required for each activity and at what time.
- Resource loading helps to prevent the over-allocation of resources and highlights the limited availability of resources.
- Using the resource loading facility in EVM software will help create a total program
- When a schedule is resource loaded in the EVM software, a cost baseline will be established in both currency and hours.
The principles of EVM mean that cost must integrate with the schedule. Therefore, if a program ends on a specified date then the budget must cease on that date as well.
The Accounting process is where the program team, in conjunction with the accounting department, determines at what point cost charge numbers (CCNs) or charge lines need to be established. This is in order to effectively track the cost of doing business. A key consideration here would be, making sure you’re aligned with any customer defined cost collection points. This will help the program and accounting teams make sure that they’ve been considered in the establishment of CCNs. On an EVM program these are established at least at the Control Account levels.
Managerial Analysis Process
The Managerial Analysis process is where both the Control Account Managers (CAMs) and program manager routinely collect all the cost, schedule and technical performance associated with their program to date to determine how well they’ve performed.
Associated with this phase, each of the CAMs has the opportunity to explain any variances to their current cost, schedule and technical performance baselines. Plus, what they plan to do to mitigate those variances in order to minimize impact on the program’s cost, schedule and technical performance goals.
What are these variances and how are they determined? Routinely or at least once a month, the CAM gets the budget planned, the actual costs incurred and the Earned Value (EV) for each of the Control Accounts for which that they are responsible. This information is normally provided both for the most recent month and cumulative to date.
The CAMs compare budgets planned to EV to see if they are ahead or behind schedule. Similarly, they compare actual costs incurred to EV to see if they are overrun or underrun for the work performed.
By doing this, the CAMs in conjunction with the program controls staff, determine the Earned Value (EV) of the work that they have done.
So, exactly what is this term EV and how is it calculated? It’s an objective measure of accomplishment of each of the activities scheduled in the IMS based upon the budget assigned to it (not actual costs per accounting).
So how is this objective value determined? EV = an allocation of the activity’s budget equivalent to the CAM’s evaluation of the activity’s statused percent complete. This is summed up for each CAM’s Control Account(s) and at the overall program level.
Remember, the EV can then be evaluated against the CAMs planned budgets and actual costs incurred, to determine how well they are doing. At this point, the CAM can explain any variances that management determines are significant, what happened, what caused it, what’s the impact on their Control Account(s), other CAMs Control Accounts and potentially the program as a whole. What can be done to mitigate or minimize the problem and lastly, what is the potential cost and schedule impact.
Finally, the Revisions Process is simply where the program team continually reviews and determines that all the work being done, has been authorized by both the customer and internal program management. And, that all work being performed has gone through the previous described planning, scheduling, budgeting and managerial analysis processes. There are a number of logs that are required to be prepared and maintained to assure that this has been done and can be routinely reviewed by the customer.
By following these five steps or processes, you can begin to embark upon setting up and implementing Earned Value Management (EVM). You can be safe in the knowledge that risk is minimized, accurate data is being closely monitored and variances to plans are being routinely reviewed as well as any mitigations required.
The steps need to be followed in the order that they are presented, as they logically build upon each other to form the collective EVM processes. While this may be an oversimplification of the details involved in the process, it does give the fundamental steps required to successfully set up an effective EVM architecture for your program.
As always, refer to EIA-748 Earned Value Measurement Guidelines and MIL-Hdbk-881 WBS Guidelines for additional information. It’s always recommended to consult with an experienced EVM practitioner who’s successfully done it many times before. Before attempting to set up and implement EV, use someone with experience as they’ve most likely run into and overcome many of the obstacles that you will most certainly encounter.