Earned Value Management

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USING EARNED VALUE MANAGEMENT FOR BETTER CONTRACT
ADMINISTRATION
November 4, 2004
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What is Earned Value Management?

• Its a Management Tool
• A snapshot in time.
• Compares where the project is now with (1)
  previous work accomplished and (2) where the
  project was planned to be.
• Early warning system to detect deficient or
  endangered progress.

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EVMS Is Important to Effective Contract
Administration

• EVMS gives early warning of potential problems.
• As the Contracting Officer (CO), you are a member
  of the Integrated Project Team.
• Its YOUR job, as the CO, to protect the
  Governments 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.

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Survey says..

• over 800 DoD programs show that ......
• no program has ever improved their performance
  better than the performance at the 15 complete
  point
• which means that performance will only get worse
  despite the assurances of the contractor and
  others!

No one pays enough attention in the early stages!
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The Earned Value Process
Define the Work
Plan the Work
Work the Plan
Collect Results
Measure Performance
Change Control
Analyze Deviations
TakeCorrective Action
ExternalChanges
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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

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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

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Earned Value Management measures progress
Progress movement towards a goal

• to measure progress, there must be a standard
  against which the movement may be compared
• EVMS establishes that standard as the
  Performance Measurement Baseline and measures
  progress against that baseline.

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Key questions that EVM answers
We analyze past performanceto 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?
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What do we measure progress against?

• Performance measurement baseline
• budget is spread over . . .
• time, to accomplish the scope of
• work against which progress can be measured
• Earned Value is a key concept
• how much progress did I make against my original
  plan?
• expressed in dollars or hours

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Ways of Earning Value

• Should be a 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 with success criteria
  or technical measures
• e.g., successful completion of clean-up, a
  specific test, reliability growth curve

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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
But what does this mean? Is this really the true
status of work? What did I accomplish?
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Many management systems measure expenditures not
work
Well, Ive spent 400 hrs , Does that mean Ive
accomplished 400 hrs of Work?

• Actual Cost is not an indication of work
  progress, only an indication of hours/money
  spent.

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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...
Budget Plan
Earned Value
Actual
500
300
400
(3 Widgets 100 hrs)
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Earned Value adds new dimension to traditional
tracking systems
Oh boy! I better figure out what
is going on. I've got 200hrs worth of
work to catch up on, and I've
already overspent by 100 hrs.
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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?

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Five Basic Performance Questions Answers
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Analysis Techniques

• Sort on significant variances
• eliminate almost complete, just starting, etc.
• Graph and analyze trends
• Look at comparative data
• e.g. cumulative performance vs. projected
  performance
• Examine written analysis by contractor
• does it answer why?
• adequacy of corrective action plans
• Analysis of schedule trends, critical path
• Analysis of EAC realism

what are the drivers? what can we do about them?
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Contractors Variance Analysis

• Should address significant variances
• Separate discussion of cost and schedule
  variances
• Clear description of reason for variance
• Quantity variances (e.g., price vs. usage)
• Be specific, not general
• Include corrective action
• Technical, schedule, and cost impacts
• Impact to estimate at completion
• Should be written by the individual controlling
  the work!

A big hammer for a big variance!
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What is a significant variance?

• variance (e.g., gt10)
• variance (e.g., gt50,000 at the control account
  level)
• critical path element
• risk/complexity
• impact to other elements
• Top 10, Top 20, etc.
• contractor defined

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Using Performance Data To Validate Estimates

• New estimates at completion take on more meaning
  when you employ performance information
• To recover from a CPI of .5, the project would
  have to work at an efficiency greater than 1.
• The Estimate At Completion (EAC) can be
  predicted by the performance index
• The overrun will never be less than it is at the
  15 complete point!

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Why do we need accurate EACs?

• Variance at Completion vs. Contractor Loss
• Positive VAC
• EAC lt BAC underrun contractor gain
• Negative VAC
• EAC gt BAC share area contractor partial loss
• EAC gt ceiling overrun contractor loss (100)
• Government develops top level EAC for comparison
• government should limit progress payments if EAC
  is greater than ceiling
• government needs accurate forecast of fund
  requirements
• May still have time to change the final outcome

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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 gt Latest Revised Estimates (LRE)
• BCWP increases with no increase in ACWP
• Negative data elements

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DOE EVM Requirements

• OMB Requirement (A-11)
• Use of EVM on acquisitions of capital assets
• Report performance annually
• Certify contractors system
• DOE Requirement (DOE M 413)
• Use of EVMS on projects gt20M
• Report performance monthly
• Certify contractors system

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Applicability of EVM to DOE Contracts

• Program applicability
• All programs including NNSA
• Contract applicability
• Acquisition contracts providing assets and
  capabilities, including
• Prime contracts, subcontracts
• Applies to all contract types
• Cost plus, fixed price, time and materials
• Services contracts providing development
  integration

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Pending EVMS FAR Case Requirements

• For Major Acquisitions
• EVMS compliant with ANSI/EIA 748
• Certified for EVMS compliance
• Integrated Baseline Review (IBR)
• Manage performance through analysis of EV data
• Continued surveillance to ensure continued
  compliance

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The First Step - Integrated Baseline Review

• 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 done pre-award but no later than 180
  days post-award (FAR Clause may influence
  requirement)

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The Contractors EVMS

• Describes system in sufficient detail to
  determine compliance
• Includes prior Certification/Acceptance
• If no EVMS 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

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Contractors Surveillance Plan Contents

• Methods and techniques
• Inclusion of new scope
• Customer coordination
• Schedule
• Analysis
• Ensure that reliable and timely, cost, schedule
  and technical performance information is generated

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What Are My Responsibilities Regarding the EVMS?

• Contracting Officers Preaward Responsibilities
  as a Member of the IPT
• Identify application of 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

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What Are My Responsibilities Regarding the
EVMS?(continued)

• Contracting Officers 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 contractors EVMS implementation
  plan
• Evaluate the contractors EVM systems for
  compliance with the standard
• Conduct Integrated Baseline Reviews to ensure all
  the work scope is included in the baseline

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Want to know more?

• DOE Project Management Career Development Program
  has a longer course on EVM
• The Defense Acquisition University has a
  continuous learning module on EVM
• Participate on teams led by DCMA to conduct
  certification reviews of DOE contractors EVMS
• Access the OECM website for tutorials on EVMS
• Attend the Integrated Program Management
  Conference (held every Nov in Tysons Corners)