Evms Presentation (July2006)Repro

EARNED VALUE MANAGEMENT SYSTEMS

GET SMART
WITH EVMS

Presented at
Institute of Management Consultants,
National Capital Region
July 13, 2006

Jim Kendrick, CMC
P2C2 Group, Inc.
kendrick@p2c2group.com
www.p2c2group.com
301-942-7985

Table of Contents

GET SMART WITH EVMS
PowerPoint Presentation 3
Where to Go for More Information 21
PowerPoint Appendix 22
OMB Exhibit 300 EVMS Table 27
EVMS in Civilian Agencies 29
EVMS Guide (excerpts) 31

Presenter:
Jim Kendrick
Certified Management Consultant
P2C2 Group, Inc.
Kendrick@p2c2group.com

Credits:
A Simple but Edible Example of EVMS Slide 14
• Courtesy of Glen B. Alleman, Niwot Ridge Consulting
glen.alleman@niwotridge.com

Software Demo and Contact Information Slide 32
• Ed Knox, C/S Solutions
eknox@cssi.com

The P2C2 Group works on the business side of federal programs and information
technology. We provide expert support for IT capital programming, which integrates the
planning, acquisition and management of capital assets into the budget decision-making
and control process. Our consulting services assist agencies and leading contractors in
improving asset management, mission results, and compliance with regulatory
requirements.

• Strategic Planning • Architecture & Information
• IT Capital Planning and Investment • Security
Control (CPIC) • Project Management
• Business Cases - OMB 300s • Earned Value Management
• CPIC Supporting Documents • Performance Measurement
• Acquisition

Why EVMS Is Important

EVMS is like the Project Manager’s headlights looking
forward into the future.
Where will the project be in six months, a year, and what can
we do to get there on time and on budget?

EVMS is NOT like the taillights looking backwards into the
past pointing fingers at what went wrong or could have been.

The headlight idea helps debunk some of the myths about
Earned Value Management.
- Matthew J. Morris

www.p2c2group.com 3

EVMS Is …

A Standardized approach to assessing value
Predictive in estimating where your costs and schedules
are headed
Diagnostic in locating where the problems are
Proactive by signaling the need for corrective action
Strategic in identifying problems and opportunities
across multiple projects

www.p2c2group.com 4

GET SMART WITH EVMS 3

EVMS
What It Is
What It Measures

www.p2c2group.com 5

EVMS is a Project and Investment
Management Process

Integrates: Measures project
Scope performance
Schedule Compares planned to
Cost actual costs and
Resources schedule
Technical Milestones Estimates final project
costs

www.p2c2group.com 6


EVMS Helps Answer Questions

When will the project be completed?
What is the final cost likely to be?
Are we in budget?
Is the schedule on track?
What’s holding us up?
SOX: The CEO wants to claim that the new software product under
development is an asset worth $2.5 million in annual financial report.
That’s what has been spent on the project, but what is the current
value of work completed???
www.p2c2group.com 7

Limits of What EVMS Measures

YES: Earned value is direct
measurement of the quantity and
timeliness of work accomplished.
NO: The quality and technical content of
work performed is controlled by other
processes.

www.p2c2group.com 8


Official Definition of EVMS

An Earned Value Management System
(EVMS) is the overall methodology that
organizations use to plan, manage,
control, and analyze the cost and
schedule performance of projects. It
encompasses organizational policies,
business processes, automation support,
standards, and accountability for results.
ANSI-EIA Standard 748

www.p2c2group.com 9

EVMS
& Project Management

www.p2c2group.com 10


EVMS and Project Management

© Project Management Institute, 2004, PMBOK

www.p2c2group.com
http://www.pmi.org 11

EVMS:
An Adult Approach to Project Management
Organization Cost Accumulation
Work Breakdown Direct Costs
Project Organization Indirect Costs
Responsibility Assignments for Performance Measurement
Control Accounts
Indicators of work progress and schedule
Work Authorization status
Scheduling Relationship of planned cost and schedule
Budget to actual
Time-Phased Budget as Earned Value
Performance Measurement Baseline Actual Cost
Management Reserve for in-scope Variance Analysis
Risks
Using and Acting on EVMS Calculations
Distributed and Undistributed Budget
Planning Packages for Far-Term Replanning (must be authorized)
Activities Improvements to EVMS Tracking
Internal Monitoring and Control



Hands On: The Cookie Project

A Taste of EVMS

A Simple but Edible Example

EVMS
© by Glen B. Alleman,
www.p2c2group.com dba Niwot Ridge Consulting, Niwot Colorado. All rights reserved. 14


EVMS of Our Cookie Baking Process

Our “Plan” Analysis
40 cookies per batch After one (1) hour we’ve
5 batches per hour (200 produced 150 edible
cookies per hour) cookies
Schedule: 5 hours to Others were burnt, some
make 1,000 cookies hit the floor, the kids ate
Budget cost per cookie: some, the dogs begged
$0.05 for others
Total Budget = $50.00 Actual cost of ingredients
after one hour (ACWP) +
$9.00


After One Hour of Making Cookies

Simple EVMS
BCWS = $10.00
BCWP = 150 cookies x $0.05/Cookie = $7.50
ACWP = $9.00

Cost and Schedule Variance
SV = BCWP – BCWS = -$2.50 (we’re behind schedule)
CV – BCWP – ACWP = $7.50 - $9.00 = -$1.50 (we’re over budget)
SPI = BCWP / BCWS = 0.75 (we’re running at 75% of planned schedule)
CPI = BCWP / ACWP = 0.833 (we’re running about 17% over budget)



Forecasting the Cookie Schedule and
Budget
Independent Estimate at Completion (IEAC) = BAC / CPI
= $50.00 / 0.833 = $60.00
VAC = BAC – IEAC = $50.00 - $60.00 = -$10.00 ($10 over)
ISAC = 5 hours / SPI = 5 / 0.75 = 6.67 hours

It will take 6-2/3 hours and $60.00 to make 1,000 edible cookies if
the productivity of this project doesn’t improve.


Can We Catch Up?

TCPI = “To Complete” Performance Index
TCPI = (Budget – BCWP) / EAC – ACWP
EAC = the amount we estimate we will spend at the end
The numerator (Budget – BCWP) is how much work is left
The denominator (EAC – ACWP) is how much we have left to spend

If EAC = IEAC, then TCPI = CPI
“If we don’t change our performance, IEAC is
the correct estimate of the final cost.”



Our “Catch Up” Plan

We want to finish this little baking exercise with a $50.00 budget
TCPI = (Budget – BCWP) / EAC – ACWP
TCPI = (50.00 – 7.50) / 50.00 – 9.00)
= 42.50 / 41.00 = 1.036

We must perform at 103.6% of the originally planned performance in
order to maintain the budget goal.


A Simple EVMS Chart



Putting this Simple Concept into
Practice

EVMS can be deployed in many ways. A
straight forward way is to “micro-schedule” the
work activities.


Micro-Schedule

Micro-scheduling does NOT mean micro-managing
It means planning at a sufficient level of detail to identify useful tasks
that can be measured in days (3 to 5) or at most a week.
Micro-schedule consists of:
Objective completion criteria – so we know when we are done
“Budgets” and “Values” = usually representing person days and
some measurable value to the customer in terms of dollars
Planned Completion Dates – so we know when to expect these
tasks to be done.



The Basic Recipe for EVMS


The Standard: ANSI/EIA 748

The standard is copyrighted and may be ordered for about $60 from:

GLOBAL ENGINEERING DOCUMENTS
15 Inverness Way E. Englewood, CO 80112
(303)397-7956 (800)854-7179

Related information but not the entire standard is available at the
website of the Office of the Secretary of Defense:
www.acq.osd.mil/pm



The 32 Criteria of the Standard

Category Example Criterion
2.1 Organization Define the authorized work elements for the
program …

2.2 Planning, Scheduling, and Schedule the authorized work in a manner which
describes the sequence of work and identifies
Budgeting task interdependencies …
2.3 Accounting Considerations Record direct costs in a manner consistent with
budgets in a formal system controlled by the
general books account
2.4 Analysis and Management At least on a monthly basis, generate the
following information on the control account and
Reports other levels … (cost and schedule comparisons)
2.5 Revisions and Data Incorporate authorized changes in a timely
manner, reflecting the effects of such changes in
Maintenance budgets and schedules …


What You Need to Do EVMS
TO START: TO CONTINUE:

A project Effective project management
A project manager in charge Accurate project status data
A defined scope of work Detailed tracking of
A Work Breakdown Structure milestones, resource use
(WBS) with clearly assigned including money and people,
work packages and schedule
Accurate cost estimates Prompt and accurate financial
broken down by WBS information
A Schedule tied to the WBS Status reviews at least monthly
Integration with policies and Corrective action
financial information Ongoing project control



The EVMS Process

Lessons Learned
Analyze Policy Improvement – Process Improvement

Performance Review –
Control
Corrective Action

Manage Manage Work, Schedule, Cost

Plan Project Plan
WBS – Schedule - Cost


The EVMS Measurement Norm is 1.0

Costs Schedule
Less than 1.0 is more Less than 1.0 means
expensive than behind schedule, less
planned efficient performance
Greater than 1.0 is Greater than 1.0 is
more cost efficient better than planned
than planned

1.0 = 100% = as planned


EVMS Formulas
CV Cost Variance (BCWP-ACWP)
CV% Percent Cost Variance (CVBCWP) x 100%
CPI Cost Performance Index (CPI) (BCWP/ACWP)
SV Schedule Variance (BCWP-BCWS)
SV% Percent Schedule Variance (SVBCWS) x 100%
SPI Schedule Performance Index (SPI) (CPI) _ (BCWP/BCWS)
EAC1 Estimate at Completion1 (EAC1) = ACWPcum +(Performance Factor (PF1) X (BAC-BCWP).
PF1 is (1/CPI).
EAC2 Estimate at Completion2 (EAC2) = ACWPcum +(Performance Factor (PF2) X (BAC-BCWP)

VAC1 Variance at Completion1 (VAC1) (BAC minus EAC1)
VAC2 Variance at Completion2 (VAC2) (BAC minus EAC2)
VAC1% Percent Variance at Completion 1 (VACBAC x 100%)
VAC2% Percent Variance at Completion 2 (VACBAC x 100%)
ETC Estimated Cost to Complete (ETC) - Example Uses EAC1: (EAC1-BCWP)


The Power of EVMS

EVMS Transforms Your Basic Project Data into
Powerful Measures of Performance


EVMS Graphs
Cost EAC
Cost Overrun (Forecast)

BAC
(Total Budget)
ETC

Actual Costs Planned Value
Spending (ACWP)
(BCWS)
Variance
Cost
Schedule Variance Schedule
Variance (CPI) Slippage
(SPI)
Earned Value
(BCWP)

Start Now Done

Software for automating the EVMS
process
EVMS
Tools
Software

Purchasing Accounting
System

Project
Time
Management
Software

Organizations use many different
combinations of applications software to
integrate EVMS with overall business systems


EVMS Software

Large projects and enterprise-wide EVMS
require software support
Summary EVMS functions in products like MS
Project and eCPIC cannot fully implement EVMS
Several leading software companies provide
excellent solutions
A critical issue is how well the EVMS software
integrates with other enterprise systems


Demo by C/S Solutions

A demo is worth a thousand words

Ed Knox
Sales Manager, Federal Sector
C/S Solutions, Inc.
http://www.cs-solutions.com/
P.O. Box 231420
Centreville, VA 20120
eknox@cssi.com
(703) 266-7980 (Office)
(571) 334-4214 (Cell)

C/S Solutions is a leading software company supporting project
management with earned value analysis, schedule risk software,
and implementation services.


Putting EVMS to Use


EVMS can boost consulting profits
Scope
WBS,
IBR

Detailed
Budgeting &
Planning

Cost,
Profits
Optimized Monthly or Weekly Schedule
Financial Results Progress Reports Status

Corrective
Action
Change methods?
Change staffing?
Rebaseline?
www.p2c2group.com Ask for more money? 36


Walk on Water for Clients
Help Clients to: Success Tips for Consultants:
Engage in Change Learn more about EVMS
Management Necessary for Use best practices for project
EVMS management
Use EVMS analysis to pinpoint Partner with EVMS experts
problems Integrate EVMS with other
Improve organizational critical capabilities necessary
effectiveness for client organization
Align financial systems and effectiveness:
project/investment Planning and budgeting
accountability Investment decisions
Reduce cost and schedule Quality
overruns Human Resources
Implement corrective actions Financial management
to address problems Strategic Outcomes


EVMS: One of the Tools in the P2C2
Consulting Practice
Department of Labor: Department of Homeland Security:
Planning Department-Wide Integrate EVMS Into Major New Initiative
Implementation Project Plan
Requirements Work Breakdown Structure
Status Review Phasing, Schedule, Milestones
Gap Analysis Independent Government Cost
Alternatives / CBA Estimate
Implementation Plan Acquisition Plan
Acquisition
User Guide Department of Agriculture
Change Management Apply EVMS to Exhibit 300s
Pilot Implementation Funding Table
Policy Support EVMS Status
Interface with Core Financials Cost Analysis for Supporting
Assessment and Recommendations Documents



Where to Go for More Information
OMB’s Refers to the Office of the Project and Program Management
Secretary of Defense EVMS Site: Solutions, International
http://www.acq.osd.mil/pm/ http://www.ppmsintl.com/

HHS OCIO IT Earned Value Management Humphreys & Associates, Inc.
Processes and Procedures: http://www.humphreys-assoc.com/
http://irm.cit.nih.gov/policy/HHS-EVM-
Procedures.doc Niwot Ridge Consulting
http://www.niwotridge.com/
EVM Bibliography – David Christensen,
Ph.D.
http://www.suu.edu/faculty/christensend/ev Project Management Institute
-bib.html http://www.pmi.org/

http://www.p2c2group.com


Scheduling Is Important

© The New Yorker, April 24, 2006



APPENDIX
More Information


EVMS Requirements for Federal
Projects: Legislation
Government Performance and Results Act of 1993 – Mandates
the use of performance metrics.

Federal Acquisition Streamlining Act of 1994 – Requires agency
heads to achieve, on average, 90% of the cost and schedule goals
established for major and non-major acquisition programs of the
agency without reducing the performance or capabilities of the items
being acquired.

Clinger-Cohen Act of 1996 – Requires establishment of the
processes for executive agencies to analyze, track, and evaluate the
risks and results of major investments in IT and requires reporting
on the net program performance benefits achieved by agencies.



EVMS and Sarbanes-Oxley Act

Corporate financial statements must
estimate accrued cost and investment
value
Will schedule delays impact revenue?
What if EAC deviates from planned costs?

EVMS can help provide more accurate information
needed for corporate financial statements.


EVMS Requirements for Federal
Projects: Policy
OMB Circular A-11 (Part 7, Planning, Budgeting, Acquisition &
Management of Capital Asset) – Outlines a systematic process for
program management, which includes integration of program scope,
schedule, and cost objective; requires use of earned value
techniques for performance measurement during execution of the
program; specifically identifies ANSI/EIA Standard 748.

OMB Memorandum M-04-24, “Expanded Electronic Government
(E-Gov) President’s Management Agenda (PMA) Scorecard Cost,
Schedule and Performance Standards for Success.”

OMB Memorandum M-05-23, “Improving Information Technology
(IT) Project Planning and Execution.”



EVMS principles: ANSI/EIA 748
Plan all work scope for the program to completion.
Break down the program work scope into finite pieces that can be assigned
to a responsible person or organization for control of technical, schedule
and cost objectives.
Integrate program work scope, schedule, and cost objectives into a
performance measurement baseline plan against which accomplishments
may be measured. Control changes to the baseline.
Use actual costs incurred and recorded in accomplishing the work
performed.
Objectively assess accomplishments at the work performance level.
Analyze significant variances from the plan, forecast impacts, and prepare
an estimate at completion based on performance to date and work to be
performed.
Use EVMS information in the company’s management processes.


Key Concepts

STATEMENT OF WORK. The SOW communicates the
work scope requirements for a program, and should
define the requirements to the fullest extent practicable.
It is a basic element of control used in the processes of
work assignment and establishment of program
schedules and budgets. If the work scope can only be
defined in general terms, it will be necessary to maintain
added flexibility in program plans and controls to allow
for future developments.



Key Concepts

CONTROL ACCOUNT - A management control point at
which budgets (resource plans) and actual costs are
accumulated and compared to earned value for
management control purposes. A control account is a
natural management point for planning and control since
it represents the work assigned to one responsible
organizational element on one program work breakdown
structure element.
WORK PACKAGE - A task or set of tasks performed within
a control account.


Key Concepts

MILESTONE - A schedule event marking the due date for
accomplishment of a specified effort (work scope) or
objective. A milestone may mark the start, an interim step,
or the end of one or more activities.
PERFORMANCE MEASUREMENT BASELINE - The total
time-phased budget plan against which program
performance is measured. It is the schedule for expenditure
of the resources allocated to accomplish program scope
and schedule objectives …



Interpreting EVMS numbers:
A positive variance indicates that the project is ahead of schedule or under
budget. Positive variances might enable you to reallocate money and
resources from tasks or projects with positive variances to tasks or projects
with negative variances.
A negative variance indicates that the project is behind schedule or over
budget and you need to take action. If a task or project has a negative CV,
you might have to increase your budget or accept reduced profit margins.
Ratios, such as the cost performance index (CPI) and the schedule
performance index (SPI), can be greater than 1 or less than 1:
A value that's greater than 1 indicates that the project is ahead of schedule or
under budget.
A value that's less than 1 indicates that you're behind schedule or over
budget. For example, an SPI of 1.5 means that you've taken only 67 percent
of the planned time to complete a portion of a task in a given time period,
and a CPI of 0.8 means that you've spent 25 percent more time on a task
than was planned.
http://www.microsoft.com/office/showcase/earnedvalue/default.mspx

This slide © 2006
www.p2c2group.com Microsoft Corporation 49

Interpreting EVMS Charts
Planned Costs and Schedule

1. The vertical y-axis shows the projected cumulative
cost for a project.
2. The horizontal x-axis shows time.
3. The planned budget for this project shows a steady
expenditure over the lifetime of the project. This line
represents the cumulative baseline cost.

Actual Costs and Schedule

1. The status date determines the values Project
calculates.
2. The actual cost (ACWP) of this project has exceeded
the budgeted cost.
3. The earned value (BCWP) reflects the true value of
the work performed. In this case, the value of the work
performed is less than the amount spent to perform
that work.
http://www.microsoft.com/office/showcase/earnedvalue/default.mspx

This slide © 2006
www.p2c2group.com Microsoft Corporation 50


OMB Exhibit 300 EVMS Table


FEDERAL SECTOR REPORT
June 2004

EVMS IN CIVILIAN AGENCIES

Earned Value Management Systems (EVMS) are galloping into the federal civilian arena, promising to
change the way agencies and their contractors conduct business. The change is occurring because the
Office of Management and Budget (OMB) has mandated that agencies must comply with an EVMS
standard in order to receive funding for the development, modernization, or enhancement (DME) of major
information technology investments. EVMS is popping up on agency management reviews. And, if OMB
has its way, there will be a requirement in the Federal Acquisition Regulation (FAR) requiring an EVMS
clause in certain contracts.
EVMS is a structured procedure for project and investment management. It integrates the investment's
scope of work with schedule and cost elements for better 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. Earned Value is also
becoming an area of practice recognized by the Project Management Institute, a certifying body for
project managers.
EVMS has been used for years and years at the Department of Defense, but the emphasis that OMB is
placing on the ANSI/EIA standard ensures that it will be widely applied at civilian agencies as well.
Defense uses it largely to track and evaluate contractor performance, take corrective action to avoid or
mitigate cost overruns, and follow through on performance management of its planning and budgeting
system. It fits in very well with the emphasis on Performance Based Service Acquisition (FAR 37.6) and
annual performance plans.
There are software tools for tracking EVMS--with names such as C/S wInsight, Welcom Cobra, and
Dekker Trakker. Primavera has a powerful EVMS component, and Microsoft has been busy adding EVM
functions to MS Project. However, EVMS is primarily a business process and project management
method, not a "software thing." As business process, EVMS is a methodology for:

• Planning all work for the program to completion.
• Breaking down the program work scope into finite pieces that can be assigned to a responsible
person or organization for control of technical, schedule and cost objectives.
• Integrating program work scope, schedule, and cost objectives into a performance measurement
baseline plan against which accomplishments may be measured (including the control of changes
to the baseline).
• Using actual costs incurred and recorded in performing the work.
• Objectively assessing accomplishments at the work performance level.
• Analyzing significant variances from the plan, forecast impacts, and preparing an estimate at
completion based on performance to date and work to be performed.
• Applying EVMS information in the agency management processes.

The ANSI/EIS standard is based on 32 criteria, which are accessible at
http://www.acq.osd.mil/pm/faqs/criteria.htm. Additional links:


• A helpful listing of articles about EVMS is at Niwot Ridge Resources,
http://www.niwotridge.com/Resources/DomainLinks/EarnedValue.htm.
• David Christensen maintains a huge EVMS bibliography at
http://www.suu.edu/faculty/christensend/ev-bib.html
• The EVMS website referenced by OMB is http://www.acq.osd.mil/pm/.

WHAT CAN YOU DO WITH EVMS?

Now that you're required to embrace EVMS, what can you do with it?

For a fairly simple-minded management tool (costs, schedule, work performed), you can actually do quite
a bit with it:

It's "project management for adults," as one person put it. It builds on project management software, like
MS Project and Primavera, to give you a very good idea of how you're doing in terms of schedule and
cost … and whether you will complete the project over or under budget.

Agency leaders, even non-quantitative types, get the idea very quickly. EVMS results can be summarized
visually with bulls-eye charts and trend analyses. Projects that are over budget, behind schedule, or crash
diving into oblivion will be identifiable immediately.

For government project managers, EVMS can quickly identify which work packages in the Work
Breakdown Structure are causing problems. It is also a tool for monitoring contractor performance, and
EVMS gives the government mid-level manager some leverage: Shape up, contractor, or top
management will know you're a turkey because of the EVMS results.

On the other hand, well-managed contracts look really good, and this can be a competitive edge for
winning new business. What's more, financial executives in contracting firms love it: The project is tracked
by the value of work completed, and you have a pretty good idea of whether the contract is profitable or
headed for doom. For the increasingly popular firm-fixed price contracts, the EVMS tool is crucial.

Of course, good management doesn't happen through artificial intelligence. It takes qualified managers--
on both the government and contractor sides--to use EVMS well. This means a carefully planned work
scope, Work Breakdown Structure, milestones, realistic metrics, and a realistic cost baseline. Accurate
data about the schedule, work performed, and costs are needed on at least a monthly basis. What's
more, the bottom line is to use the EVMS results regularly to monitor results and take corrective action.
EVMS tools require smart and experienced managers who are proactive.

For Exhibit 300s, Circular A-11 requires agencies to use EVMS for DME investments. So obviously,
Section I.H. Funding Plan requires considerable detail. But EVMS should also tie to the Acquisition Plan,
since major contractors are required to have/use an ANSI/EIA-748 compliant EVMS system. EVMS also
is a tool for mitigating Project Risks, and generally the project risk cost should be monitored in EVMS.

LINK OF THE MONTH: OMB UPDATES

Go to http://www.feapmo.gov for updates to the Federal Enterprise Architecture.

Jim Kendrick
Certified Management Consultant
P2C2 Group, Inc.
4101 Denfeld Avenue
Kensington, MD 20895
kendrick@p2c2group.com
301-942-7985


P2C2 Group, Inc.
Federal Applications of EVMS

Earned Value Measurement Methodology
Earned Value Management What Is Earned Value
Management?
Federal Agencies are implementing an Earned Value
Management Methodology. It will be applicable to the Earned Value Management (EVM) is
"Select" and "Control" phases of large information an approach to project and investment
technology (IT) investments. It will also be applicable to management that integrates the
projects in a mixed lifecycle where large investments are investment's scope of work with
made to upgrade or extend systems or applications in the schedule and cost elements for
operations and maintenance phase. optimum investment planning and
control.
OMB Guidance for IT Capital Investment
According to Office of Management and Budget (OMB) Why Is an Earned Value System
Circular A-11, "you should use earned value management Important?
(EVM) and an EVM system that meets ANSI/EIA Standard
748-A, to plan and control both government and contractor EVM puts schedule variances in the
cost and schedule for any development work whether spotlight—something that generally
conducted during the planning phase (like building and cannot be seen in traditional financial
testing prototypes) or in the full acquisition phase (like reporting, which is usually limited to
designing, developing, producing, implementing or planned and actual costs. With EVM,
integrating assets). Comprehensive planning, performance it is possible to compare the value of
baseline maintenance and earned value analysis provides work actually performed to the work
early insight into performance trends and variances from that had been scheduled.
initial plans, allowing decision makers enough time to take
corrective action." In addition, OMB suggests that agencies To illustrate, perhaps an annual
"require contractors to use earned value management to budget of $20,000 has been planned
plan, manage and report contract performance, especially to train 100 system users. Over the
for technically complex and high risk development or year, the actual cost is $18,000 but
integration efforts." only 50 users have been trained. Cost
reporting alone would make it appear
Goals for the EVM initiative are to: that the training expenditure is under
• Achieve compliance with OMB requirements and the budget, but in fact the training activity
ANSI/EIA standard is behind schedule and ultimately may
cost much more than the $20,000
• Provide the CIO and Agencies with a structured
originally planned.
method for reviewing IT cost and schedule
performance
• Implement automation support for IT project
Work
managers that is practical and usable
• Integrate EVM into a comprehensive IT management
strategy that fits well with project management best
practices, the capital planning and investment Cost Schedule
control, acquisition planning, and system
development and lifecycle management.
• Implement a cost-effective solution for launching and
maintaining an ongoing EVM system. EVM

P2C2 Group, Inc.

INTRODUCTION TO EVM
You Already Use the Data Elements for
Tracking Earned Value Costs

Earned value measurement depends on data elements
that are already developed or monitored by project Schedule
managers:
• The foundation is the work scope, which drives
the overall requirement.
• The Work Breakdown Structure (WBS)
WBS with Milestones
organizes the overall work into manageable
activities with milestones.
• The schedule orders the activities and
milestones in the WBS into a logical sequence.
Overall Work Scope
EVMS compares planned and actual schedules.
• Costs are identified for activities, both in terms of
budgeted costs and actual costs. Data Needed for EVM

EVMS Transforms Your Basic Project Data into Powerful Measures of
Performance

Variance Analysis
By Work Breakdown Structure
Description SV CV VAC SV CV ACV SPI CPI TCPI
1.0 Upgrade Application ↓ ↔ ↑ -$875 -$28 -$1,360 0.67 0.98 0.84
1.1 Data Conversion ↔ ↔ ↔ -$1 1.00 0.99 1.00
1.2 Web Hosting Environment ↓ ↔ ↑ -$875 -$24 -$1,356 0.64 0.98 0.78
1.3 Network Switch ↔ ↔ ↔ 1.00 1.00 1.00
1.4 COTS Upgrade ↔ ↔ ↔ 1.00 1.00 1.00
1.5 Integration Services ↔ ↔ ↔ -$1 1.00 0.95 1.00
1.6 Testing ↔ ↔ ↔ -$2 1.00 0.98 1.00
Values in K Dollars
EVM reports provide a clearer idea of what is happening within the WBS for each project
by tracking: Schedule Variance (SV), Cost Variance (CV), estimated Variance at
Completion (VAC), At Completion Variance (ACV), Schedule Performance Index (SPI), Cost
Performance Index (CPI), To Complete Performance Index (TCPI), and other measures.


P2C2 Group, Inc.

Steps for Implementing EVM at the Project Level
Organize the project team and the scope of work, using a work breakdown structure. Each
task should have a single WBS number with a single organizational unit responsible for it.

Schedule the tasks in a logical manner so that lower level schedule elements support other
elements and the top level milestones. Use of robust project management software, such as
MS Project or Primavera, is recommended.

Allocate the total budget resources to time-phased segments. Where useful for
management, the data may be broken down by Federal and contractor costs.

Establish objective means for measuring work accomplishment. Budget should be earned in
the same way that it was planned.

Control the project by analyzing cost and performance variances, assessing final costs,
developing corrective actions, and controlling changes to the integrated baseline.

Measurement of work accomplishment for EVM depends on the nature of
your project. Here are some examples:
Instructor hours of training delivered
Student hours of training received
Number of students who achieve certification (or pass tests) based on training

Number of mail servers replaced
Number of mail server accounts upgraded

Development of software module
Completion of beta testing of software module with 100 trial users
Acceptance of system documentation for software module
Acceptance testing of software module
Certification and Accreditation of Software module

1,000 hours of hotline support provided
99% of hotline questions answered in 24 hours or less

1,000 client desktops upgraded to XYZ


P2C2 Group, Inc.

EVMS Terminology

AWCP: Actual Cost of Work Performed. Shows actual costs incurred for work already
performed by a resource on a task, up to the project status date or today's date. Shows actual
costs incurred for work already performed by a resource on a task, up to the project status date
or today's date.
BAC: Budget at Completion. An estimate of the total project cost.
BCWP: Budgeted Cost of Work Performed. Shows how much money the work actually
performed should have cost, according to the project baseline.
BWCS: Budgeted Cost of Work Scheduled. Indicates how much of the budget should have
been spent in view of the baseline schedule and cost. BCWS is calculated as the cumulative
timephased baseline costs up to the status date or today's date.
Control Accounts. A management control point at which budgets (resource plans) and actual
costs are accumulated and compared to earned value for management control purposes. A
control account is a natural management point for planning and control since it represents the
work assigned to one responsible organizational element on one program work breakdown
structure element. In control accounts, defined segments (packages of work that must be
accomplished) have clearly defined budgets that can be compared to actual cost data from the
financial system. In addition, the segments (work packages) must be defined in such a way that
it is possible to measure or clearly estimate the extent to which they have been completed.
Using control accounts requires the integration of data from budgets, cost accounting, project
plans, and actual project performance.
CV: Cost Variance. The difference between the budgeted cost of work performed [BCWP] on a
task and the actual cost of work performed [ACWP]. If the CV is positive, the cost is currently
under the budgeted amount; if the CV is negative, the task is currently over budget.
CV%: Cost Variance (Ratio). The CV expressed as a percentage.
ACV: At Completion Variance.
SV: Schedule Variance. The difference between the budgeted cost of work performed [BCWP]
and the budgeted cost of work scheduled [BCWS]. This is calculated as follows: SV = Budgeted
Cost of Work Performed - Budgeted Cost of Work Scheduled. If the SV is positive, the project is
ahead of schedule in cost terms; if the SV is negative, the project is behind schedule in cost
terms.
SV%: Schedule Variance (Ratio). The SV expressed as a percentage.
VAC: Variance at Completion. The earned value field that shows the difference between the
budget at completion [BAC] and the estimate at completion [EAC].
CPI: Cost Performance Index. Ratio of budgeted costs of work performed to actual costs of
work performed [BCWP/ACWP]. The cumulative CPI [sum of the BCWP for all tasks divided by
the sum of the ACWP for all tasks] can be used to predict whether a project will go over budget
and by how much.
Planning Package. A logical aggregation of work, usually future efforts that can be
identified and budgeted, but which is not yet planned in detail at the work package or task level.


P2C2 Group, Inc.
SPI: Schedule Performance Index. The ratio of the budgeted cost of work performed [BCWP] to
the budgeted cost of work scheduled (BCWS), which is often used to estimate the project
completion date. This is calculated as follows: SPI = BCWP/BCWS.
EAC: Estimate at Completion. The expected total cost of a task or project, based on
performance as of the status date. EAC is calculated as follows: EAC = ACWP + (BAC-
BCWP)/CPI. EAC is also called forecast at completion.
IEAC: Independent Estimate at Completion.
TCPI: To Complete Performance Index. The ratio of the work remaining to be done to funds
remaining to be spent, as of the status date: [BAC - BCWP]/[BAC - ACWP]. A TCPI value
greater than 1 indicates good projected performance for remaining work; less than 1 indicates
poor projected performance.
Work Package. A task or set of tasks performed within a control account

For More Information about EVMS:
MS Project: www.microsoft.com/project
wInsight: http://www.cs-solutions.com
Federal Earned Value Website: http://www.acq.osd.mil/pm/
ANSI-EIA 32 Criteria: http://www.acq.osd.mil/pm/faqs/criteria.htm


Contract Price
Earned Value Management
‘Gold Card’ NCC
TAB Profit / Fees
Defense Acquisition University CBB
AUW OTB
OVERRUN

EAC TOCICO 2005 Conference
PMB Management
TAB Reserve
Management Reserve
BAC Undistributed Control Summary Level
PMB Budget Accounts Planning Packages

Schedule Variance
Work Packages Planning Packages
Cost TERMINOLOGY
$ Variance
NCC Negotiated Contract Cost Contract price less profit / fee(s)
ACWP AUW Authorized Unpriced Work Work contractually approved, but not yet negotiated / definitized
CBB Contract Budget Base Sum of NCC and AUW
OTB Over Target Baseline Sum of CBB and recognized overrun
BCWS
TAB Total Allocated Budget Sum of all budgets for work on contract = NCC, CBB, or OTB
BCWP BAC Budget At Completion Total budget for total contract thru any given level
PMB Performance Measurement Baseline Contract time-phased budget plan
MR Management Reserve Budget withheld by Ktr PM for unknowns / risk management
time Time Completion UB Undistributed Budget Broadly defined activities not yet distributed to CAs
Now Date CA Control Account Lowest CWBS element assigned to a single focal point to plan & control
scope / schedule / budget
WP Work Package Near-term, detail-planned activities within a CA
PP
VARIANCES Favorable is Positive, Unfavorable is Negative BCWS
Planning Package
Budgeted Cost for Work Scheduled
Far-term CA activities not yet defined into WPs
Value of work planned to be accomplished = PLANNED VALUE
Cost Variance CV = BCWP – ACWP CV % = (CV / BCWP) *100 BCWP Budgeted Cost for Work Performed Value of work accomplished = EARNED VALUE
Schedule Variance SV = BCWP – BCWS SV % = (SV / BCWS) * 100 ACWP Actual Cost of Work Performed Cost of work accomplished = ACTUAL COST
EAC Estimate At Completion Estimate of total cost for total contract thru any given level;
Variance at Completion VAC = BAC – EAC
may be generated by Ktr, PMO, DCMA, etc. = EACKtr / PMO / DCMA
LRE Latest Revised Estimate Ktr’s EAC or EACKtr
PERFORMANCE INDICES Favorable is > 1.0, Unfavorable is < 1.0 SLPP Summary Level Planning Package Far-term activities not yet defined into CAs
Cost Efficiency CPI = BCWP / ACWP TCPI To Complete Performance Index Efficiency needed from ‘time now’ to achieve an EAC
Schedule Efficiency SPI = BCWP / BCWS
EVM POLICY: DoDI 5000.2, Table E3.T2 . EVMS in accordance with ANSI/EIA-748 is required for cost or incentive
OVERALL STATUS contracts, subcontracts, intra-government work agreements, & other agreements valued > $20M (Then-Yr $). EVMS
contracts > $50M (TY $) require that the EVM system be formally validated by the cognizant contracting officer. Additional
% Schedule = (BCWSCUM / BAC) * 100 Guidance in Defense Acquisition Guidebook and the Earned Value Management Implementation Guide (EVMIG 2005).
% Complete = (BCWPCUM / BAC) * 100 EVMS is discouraged on Firm-Fixed Price, Level of Effort, & Time & Material efforts regardless of dollar value.
% Spent = (ACWPCUM / BAC) * 100
EVM CONTRACTING REQUIREMENTS:
ESTIMATE AT COMPLETION # DFAR Clauses - 252.242-7001 for solicitations and 252.242-7002 for contracts
EAC = Actuals to Date + [(Remaining Work) / (Efficiency Factor)] Contract Performance Report – DI-MGMT-81466A * 5 Formats (WBS, Organization, Baseline, Staffing & Explanation)
EACCPI = ACWPCUM + [(BAC – BCWPCUM) / CPICUM ] = BAC / CPICUM Integrated Master Schedule – DI-MGMT-81650 *
Integrated Baseline Review (IBR) - Mandatory for all EVMS contracts > $20M
EACComposite = ACWPCUM + [(BAC – BCWPCUM) / (CPICUM * SPICUM)] * See the EVMIG 2005 for CPR and IMS tailoring guidance.

TO COMPLETE PERFORMANCE INDEX (TCPI) #
TCPIEAC = Work Remaining / Cost Remaining = (BAC – BCWPCUM) / (EAC – ACWPCUM) EVM Home Page = https://acc.dau.mil/evm
DAU POC: (703) 805-5259 (DSN 655)
# eMail Address: EVM@dau.mil
To Determine Either TCPI or EAC; You May Replace BAC with TAB
Revised May 2005

8
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