F E D E R AL ACQUISITION
H OT TOPIC SERIES
PART 1 OF 3
Earned Value Management
What is earned value management (EVM)?
Earned value management is a widely accepted industry best
practice for project management, which is used across the U.S.
federal government and the commercial sector. A common
operational definition of EVM is “the use of an integrated
management system that coordinates work scope, schedule, and
cost goals and objectively measures progress toward these goals.”
What are the new application thresholds for EVM in
Department of Defense (DOD) contracts?
EVM compliance is required on cost or incentive contracts,
subcontracts, intra-government work agreements, and other
agreements valued at or more than $20 million. An EVM system
that has been formally validated and accepted by the cognizant
contracting officer is required on cost or incentive contracts,
subcontracts, intra-government work agreements, and other
agreements valued at or more than $50 million.
The changes to DOD’s EVM policy are required to be
implemented on applicable contracts that are awarded based on
solicitations or requests for proposal issued on or before April 6,
2005.
What are the key objectives of EVM?
The key objectives are to
ß Identify and mitigate risks;
ß Relate time-phased budgets and schedule to work the
scope of work;
ß Establish a project baseline and variance reporting;
ß Integrate cost, schedule, and technical performance tracking
and forecasting;
This is the first article in a new three-part series titled “Federal
Acquisition - Hot Topics!” Part 2, Performance-Based Contracting, will
be published in January 2007, and Part 3, Cost Estimating and Contract
Pricing, will be published in February 2007.
Each of the articles in this new three-part series will provide a very
simple and highly practical question and answer approach.
Excerpted from Management Concepts’ Federal Acquisition Action
Pack Earned Value Management, © 2007 Management Concepts.
By GREGORY
By ...
A. GARRETT
ß Provide management an effective early-warning system;
ß Provide accurate work progress information; and
ß Ensure data is current, accurate, and auditable.
How do you illustrate earned value analysis?
See Figure 1 on page 50 for a sample illustration of earned value
analysis.
What are the five key categories of EVM?
The five key categories for EVM include:
ß Organization;
ß Planning, Scheduling, and Budgeting;
ß Accounting;
ß Analysis and Management Reports; and
ß Revisions and Data Maintenance.
Each of the EVM categories contains specific criteria that must be
obtained.
What are the EVM organization criteria?
The organization criteria include:
ß Defining the work breakdown structure (WBS) and WBS
dictionary;
ß Defining the organizational breakdown structure (OBS);
ß Establishing the work authorization and cost accumulation
processes;
ß Establishing cost, schedule, and technical integration
processes;
ß Identifying indirect/overhead cost structure, including cost
accounting standard (CAS) disclosure statement and chart of
accounts; and
ß Creating the responsibility assignment matrix (RAM).
December 2006 / Contract Management n  49
 federal acquisition hot topic series

What are the EVM analysis and management

Actual
Cost (AC) Planned
reports criteria?
Value (PV) The EVM analysis and management reports criteria include:
Earned
Value (EV)
ß At least monthly, providing information at the control account
level necessary for analysis and reporting, using actual cost
È
Cumulative
data that is reconcilable with the approved accounting system;
Values
ß Providing variance reporting on budget (PV), earned value
(EV), and actuals (AC);
ß Providing explanation of indirect costs;

Data Date ß Implementing recovery plans, management actions, and

recommendations; and
È
Time
Cost Variance (CV) = EV - AC
ß Developing revised estimates (EACs, LREs) based on
Schedule Variance (SV) = EV - PV
Cost Performance Index (CPI) = CPI = EV / AC performance to date and estimates of future performance.
SchedulePerformance Indexx (SPI) = SPI = EV / PV

Source: PMBOK 2000 Edition

What are the EVM revisions and data maintenance
criteria?
Figure 1. The EVM revisions and data maintenance criteria include:

ß Incorporating authorized changes and record impacts in a

What are the EVM planning, scheduling, and
budgeting criteria?
The planning, scheduling, and budgeting criteria include:
ß Creating the integrated master schedule, ensuring horizontal
and vertical integration;
timely manner,
ß Establishing change management system,
ß Providing reconciliation and revision reports, and
ß Controlling and documenting changes.

ß Identifying milestones, key events, deliverables, and technical

performance goals;
ß Establishing and maintaining a time-phase budget baseline;
ß Ensuring that the contract budget base (CBB) is reconciled
with the total allocated budget (TAB); and
ß Indicating if there will be an over-target-baseline (OTB)
submission.
What are the EVM accounting consideration criteria?
The EVM accounting consideration criteria include:
ß Recording direct and indirect costs in accordance with
company disclosure statement;
ß Providing a summary and detail visibility of costs;
When and how should you apply EVM?
To apply EVM, follow these four key steps.
1. Verify with your contracts manager if the Defense Federal
Acquisition Regulation Supplement (DFARS) clause
252.234-7001 for EVM is included in the request for proposal
(RFP) and contract.
2. Coordinate with your project manager (PM) and projects
control manager to ensure you are using the appropriate
planning and scheduling tool (i.e. Microsoft Project, P3e, etc.)
3. Ensure you have a plan in place to integrate cost, schedule,
and performance tracking.
4. Develop an appropriate project plan (WBS, integrated
schedule, budget, PWS/SOW, and RAM).

ß Establishing a process for reporting material, other direct

costs, and subcontractor costs; and What is the value of implementing an earned value
management system (EVMS)?
ß Providing full accounting of all material purchased for the The value of implementing an EVMS is that it
program.
ß Is a single integrated cost, schedule, technical management
control system which provides reliable data;

50  n  Contract Management / December 2006

 federal
ß Provides management a project, program, and portfolio level
early-warning system;
ß Uses index-based methods to forecast final cost and schedule
performance; and
ß Supports fact-based timely decision-making to improve
business results.
Does having an earned value management system
help comply with the requirements of the U.S.
Sarbanes-Oxley Act of 2002 (SOX)?
Yes, to fully comply with the intent of SOX, organizations are
required to have detailed cost and schedule measurements for their
business. SOX requires senior management to have a system in
place which provides current, complete, and accurate data on all
major projects.
acquisition hot topic series
How much does it cost and how long does it take to
fully implement an EVMS?
It depends! There are numerous factors that will significantly affect
how much it will cost and how long it will take to fully implement
an EVMS, including:
ß Size of your organization,
ß Extent of use of legacy systems,
ß Extent of EVMS education/training of your organization,
ß Senior executives support,
ß Sufficient available funding for EVMS,
ß Hardware and software application selected, and
ß Extent of manual efforts required.
Where should I go to get additional information
on EVM?
The following resources can help you obtain more information
about EVM.
ß Acquisition Solutions, Inc. at www.acquisitionsolutions.com,
ß DOD Instruction 5000.2 (2003),
ß Defense Acquisition Guidebook (2003),
ß DCMA Web site (http://guidebook.dcma.mil/79/
guidebook_process.htm),
ß American National Standards Institute/Electronics Industries
Alliance Standard 748 (ANSI/EIA-748), and
ß A Practical Guide to Earned Value Project Management by
Charles I. Budd and Charlene S. Budd (Management
Concepts, 2005) (ISBN 1-56726-167-1). CM
About the Author
Gregory A. Garrett, CPCM, C.P.M., PMP, Fellow, serves
as senior principal, Acquisition Solutions, Inc. He is a member of
the NCMA Board of Advisors and is a member of the Washington,
D.C., Chapter. He has received numerous national and international
business awards. Send comments about this article to cm@
ncmahq.org.
December 2006 / Contract Management n  51