Earned Value Management

- - - an analysis of the EVM Criteria - - -

Quentin W. Fleming
Website: HTTP://www.QuentinF.com

2001 Q.W.Fleming
 Earned Value Management Defined:

A method for integrating

scope, schedule, and resources,

and for measuring project performance.

Guide to the Project Management Body of Knowledge (PMBOK)
Project Management Institute (PMI) 2000

2001 Q.W.Fleming
 The Scenario:
You work for a small, high-tech company highly respected in the
industry. But like most start-up companies, money is tight.
The Chief Executive Officer (CEO) asks you to come to her office for
an important new assignment. She asks that you manage a new
(internally funded) developmental project of great importance to the
company. She thinks the project can be done for about a half-million
dollars of company money, and take no longer than 6 months.
The CEO gives you your marching-orders: "This is a critical project
and you will be spending precious company resources. I want you to use
the very best project management techniques, including and in particular
earned value management."
Your task is to review each of the 32 EVM Criteria and then rate each
criterion using proven scientifically accepted rating methods such as:
Two Thumps Up; One Thumb Up; One Thumb Down; and finally Two
Thumbs Down.
Your team will select just 10 Criteria for application to your project,
and then report your approach to the CEO and management council to
gain their approval.
2001 Q.W.Fleming
 EVMS Criteria (32)
Rate each Criterion: two thumbs up
Organization (5)
1) Define project with WBS_________
2) Assign scope to OBS____________
3) Integrate SOW/time/costs________
4) Indirect cost management________
5) Measure EV within CA___________
Planning & Budgeting (10)
6) Formal scheduling system _____
7) Performance metrics __________
8) Performance baseline _________
9) Budget total project __________
10) Short work packages _________
11) Cost account budgets ________
12) Level of effort _______________
13) Overhead budgets ___________
14) MR & UB ___________________
15) Contract budget base ________
2001 Q.W.Fleming
Accounting (6)
16) Record direct costs ___________
17) Sum direct costs by WBS ______
18) Sum direct costs by OBS ______
19) Record indirect costs _________
20) Unit & lot costs ______________
21) Material accounting __________
Analysis & Forecasting (6)
22) Cost account measurement _____
23) Cost & schedule analysis _______
24) Analysis indirect costs _________
25) WBS & OBS performance _______
26) Management actions ___________
27) Estimate at completions ________
Revisions (5)
28) Incorporate changes ___________
29) Trace all changes ______________
30) No retroactive changes _________
31) Control baselines ______________
32) Document all changes __________
 I - Organization.................5 Criteria

Purpose:
Scope the total project (including make or buy)
Integrate with a Work Breakdown Structure (WBS)
Create Control Account Plans (CAPs)
Assign CAPs to a function for performance

Problems:
Inadequate project definition
Rejection of project WBS by functions
2001 Q.W.Fleming
EVPM Page 158
 1. Define the Project Scope
"1. Define the authorized work elements for the
program. A work breakdown structure (WBS),

tailored for effective internal management control,

is commonly used for this process." EVMS 1996

Define/scope the total project

With use of Work Breakdown Structure (WBS)
To form Control Account Plans (CAPs)
2001 Q.W.Fleming
EVPM Page 159
 2. Assign Tasks to an Organization
"2. Identify the program organizational structure
including major subcontractors responsible for
accomplishing the authorized work, and define the
organizational elements in which work will be planned
and controlled." EVMS 1996

Assign all WBS tasks to a specific function

Detailed within Control Account Plans (CAPs)
Identify all major procurements
2001 Q.W.Fleming
EVPM Page 160
 3. Integrated Management System
"3. Provide for the integration of the company's
planning, scheduling, budgeting, work authorization
and cost accumulation processes with each other,
and as appropriate, the program work breakdown
structure and the program organizational structure."
EVMS 1996

Use a single integrated management system

To integrate all functions for the project
2001 Q.W.Fleming
EVPM Page 160
 4. Indirect Cost Management

"4. Identify the company organization or function

responsible for controlling overhead (indirect costs)."

EVMS 1996

Define elements & pools for indirect costs

Specify managers responsible indirect costs

2001 Q.W.Fleming
EVPM Page 161
 5. Integration of Project & Organization

"5. Provide for the integration of the program work

breakdown structure and the program organizational
structure in a manner that permits cost and schedule
performance measurement by elements of either or
both structures as needed." EVMS 1996

Each Control Account Plan (CAP) must be able

to measure performance by the Projects WBS
or by the functional organization
2001 Q.W.Fleming
EVPM Page 162
 II - Planning & Budgeting....10 Criteria

Purpose:
Employ a formal scheduling & budgeting system
Form a project measurement baseline

Problems:
Lack of organizational discipline
Front-end and Rubber baselines

2001 Q.W.Fleming
EVPM Page 162
 6. A Formal Scheduling System
"6. Schedule the authorized work in a manner which
describes the sequence of work and identifies significant
task interdependencies required to meet the requirements
of the program." EVMS 1996

Formal scheduling system & discipline

Hierarchy of schedules: master down to detail
The sequence of work & constraints
Key interfaces/milestones/completion dates
2001 Q.W.Fleming
EVPM Page 163
 7. Indicators to Measure Progress

"7. Identify physical products, milestones, technical

performance goals, or other indicators that will be

used to measure progress." EVMS 1996

Measure earned value against planned value

With milestones & physical outputs

2001 Q.W.Fleming
EVPM Page 164
 8. Performance Measurement Baseline
"8. Establish and maintain a time-phased baseline,
at the control account level, against which program
performance can be measured. Budgets for far-term
efforts may be held in higher level accounts until the
appropriate time for allocation at the control account
level. Initial budgets established for performance
measurement will be based on either internal
management goals or external customer negotiated
target cost including estimates for authorized but
undefinitized work. On government contracts, if an over
target baseline is used for performance measurement
reporting purposes, prior notification must be
provided to the customer." EVMS 1996
Establish a project measurement baseline
Time phased & built on control account plans
2001 Q.W.Fleming EVPM Page 164
 9. Budget all the Authorized Work
"9. Establish budgets for all authorized work with
identification of significant cost elements
(labor, material, etc.) as needed for internal
management and for control of subcontractors.

EVMS 1996

Budgets include authorized but un-priced work

Control account budgets must contain:
Direct labor in either hours or dollars
Direct procurements & other direct costs
But not necessarily indirect costs
2001 Q.W.Fleming
EVPM Page 166
 10. Budget Small/Short Packages
"10. To the extent it is practical to identify the authorized
work in discrete work packages, establish budgets for
this work in terms of dollars, hours, or other measurable
units. Where the entire control account is not subdivided
into work packages, identify the far term effort in larger
planning packages for budget and scheduling purposes."
EVMS 1996

Budgets should reflect the way work is done

Use rolling-wave budgets for long-term work

2001 Q.W.Fleming
EVPM Page 166
 11. Control Account (CAP) Budgets

"11. Provide that the sum of all work package budgets

plus planning package budgets within a control account

equals the control account budget." EVMS 1996

Near-term tasks in Work Packages

Far-term tasks in Planning Packages
Sum of CAP parts must = total CAP budget

2001 Q.W.Fleming
EVPM Page 167
 12. Level of Effort (LOE) Budgets
"12. Identify and control level of effort activity by time-
phased budgets established for this purpose.
Only that effort which is unmeasurable or for which
measurement is impractical may be classified
as level of effort." EVMS 1996

Calculation: the Planned Value = Earned Value ! !

LOE only as last resort (after discrete & apportioned)
Time-phase all LOE budgets

2001 Q.W.Fleming
EVPM Page 167
 13. Overhead Budget Control
"13. Establish overhead budgets for each significant
organizational component of the company for expenses
which will become indirect costs. Reflect in the
program budgets, at the appropriate level, the amounts
in overhead pools that are planned to be allocated to
the program as indirect costs." EVMS 1996

Annual facility-wide overhead pools/budgets

Formal budgets to organizations incurring costs
Rational forecasts of potential future business
2001 Q.W.Fleming
EVPM Page 168
 14. Management Reserves (MR)
& Undistributed Budget (UB)

"14. Identify management reserves

and undistributed budget." EVMS 1996

Maintain a management reserve (MR) log

Include undistributed budget (UB) in baseline:
1) for any authorized changesnot yet definitized
2) for far-term planning packages

2001 Q.W.Fleming
EVPM Page 169
 15. Contract Budget Base (CBB)

"15. Provide that the program target cost goal is

reconciled with the sum of all internal program

budgets and management reserve." EVMS 1996

Provide bottom to top budget traceability

(work package to cost account + MR = top project)

Include all authorized but unnegotiated changes

2001 Q.W.Fleming
EVPM Page 169
 III - Accounting...............6 Criteria
Purpose:
Record all project costs as consumed or incurred
Synchronize accounting data monthly to relate:
The Planned Value versus Earned Value (a schedule variance)
The Actual Costs versus Earned Value (a cost variance)

Trend is to weekly measurement of direct labor hours

Problems:
Difficulty measuring earned value for material costs.
Difficulty of performing price and usage variances
2001 Q.W.Fleming
EVPM Page 170
 16. Recording of Direct Costs

"16 Record direct costs in a manner consistent with

the budgets in a formal system controlled by the

general books of account." EVMS 1996

Record all direct costs as consumed or incurred

A formal system per general books of accounts

2001 Q.W.Fleming
EVPM Page 171
 17. & 18. Summation of Direct Costs
"17. When a work breakdown structure is used,
summarize direct costs from the control accounts into
the work breakdown structure without allocation of a
single control account to two or more work
breakdown structure elements.
***
18. Summarize direct costs from the control accounts
into the contractor's organizational elements without
allocation of a single control account to two or more
organizational elements." EVMS 1996

CAPs will sum to top of WBS

CAPs will sum to top functional OBS
Without an allocation of a single CAP
2001 Q.W.Fleming
EVPM Page 171
 19. Recording of Indirect Costs

"19. Record all indirect costs which will be allocated to

the contract." EVMS 1996

Documented procedures on all indirect costs

Clear authority for indirect cost control
Assure indirect costs are charged properly
Commercial vs. Government rates consistent
2001 Q.W.Fleming
EVPM Page 172
 20. Accounting for Unit & Lot Costs

"20. Identify unit costs, equivalent unit costs, or lot

costs when needed." EVMS 1996

Cost accounting system which provides:

Unit costs or equivalent unit costs or lot costs

By labor, material, other direct, and (?) indirect

2001 Q.W.Fleming
EVPM Page 172
 21. Material Accounting Requirements
"21. For EVMS, the material accounting system will provide:
(1) Accurate cost accumulation and assignment of costs to
control accounts in a manner consistent with the budgets
using recognized, acceptable, costing techniques.
(2) Cost performance measurement at the point in time most
suitable for the category of material involved, but no earlier
than progress payments or actual receipt of material.
(3) Full accountability of all material purchased for the
program including residual inventory." EVMS 1996
Earned value for materials...when consumed
Price & usage variance analysis (cancelled)
Unit or lot costs for materials (cancelled)
Full accountability for all materials EVPM Page 173
2001 Q.W.Fleming
 IV - Analysis.......................6 Criteria
Purpose:
Monitor performance against baseline
Analyze variances from baseline
Forecast the estimate at completion (EAC)

Problems:
Subjective measurement of performance
Excessive Level of Effort (LOE)
Managements influence on EAC forecasts
2001 Q.W.Fleming
EVPM Page 179
 22. Performance of CAPs
"22. At least on a monthly basis, generate the following
information at the control account and other levels as
necessary for management control using actual cost
data from, or reconcilable with, the accounting system:
(1) Comparison of the amount of planned budget and the
amount of budget earned for work accomplished.
This comparison provides the schedule variance.
(2) Comparison of the budget earned and the actual
(applied where appropriate) direct costs for the same work.
This comparison provides the cost variance." EVMS 1996
Measure performance of cost accounts
Isolate cost & schedule variances by period
Isolate labor, materials, other direct variances
2001 Q.W.Fleming
EVPM Page 175
 23. Project Performance Analysis
"23. Identify, at least monthly, the significant
differences between both planned and actual schedule
performance, and planned and actual cost
performance, and provide the reasons for the
variances in detail needed by program management."
EVMS 1996

Status of schedule performance...at least monthly

Status of cost performanceat least monthly
Understand the reasons for variances
2001 Q.W.Fleming
EVPM Page 175
 24. Analysis of Indirect Costs

"24. Identify budgeted and applied (or actual)

indirect costs at the level and frequency needed by
management for effective control, along with the
reasons for any significant variances. EVMS 1996

Analyze costs monthly as budgeted (by pool)

Compare budgeted vs. actual indirect costs
Describe management actions taken
2001 Q.W.Fleming
EVPM Page 176
 25. Analysis by WBS & Organization
"25. Summarize the data elements and associated
variances through the program organization and / or
work breakdown structure to support management
needs and any customer reporting specified
in the contract. EVMS 1996

Analyze performance by WBS element to top

Analyze performance by organization to top
Use a single set of books on project
2001 Q.W.Fleming
EVPM Page 177
 26. Identify Management Actions

"26. Implement managerial actions taken as the

result of earned value information."
EVMS 1996

Corrective actions taken by management

Procedures to monitor corrective actions

2001 Q.W.Fleming
EVPM Page 177
 27. Estimates at Completion (EAC)
"27. Develop revised estimates of costs at completion
based on performance to date, commitment values for
material, and estimates of future conditions. Compare
this information with the performance measurement
baseline to identify variances at completion important
to company management and any applicable customer
reporting requirements including statements of funding
requirements." 1996 EVMS
Procedures requiring periodic EACs
EACs based on earned value data
EACs must reflect all known conditions
2001 Q.W.Fleming EVPM Page 178
 V - Revisions to Baseline...5 Criteria

Purpose:

Manage all changes to project baseline

Incorporate changes in a timely manner

Problems:

Work done without authorization

Slow incorporation of changes

Poor or no estimates for changes

2001 Q.W.Fleming
EVPM Page 179
 28. Incorporate Baseline Changes

"28. Incorporate authorized changes in a timely manner,

recording the effects of such changes in budgets and
schedules. In the directed effort prior to negotiation of a
change, base such revisions on the amount estimated
and budgeted to the program organizations." EVMS 1996

Incorporate all customer/management changes

In a timely manner (monthly ?)
Budget estimated values prior to negotiation
2001 Q.W.Fleming
EVPM Page 179
 29. Reconcile to Original Baseline

"29. Reconcile current budgets to prior budgets in

terms of changes to the authorized work and internal
replanning in the detail needed by management for
effective control." EVMS 1996

Trace all added scope to the initial baseline

2001 Q.W.Fleming
EVPM Page 180
 30. Prohibit Retroactive Changes
"30. Control retroactive changes to records pertaining to
work performed that would change previously reported
amounts for actual costs, earned value, or budgets.
Adjustments should be made only for correction of errors,
routine accounting adjustments, effects of customer or
management directed changes, or to improve the baseline
integrity and accuracy of performance measurement data."
EVMS 1996
Procedures in place to control changes to data
Applies to both direct & indirect costs
Adjustments allowed for accounting errors
2001 Q.W.Fleming
EVPM Page 180
 31. Maintain Contract Budget Baseline

"31. Prevent revisions to the program budget except

for authorized changes." EVMS 1996

Procedures in place to formally control CBB

No changes to CBBwithout customer approval
No budget in excess of CBBwithout customer

2001 Q.W.Fleming
EVPM Page 181
 32. Document All Baseline Changes

"32. Document changes to the performance

measurement baseline." EVMS 1996

Procedures requiring formal change control

Prevent changes to open or closed work
Maintain integrity of baseline
Maintain a control log of all changes

2001 Q.W.Fleming
EVPM Page 181
 Exercise:
Select just ten (10) criteria
to employ a simple form of

"Earned Value Project Management"

1) Form a team of 5 or 6 people with common interests

2) Select just ten (10) key Earned Value criteria
3) Present your findings to management and the CEO

---you have 20 minutes to prepare a positionthere are no bad answers---

2001 Q.W.Fleming
 "Selected" Criteria are Essential to EVPM
Criteria # Subject
1.________ __________________________________
2.________ __________________________________
3.________ __________________________________
4.________ __________________________________
5.________ __________________________________
6.________ __________________________________
7.________ __________________________________
8.________ __________________________________
9.________ __________________________________
10._______ __________________________________
2001 Q.W.Fleming