Earned Value Management: Are Expectations Too High? LTC Nanette Patton Allan Shechet Office of the Surgeon General Savvy Services Inc. Earned Value Management Systems (EVMS) are frequently required on government Automated Information System programs. When implementing EVM, especially for the first time, agencies should train their key managers not only in the EVM process but also in the behaviors and management styles required to avoid major problems that can result from the implementation. While EVM is a useful project management tool, implementing EVM will not solve all the chal- lenges in achieving project goals. Furthermore, given the funding and selection processes for programs, first time EVM implementation can introduce a whole new set of program management challenges. Based on their experience with infor- mation technology (IT) and aerospace projects, the authors identify potential difficulties and risk mitigation strategies to counter those potential difficulties. he President’s Office of Management management control systems, but ject team’s staffing levels and productivity, and Budget (OMB) has asked federal also provides the manager with as well as giving insight into areas of the agenciesT to use a project management dis- timely and consistent cost, sched- work breakdown structure where the cipline known as EVM as a strategy to ule, and progress data. The imple- problems occur. avoid costly IT failures. Other than within mentation of an EVMS ensures EVM compares the following three the Department of Defense (DoD), EVM that cost, schedule, and technical pieces of information: is not well understood by federal agencies aspects of the contract are truly 1. How much work you planned to have [1]. OMB issued its EVM policy guidelines integrated and estimated, and actu- accomplished until now (in dollars or in two memos issued in August 2004 and al progress of the project can be hours) is called the Planned Value (PV). August 2005. In addition to requiring fed- identified. [4] 2. How much you have actually spent eral agencies and their contractors to use until now (in dollars or hours) is called EVM for managing all major IT projects, Actual Cost (AC). the OMB established new reporting “If the budget spend 3. The value, in terms of your baseline requirements. Agencies must include EVM budget, of the work accomplished data when they submit Exhibit 300s, docu- plan shows the project until now (in dollars or hours) is called ments in which they present their business the Earned Value (EV). cases for major IT projects. The OMB over-spending and the The first two pieces of data are compared requires agencies to use EVM to calculate to the EV in terms of differences result- and report each project’s estimated total project schedule ... ing in variances and ratios resulting in per- cost and completion date. slipping, the PM ... formance indexes. While EVM is an effective and useful Basic EVM calculations involve differ- project management tool, there are con- may have no way to ences or ratios with respect to EV: straints within the organizational environ- 1. The difference between EV and your ment of the federal government that make a quantitative plan (PV) is Schedule Variance (SV). impede a smooth implementation of SV = EV - PV. EVM. 2. The difference between EV and your assessment of how bad spending (AC) is Cost Variance (CV). Federal Chief Information the trouble is. CV = EV - AC. Officer (CIO) Council ” 3. The ratio of EV to plan (PV) is your Schedule Performance Index (SPI). Framework SPI = EV/PV. In December 2005, the federal CIO EVM Basics 4. The ratio of EV to cost (AC) is your Council released “A Framework for Program managers (PMs) should manage Cost Performance Index (CPI). CPI Developing EVMS Policy for IT Projects” project cost and schedule performance = EV/AC. [2] to assist agencies in developing their measurements as integrated elements and Positive variance is favorable and negative EVM policies as required by OMB not as separate entities. If the budget is unfavorable. Having an EVM perfor- Memorandum M-05-23 [3] for major IT spend plan shows the project over-spend- mance index that is greater than 1 is favor- projects. The guidance states the following: ing and the project schedule shows mile- able, and less than 1 is unfavorable. stones slipping, the PM may know they CPI is a reading on productivity and EVM is a project management might be in trouble but may have no way SPI is a reading on progress. If there is control tool allowing visibility into to make a quantitative assessment of how good productivity and slow progress, then technical, cost and schedule plan- bad the trouble is. EVMS solves this prob- the project is understaffed. If there is low ning, performance, and progress lem by providing an accurate picture of productivity, then either the project has for major IT projects. EVM not spending and accomplishments related to too much unplanned work or the project only encourages contractors to use a baseline plan. This enables the PM to manager may have estimated poorly and effective internal cost and schedule quickly form conclusions about the pro- the project has more work content than 10 CROSSTALK The Journal of Defense Software Engineering January 2007 Earned Value Management: Are Expectations Too High? Contract Threshold Requirements previously thought. CCoosntrt acor tIncentive >Th$50Mreshold •ReqCuoimrepmliaencnteswith industry EVM standard. That is the essence of EVM; the rest CEqualost ortooIncreAbntivoeve > $50M •• FCorommalpvliaalncidaetiwonithofincdonutsrtarcytoErV’sMEVsMtansdysatredm. are details. EqualThresthoooldr Above •• CFoonrtrmacalt Pvalerifdoarmtioanncoef Rcoenptorrat.ctor’s EVM system. Threshold •• InCteognrtartaecdt MPaesrftoerrmSacncheedulRee.port. DoD EVM Applicability •• InItnetgergartaetdeBdaMsealsinterRSecviheewd.ule. • Ongoing surveillance. The DoD has been using cost and sched- • Integrated Baseline Review. ule controls on aerospace and defense Cost or Incentive < $50M but •• COomngpoliainncgesuwrivtheiillandncusetr.y EVM standard. CLosesst oTr hIncaneUnpptiver >< $$50M20M but •• FCorommalpsliaysncteemwvialthidiantdiounnstryotEreVquMirsetda.ndard. projects since the mid-60s. In the Office Threshold but • Contract Performance Report (tailored). of the Under Secretary of Defense Less Than Upper > $20M • Formal system validationnot required. TEhrqualeshotoold br uAbt ove •• InCteognrtartaecdt MPaesrftoerrmSacncheedulRee(ptaoirlot r(etadi)lo. red). • Integrated Baseline Review (tailored). (Acquisition Technology and Logistics) ELqualowertooThrreAbsholvde • Integrated Master Schedule (tailored). • Ongoing surveillance. policy memorandum dated March 7, Lower Threshold • Integrated Baseline Review (tailored). 2005, the DoD revised its EVM policy to Cost or Incentive < $20M •• EOVMngoopintigonsalur(vriesiklla-bncasee.ddecision). streamline, improve, and increase consistency in CLosesst oTr hIncanentive < $20M •• CEosVtM-beonpetfioitnaalnal(ryisiks-rbeaquseirdded.ecision). EVM implementation and application [5]. LeTsshreTshoalnd • Cost-benefit analysis required. 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