The ANSI standard on Earned Value Management Systems (EVMS) was approved on May 19, 1998.
The EVMS guidelines incorporate best business practices for earned value management systems that have proven to provide strong benefits for program or enterprise planning and control. The process guide contained in this standard includes project scope definition, schedule, and cost objectives, as well as establishment of a baseline plan for accomplishment of program objectives and use of earned value techniques for performance measurement during the execution of a project. The system described in the standard provides a sound basis for problem identification, corrective actions, and change control.
The identification number of this standard is “ANSI/EIA-748-1998” and copies of the standard are available through Global Engineering Documents. You can order copies online at www.global.ihs.com or call 800-854-7179.
On August 17, 1999, the DoD adopted the ANSI EVMS Standard for use on defense acquisitions. The Defense Standardization Office has made the standard available through the DoD Single Stock Point in Philadelphia. You can find out more information about obtaining a free copy by accessing the following web address: www.acq.osd.mil/pm/newpolicy/indus/ansi_ announce.html
What is Earned Value?
Budget verses actual costs does not give a clear picture. Earned value puts a dollar value on status and provides indices that tell you your project’s ‘health’ at a glance. Evaluating your project’s health is more that just the status of major milestones and budget verses actual costs, it is the evaluation of the true condition of the project. In addition, using management by exception and evaluation of indices to predict your project’s outcome is an efficient way to manage a project.
Basic Concepts of an EVMS Are:
Plan all work for the program to completion.
Integrate program work scope, schedule, and cost objectives into a baseline plan against which accomplishments may be measured.
Objectively assess accomplishments at the work performance level.
Analyze significant variances from the plan and forecast impacts.
Provide data to higher levels for management decision-making and implementation of management actions.
The essence of earned value management is that a budget is established for each element of work. As the elements of work are completed their budgets are earned. As such, work progress is quantified and the earned value becomes a metric against which to measure both what was spent and what was scheduled to be completed.
Schedule variances, which cannot be seen when viewing budget versus actual costs, are quantified. The cost variances are true cost variances that are not distorted by schedule variances. This early detection mechanism gives you a chance to correct problems before it is too late. Without earned value you can only compare what was spent verses what was planned. This does not give an indication of what was actually accomplished.
In order to have earlier and better visibility into your project’s health, you should establish and maintain a baseline for performance measurement and perform earned value analysis on a regular basis.
This section of the ANSI standard provides basic guidelines for companies to use in establishing and applying an integrated earned value management system. The guidelines are divided into five major categories:
•Planning, Scheduling and Budgeting
•Analysis and Management Reports
•Revisions and Data Maintenance.
The basic principles and rules for earned value management are discussed in the Guidelines section of the ANSI standard. The ANSI standard also contains a complete glossary of terms after the Guidelines section.
EVMS Process Discussion
This process discussion provides further information on the application of the above guidelines, and takes you though each phase of the project in simple step-by-step instructions.
Scope definition is comprised of two major components:
•The statement of work
•The work breakdown structure.
Statement of Work
The statement of work (SOW) identifies the work scope requirements for a project. The major portion of the scope definition is done during the proposal and contract negotiation phase. The statement of work is used as a basis for the schedule and budget development.
The Work Breakdown Structure (WBS) is used to divide the statement of work into definable product elements and related services into appropriate elements for cost account and work authorization. The WBS dictionary identifies the portion of the statement of work with the WBS elements.
You should organize your project to optimize the management of your business. This includes matrix organizations, functional organizations, etc. Work assignments and responsibilities are clear if a project is well organized.
The control account is the control point from which earned value analysis is performed. The control accounts are defined by the intersection of the WBS and OBS. In other words, what work is being performed by what organization. The control account is where project costs, schedule, and work scope requirements are integrated, planned, and managed. Resource planning, budgeting, and performance measurement are accomplished within the control account.
A control account manager (CAM) is assigned to the control account in order to manage project cost and performance at this level.
Schedule planning and control are necessary prerequisites for basic project management and effective cost control. The project schedule is comprised of a master schedule that is created during the original scope definition phase. Supporting schedules, detailed plans, and contractor schedules are subsequently developed and statused as the project is under way.
While critical path analysis used by project management software packages like Microsoft Project, Open Plan, or P3, is typically the preferred method for schedule development, it is not necessary for earned value management.
Resource assignments are assigned to the activities in the schedule. Labor and burden rates are applied to the resource assignments to develop a cost or budget for the project. The ANSI standard discusses how to define the budgeting elements, rates, management reserve, work authorization, planning accounts and much more.
A work package is simply a task—a point where work is planned, progress is measured, and earned value is calculated. In order to calculate earned value, work packages are defined and an earned value technique is assigned to each work package. The ANSI standard gives a full definition of each of the earned value techniques and how items such as level of effort and apportioned effort should be handled.
The performance measurement baseline is comprised of all time-phased cost account and planning package budget and any undistributed budget. It represents the current program plans and will change as the program plans are refined and revised.
Earned value is direct measurement of the quantity of work completed and does not reflect the quality or technical content. It is used to determine the health of your project. Critical path analysis and comparing budget verses actual costs does not always provide a clear picture of the “health” of your project. Earned value analysis allows you to compare the budgeted value of completed work verses the actual costs.
The time-phased budget is the schedule for expenditure of the resources needed to accomplish the project scope. The budget for a period is compared to the earned value for the same period to determine the schedule performance or schedule variance. It represents the value of the work that is ahead or behind schedule.
The cost variance is determined by comparing the actual cost with the earned value for a particular period. The cost variance is the difference between the work accomplished and the costs incurred. Rate analysis may be performed to isolate rate variances versus hourly variances. In other words, is it costing more because it took longer than planned, or is it because the labor rate is higher?
Similar to the rate analysis on labor, analysis of planned units versus the usage of material items is important for projects with ongoing production requirements. The results of the analysis should be used to generate an estimate at complete (EAC).
Performance Analysis/Exception Reports
Earned value analysis helps you identify problems early in the project, making it possible for effective correction actions. Management by exception is an efficient way to manage a contract. It allows you to direct energy to portions of the project that are experiencing difficulties. Using earned value you can identify problem areas early and take steps to resolve the situation or modify your forecast to reflect the outcome more accurately.
Estimates at Completion
Periodic assessment of the remaining requirements of a project is an important part of project management. However, if the remaining effort is continually assessed as the work is being performed, you will always maintain an accurate EAC. Your company, however, may elect to conduct periodic (quarterly) EAC reassessments.
Revisions and Data Maintenance
Change control is an important aspect of baseline management. The performance measurement baseline should reflect the current project plan of the project’s objectives. It is equally important that unauthorized changes are not introduced. Proper earned value analysis cannot be performed without a valid baseline.
Authorized changes and correcting data errors should be incorporated into the performance measurement baseline as soon as possible. However, it is best to enter all changes as adjustments in future periods because it is difficult to perform earned value analysis if the history is constantly changing.
Once your company has established a method for proper earned value analysis, you should document your policies and procedures. Then the process can be implemented and applied effectively throughout your company. A company is authorized to use material found in the ANSI standard, in whole or in part including the guidance, definitions and discussions in their system documentation.