Earned value management in Sweden--experiences and examples

Introduction

Earned Value Management (EVM) has become an important tool for the management of large and complex projects. The basic principles of EVM are easy to understand. With Earned Value (EV) you can answer the question “What have you got for the money you spent?” Earned Value Management is described in A Guide to the Project Management Body of Knowledge, published by PMI (2000). This paper shows how EVM was valuable for the Swedish Government and the Swedish Secretary of Defence in the management of the Gripen project.

Development of Earned Value Management

With Earned Value Management you can manage cost, schedule, and technical performance in an integrated way. “A major step in the construction of an integrated management system for research and Development was undertaken in 1958 when PERT, Program Evaluation and Review Technique, was instituted to aid managers in planning and Controlling the three variables of large weapon systems Development programs—time, cost, and technical performance” (OSD & NASA, 1962, Preface). Earned Value, then called “Contract Estimate for Work Performed,” is found in the “Cost of Work Report” already in 1962 in the DOD and NASA PERT COST Systems Guide (OSD & NASA, 1962, p. 16). The contract estimate for work performed to date “is a measure of progress achieved in the project” (OSD & NASA, 1962, p. 135).

The OSD & NASA “PERT COST System Design basic guide” describes the use of Work Breakdown Structure.

“The development of the work breakdown structure:

  • Defines the project tasks to be performed and establishes their relationships to the project end item(s) and project objectives
  • Establishes the framework for integrated cost and schedule planning and control
  • Establishes a framework for summarizing the cost and schedule status of the project for progressively higher levels of management” (OSD & NASA, 1962, p. 26).

From the foreword of the PERT Cost Guide we quote the following: “The complexity of directing and controlling these programs has challenged conventional management techniques” and that PERT “also provides the integrative discipline for government and corporate managers at all levels necessary for the definition, communication and successful attainment of the prime and supporting objectives of the plan” (PERT Coordinating Group, 1963, Foreword). The Cost/Schedule Control Systems Criteria (C/SCSC) dated December 22, 1967, were introduced with the DOD Instruction 7000.2 titled “Performance Management for Selected Acquisitions” (DOD, 1967).

WBS was described in more detail in a military standard. The first one is from 1968 (DOD, 1968). Implementing the criteria was not easy. Not all contractors had management systems that could comply with the criteria. One problem at the time was the “Inability to relate costs incurred to progress achieved.” The Assistant Secretary of the Army, J. Ronald Fox discussed this and other problems in a letter dated February 2, 1971. A briefing was made for the Deputy Secretary of Defence, the late David Packard, on May 5, 1971. A Joint Implementation Guide (JIG) was later prepared. It is outside the scope of this paper to discuss the further implementation of EVM more in detail. Here we note that the U.S. government, a customer of large and complex projects, wanted the contractors to have management systems that satisfied some basic requirements for integrated project management when spending taxpayers money.

The Under Secretary of Defense for Acquisition and Technology, the Honorable Paul G. Kaminski said the following in his keynote address at the 7th Annual International Cost Schedule Performance Management Conference in October 23, 1995: “Let me explain what the term “earned value management process” means to me. It means that whenever the Department puts public funds at risk on large cost-based contracts—either cost-type or fixed-price incentive type contracts— a process exists to manage those resources wisely. Let me repeat—I expect public funds to be managed wisely. The key word is “managed.” Not “accounted for,” “monitored,” or “reported,” but managed. It was for this reason that the C/SCSC approach was developed many years ago. Unfortunately, we have fallen short of this objective in our implementation of C/SCSC criteria over the years” (Kaminski, 1995).

Gripen Case Study

Gripen Management Requirements

The need for firm project control was clearly expressed from the political level already at the very beginning of the Gripen project. It is mentioned in public records from the Swedish Parliament and Government during the early 1980s. The go-ahead decision by the Swedish Parliament in 1982 was expressed in terms of technical specifications, schedule and total project cost. In 1982 the Swedish Government took a special decision concerning the management and control of the Gripen project. The decisions taken by the Parliament and the Government meant that the military authorities had to develop and implement new policies and procedures to manage the Gripen project.

Exhibit 1. Major systems in the Gripen aircraft (from IG JAS, in Antvik 2001)

Major systems in the Gripen aircraft (from IG JAS, in Antvik 2001)

Thoughts regarding management of the Gripen development can be found in a report by Hökborg to Dr. L. Stuckenbruck at the University of Southern California (Hökborg, 1972). Hökborg was a key person in managing the Gripen project. Dr. Stuckenbruck was an early and active member of PMI. He published a book in 1981 (Stuckenbruck, 1981). The Gripen project management was also influenced by Archibald who published a book in 1976 (Archibald, 1976).

The Gripen Project

The Gripen is a supersonic multi-role, single engine military aircraft. The largest contract between the Swedish Defence Materiel Administration (FMV) and the industry is the aeroplane contract signed with the Swedish Industry Group JAS (IG JAS). IG JAS is formed by large Swedish industries, i.e., SAAB, VOLVO, ERICSSON and CELSIUS now part of SAAB. IG JAS has subcontracts with different companies that provide major subsystems for the aircraft.

Exhibit 1 shows major systems in the Gripen aircraft. Examples are the engine from Volvo Aero Corporation in Sweden and General Electric in USA; the escape system from Martin Baker in Great Britain; the fuel system from Intertechnique in France; the hydraulic system from Lucas Aerospace in Great Britain and the automatic gun from Mauser-Werke in Germany. IG JAS, which is the prime contractor for the aeroplane to the customer FMV, manages these major systems.

The Customer Chain in the Gripen Project

The Swedish Parliament, “Riksdagen” in Swedish, is the public body that passes laws and decides on taxes and the use of public funds. The Swedish Government, “Regeringen,” executes the decisions by the Parliament. The Swedish Armed Forces, “Försvarsmakten,” is the authority responsible for the military defense. The Swedish Defence Materiel Administration, “Försvarets Materielverk” (FMV), is the authority responsible for procurement of arms and other equipment for the Swedish Armed Forces.

The customer chain in this global multiproject starts with the Swedish Parliament and continues via the Swedish Government and the Swedish Armed Forces to the Defence Materiel Administration (FMV). This is the governmental part of the customer chain. FMV has contracts with industry. The largest contract is the contract with the Industry Group JAS (IG JAS). A major subcontractor to IG JAS is for example General Electric with their part of the engine. Antvik (1999) describes the customer chain in the Gripen project in Swedish.

EVM in the Development of the Single-Seat Gripen

The contract between FMV and IG JAS was signed on June 30, 1982. The design work was done within a Work Breakdown Structure (WBS) defined in the contract. In large multiyear contracts there is often a need to change the contract under way. In this case the parties kept close track of all contract changes. Each of them got a number in sequence. The contract is the baseline from which you measure performance.

The written reports from IG JAS to FMV use the contract WBS as a base for the outline. The WBS was also used as a tool to integrate technical, schedule and cost information. A three-level WBS was used in the contract between FMV and IG JAS. In this large global multiproject there are a number of different currencies to handle. In this case FMV used the contract budget in the agreed base price level of February 1981 as the budget baseline, i.e., Budgeted Cost for Work Scheduled or BCWS.

When the project started FMV had never before had a similar contract to manage. Thus FMV had to develop new policies and procedures to manage this, the largest contract with a number of different currencies. The actual costs were first recorded in present prices and currency rates. The actual costs were then converted to the base price level with respect to price escalation (indices) as well as changes in rates of exchange. Thus FMV was able to compare the Actual Costs with the Budgeted Costs using comparable conditions.

For different reasons delays occurred in the development project almost from the very beginning. The box of uncertainty was first made at FMV late in 1987. It was used as a tool to describe the project situation to senior management, including the Swedish Secretary of Defence and the Swedish Prime Minister.

The box of uncertainty was a useful tool that gave a good overall picture of the project in one single picture. The lower left corner of the box reflects delay and cost overrun until today. The upper right corner of the box reflects were the project will end if the present trends continue. The final cost outcome was in the order of magnitude where the trend extrapolation pointed. The final schedule outcome was later, partly due to an accident with a flight test aeroplane early in the program. According to senior management in FMV and the Secretary of Defence the box of uncertainty was a very valuable tool when they presented the situation in the project to the Swedish Government. It is safe to say that the box of uncertainty can be a very valuable tool in the management of large and complex projects.

Further Development of the Box of Uncertainty by IG JAS

IG JAS has made further developments of the box of uncertainty. IG JAS can now generate the box of uncertainty by using the average Schedule Performance Index (SPI) and Cost Performance Index (CPI) as well as SPI and CPI for a selected period, e.g., performance during the last 20% of the time. By doing this you can get two boxes and thus get two indications of where the project is headed with regard to cost and schedule. IG JAS can also generate text comments directly into the graph from database in the computer. The comments make the information much more understandable to project managers. It can be said to be a huge improvement of the “man—machine—interface.”

The “Earned Value” in a Simple Way

When FMV started to use Earned Value Management on the Gripen project in 1982 a simplified, but yet effective, procedure was used to measure the “Earned Value” or “Budgeted Cost for Work Performed” (BCWP). The procedure can be described in tree steps that start with “time now” and the time-phased budget or planned value, formerly the Budgeted Cost for Work Scheduled (BCWS). This procedure was computerized by FMV in the very beginning of the Gripen development program.

Exhibit 2. The Customer Chain (from Antvik 1999)

The Customer Chain (from Antvik 1999)

ONE: You measure the average schedule performance expressed in time for the different parts, i.e., the WBS elements, of the contract. The schedule difference is then plotted (1) in a diagram with the time-phased budget for each WBS element. This is done for elements on level three of the Contract Work Breakdown Structure (CWBS).

TWO: You follow the time-line from step 1 upward in the diagram until it hits the planned value curve. This value from the Planned Value (PV) curve (2) is used as an estimate of the Earned Value (EV).

THREE: You use this value (where the schedule line crosses the Planned Value (PV) line as an approximate value for the Earned Value (EV) and plot (3) it at the time-now line.

EVM in 10 Basic Steps

A model for the use of EVM has been developed with experiences from the Gripen project. It is a model in 10 steps. The first six steps are to be done before you start the project. The next steps (7–10) are to be done when you perform the project. The 10 steps are described more detail by Antvik in Swedish (1999) and Antvik et al. (2001).

Step 1 defines the project Goal in terms of technical performance, time and cost. Step 2 defines the Work Breakdown Structure (WBS) and the project goals in greater detail. The WBS is also an important tool when integrating technical, schedule and cost information. In step 3 you define the Organizational Breakdown Structure (OBS). In step 4 you define the Responsibility Assignment Matrix (RAM), or in other words WHAT is to be done by WHOM?

In step 5 you define the Schedule or WHEN it is to be done! In step 6 you define the time phased budget or in the words of the PMBOK® Guide - 2000 edition, the Planned Value (PV) as the last step before you start the project. The Planned Value was formerly called the Budgeted Cost for Work Scheduled (BCWS).

Exhibit 3. The Box of Uncertainty From 1987 (from FMV, in Antvik 1999)

The Box of Uncertainty From 1987 (from FMV, in Antvik 1999)

Exhibit 4. The Simple Three-Step Approach to Get Earned Value (EV)

The Simple Three-Step Approach to Get Earned Value (EV)

Exhibit 5. The EVM Checklist

The EVM Checklist

You do the following four steps during the project phase. In step 7 you measure the Actual Cost (AC). The Actual Cost was formerly called the Actual Cost of Work Performed (ACWP). In step 8 you measure the Work Performed or in other words measure the results so far in technical terms. In step 9 you measure the Earned Value (EV). The Earned Value was formerly caller the Budgeted Cost for Work Performed (BCWP). In step 10 you perform the Analysis. When you know the Planned value, Actual Cost and Earned Value you can easily calculate the schedule and cost differences as well as the cost performance index and schedule performance index. These indices are important measures for any project manager.

The above model is based on EVM experiences in FMV. This checklist for EVM in 10 steps has proved to be very useful. The model has proved to be easy to understand for beginners as well as more experienced project managers. Steps 1–8 are common (?) good project management. Without steps 1–8 you have no basis for EVM. You must do the first eight steps before you can use EVM. Step 9 is the Earned Value (EV) step. The 10 steps checklist has been very valuable when communicating Earned Value Management (EVM) to other people. Steiner gives a reasonably similar description from Boeing on their use of EV more than 30 years ago (Steiner, 1974).

They have also been used in a number of Master theses on Earned Value Management in Sweden. The most recent example is a handbook in EVM that was presented at the CPM's 17th Annual International Conference (Johansson, 2001). CPM is the PMI College of Performance Management. The checklist is also used as a basis for weekly EVM in an aircraft modification project in Sweden. Microsoft Excel is used for integration and graphics.

New Swedish Requirements

The Swedish Government, the Swedish Armed Forces and the Defence Materiel Administration (FMV) has taken decisions to improve its project management by using earlier experiences from the Gripen project. These earlier experiences are a firm basis for the decisions on new policies to manage the acquisition of defense materiel. The first new annual project reports were delivered to the Government from the Swedish Armed Forces after the fiscal year 2000. The Government's annual budget bill to the Parliament now includes brief annual reports from the larger military projects that are managed in this new way. The report for every project includes information of the total project budget, technical accomplishments and the schedule status.

In brief the new rules can be summarized with the definition of the project technical, schedule and economic limit expressed in a certain price level, e.g., 2002 price level. The Swedish Armed Forces prepares a report to the Government. The Government then reports to the Parliament in the annual budget bill.

Conclusions

One very basic management goal described in the PERT System Guide in 1962 and the PERT COST Guide in 1963, i.e., the integration between performance, schedule and cost was achieved in the Gripen project. The basic ideas for integration from PERT, PERT COST and the C/SCSC were used in the Gripen project. When we look at FMV use of EVM in the Gripen project it is easily seen that it follows the intentions of the management criteria from the middle of the 1960s to integrate cost and schedule information.

EVM was used in the customer chain from contractors via FMV, the Swedish Armed Forces and the Swedish Government to the Swedish Parliament. FMV made great efforts to facilitate the understanding and interpretation of the EVM-information by presenting it in graphics. Standardized colors were used in the graphics: Blue for the Planned Value (PV), Red for the Actual Costs (AC) and Green for the Earned Value (EV). The use of standardized colors proved to facilitate the communication with senior management.

According to senior management in FMV and the Secretary of Defence at the time, Roine Carlsson, this first box of uncertainty made in November 1987 was a very valuable tool when FMV then presented the overall situation in the Gripen project to the Swedish Government.

The cost of implementing EVM depends on how capable your present management systems are and how you implement the criteria. A more detailed implementation is more costly. The Gripen project shows that useful results can be obtained from a simplified implementation using only three WBS levels. The fundamentally important thing is the integration between cost, schedule, and performance the criteria requires. Earned Value can present an overall picture of even very large projects in one single graph.

It is safe to say that Earned Value Management (EVM) is a proven best practice in project management. Today EVM is an important part of A Guide to the Project Management Body of Knowledge (PMBOK® Guide - 2000 Edition).

References

Antvik, Sven. 1999. Control of large development projects: On the use and further development of Earned value Management in the Gripen project at the Swedish Defence Materiel Administration. Stockholm, Sweden: Royal Institute of Technology. (In Swedish).

Antvik, Sven. 2001. Why was Earned Value Management so Important to the Swedish Government in the Gripen project? The Measurable News (September): 1, 18–19, 21, 25 and 28.

Antvik et al. 2001. Earned Value Management in 10 Basic Steps. The Measurable News (September): 27–28.

Archibald, Russell D. 1976. Managing High-Technology Programs and Projects. New York: John Wiley & Sons Inc.

Department of Defense. 1967. Performance Measurement for Selected Acquisitions, DOD Instruction 7000.2. Washington, DC, December 22, 1967.

Department of Defense. 1968. Work Breakdown Structures for Defence Materiel Items, MIL-STD-881. Washington, DC, 1 November 1968.

Fox, Ron. 1971. Letter to “highlight a serious problem pertaining the DOD-wide management of the weapons acquisition process and to propose an action to help solve the problem.” Department of the Army, Office of the Assistant Secretary, Washington, DC, 2 February 1971).

Hökborg, Sven-Olof. 1972. Some thoughts regarding weapons system development. Los Angeles, California: University of Southern California, Institute for Aerospace Safety and Management, Report to Dr L. Stuckenbruck.

Johansson, Lennart. 2001. Implementation of a control system—a master thesis. Paper and presentation at the College of Performance Management (CPM) 17th Annual International Conference. May 2001.

Kaminski, Paul G. 1995. Integrated Program Management: The Manager's Tool for Success, Keynote Address. 7th Annual International Cost Schedule Performance Management Conference. Washington, DC (October 23, 1995).

Office of the Secretary of Defense & National Aeronautics and Space Administration (DOD & NASA). 1962. DOD and NASA Guide PERT COST Systems Design. Washington, DC (June 1, 1962).

PERT Coordinating Group. 1963. PERT Guide for Management Use. Washington, DC.

Project Management Institute. 2000. A Guide to the Project Management Body of Knowledge (PMBOK® Guide). Newtown Square, PA: Project Management Institute.

Steiner, John E. 1974. Problems and Challenges, A Path to the Future. London: Royal Aeronautical Society.

Stuckenbruck, Linn C. Ed. 1981, The Implementation of Project Management: The professional's handbook. Menlo Park, CA: Addison-Wesley Publishing Company, Inc.

This material has been reproduced with the permission of the copyright owner. Unauthorized reproduction of this material is strictly prohibited. For permission to reproduce this material, please contact PMI or any listed author.

Proceedings of the Project Management Institute Annual Seminars & Symposium
October 3–10, 2002 • San Antonio, Texas, USA

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