Earned Value Management (EVM) – To Do or Not To Do

by Ten Six

Why should we do Earned Value Management (EVM)? For those of us who implement Earned Value Management Systems (EVMS) regularly within many different organizations, we hear plenty of reasons why an organization shouldn’t do EVM. At the end of the day, most organizations implement an EVMS because they need to comply with a government contract.

Why We Shouldn’t?

Here are some of the most common reasons why organizations don’t want to implement an EVMS:

· Too bureaucratic.

· Too expensive to implement.

· Too many people are required to administer an EVMS.

· Special IT tool-sets are required.

· The Baseline cannot be established early…development programs have too much uncertainty, let’s wait and see.

· “This program is too small to need such an intrusive tool.”

· “We’re only a small company and can’t afford this.”

· “This program is too big…Earned Value is meaningless to us.”

Those are some of the quoted reasons and more often than not, there are other hidden issues that are not shared so readily. These include:

· The objectivity an EVMS provides leaves nowhere to hide.

· We’ll have to do detail planning ahead of the game and are not willing to make that much effort.

· EVM will reveal more details about actual costs than we want Internal or Customer Management to know.

· We don’t want to undergo a Customer based Integrated Baseline Review (IBR) to prove our baseline is valid.

Number 4 above is amusing as it implies that they have a choice whether or not to conduct an Integrated Baseline Review with their customer.

Why We Should?

It won’t be a surprise to anyone that the number one reason to implement a robust EVMS is because it’s a contractual requirement. In fact, the government and agencies have different contract Dollar thresholds where EVM must be a contractual requirement. You can see some examples of these in the table chart here.

Here are some reasons why you should not only implement an EVMS but also embrace it for all programs:

· The Government requires EVM to see cost and schedule variances in order to mitigate issues before they are too large.

· Non-compliance with the Government could be very costly and they do have deep pockets to pursue you.

· The 32 Guidelines reflected in ANSI/EIA-748 represent sound project management principles. Of these Guideline groupings, which do you think should not be reflected in your company’s processes to effectively set up and manage your programs?

• Organizing: Defining the work and assigning responsibility/accountability for its performance?
• Planning & Budgeting: Developing a definitive plan to monitor how you’re going to get there and the costs required?
• Accounting: Establishing cost charge numbers to accrue direct & indirect costs by major element. This will help in comparing actual to planned costs?
• Analysis: Routine review of cost & schedule performance to date to see where you’ve gone off target, understand how it’s going to get fixed and what it’ll ultimately cost?
• Revisions: Maintaining a track record of changes made to the contract with the impact to the cost and schedule baselines to use for the next similar program?

It’s true that implementing and executing an ANSI-748 EVM compliant project management plan does require effort by both the project team and senior management. The alternative of not establishing a solid plan to manage a contract’s scope, schedule, budgetary and risks could result in project failure and a financial pressure on your organization. Is it worth the risk to not do EVM?

What about Firm Fixed Price?

Firm Fixed Price (FFP) contracts often do not require EVM as all the risk is on the contractor. But it does beg one question. Why would a company that’s taking on a FFP contract that has them bearing all the cost and schedule risks not do EVM? They are effectively in a position to not know their potential cost and schedule exposure risks. Are you willing to bet your company that everything will work out OK?

Summary

Earned Value Management is essentially best practice project management. Getting bad news on project performance early enough to take action is a lot less painful than the consequences of project failure and contractual non-compliance.

In complement to this post read this.