The U.S. Department of Energy (DOE) uses Earned Value Management (EVM) as a performance management tool that measures actual performance of work scope and the associated cost and schedule compared to the approved baseline plan for a project or contract.
EVM has proven to be a valuable tool for project/contract managers and is used in a wide variety of government contracts and in much of the private sector as well. For most construction and cleanup projects, DOE requires the use of the widely recognized national standard for EVM from the Electronic Industry Association called EIA 748: Earned Value Management Systems.
Basic concepts of EVM:
The figure below illustrates the analysis of schedule and cost performance using the EVM technique.
- In the work scope planning stage, all activities are assigned a “dollar value” termed the Budgeted Cost for Work Scheduled (BCWS). In other words, the BCWS represents the planned work in terms of the planned cost of that work. Physical progress is measured in dollars, so schedule performance and cost performance can be analyzed in the same terms.
- During contract execution, activities “earn” the apportioned dollar value based on the amount of work actually completed, termed as the Budgeted Cost for Work Performed (BCWP). In other words, the BCWP represents the work that is completed in terms of the originally planned cost for that work.
- The actual amount of money spent on the completed work is tracked as the Actual Cost of Work Performed (ACWP).
- The BCWP can then be compared to the ACWP to determine any cost variance (under- or over-spending).
- The BCWP can also be compared to the Budgeted Cost for Work Scheduled (BCWS) to determine any schedule variance (ahead or behind schedule).
- The BCWP and ACWP can also be used to anticipate future performance trends and forecast any changes to the Completion Date or the Estimate at Completion.
The benefit of EVM is the ability to take physical progress into account when analyzing cost performance. If a project’s or contract’s actual costs to date are simply compared to planned costs, without a measure of physical progress, the results can be misleading since the relationship of progress and spending are not known. When properly applied, EVM provides an early warning of performance problems. By identifying trends and problems early, EVM helps managers effectively plan, control, and manage work scope so they can take corrective action and re-plan the work, if necessary. Systematic implementation of EVM throughout the organization allows comparative review of project and/or contract performance, helping managers make better-informed decisions.
DOE’s EVM approach:
DOE has improved its approach to project and program management by integrating EVM concepts in managing major projects, contracts and in reporting project status.
EM uses EVM as part of an integrated management system to evaluate project and contract performance. EVM objectively measures performance against the approved performance baseline plan that describes the requirements to be met by the project or contract in terms of scope, deliverables or milestones, schedule and cost. Progress on performance goals utilizing EVM data is assessed monthly by every level within contractor and DOE management from the contractor control account manager closest to the work up to the DOE Senior Management. Effective application of EVM with performance baseline management is intended to improve EM’s success rate in completing projects and cleanup activities on time and within budget.
The Office of Environmental Management (EM) requires all contractors with contracts greater than or equal to $25 million to implement EVM systems compliant with the EIA-748 EVMS standard. A contractor must undergo a review by an independent team of DOE personnel of its EVM policies, procedures and implementation to ensure the 32 basic guidelines in the EIA-748 standard are met.
Capital Asset Projects subject to the requirements of DOE Order 413.3B, “Program and Project Management for the Acquisition of Capital Assets,” with total project costs (TPC) greater than $100 million must have an EVMS certified by the DOE Office of Project Management.