What EVM Is

EVM measures the value of work accomplished in a given period and compares it with the planned value of work scheduled for that period and with the actual cost of work accomplished.

As a key management concept, EVM provides improved oversight of acquisition programs. By using the metrics derived from these values to understand performance status and to estimate cost and time to complete, EVM can alert program managers to potential problems sooner than expenditures alone can. Commercial firms told us that they use the earned value concept to manage their programs because they believe that good up-front technical planning and scheduling not only make sense but are essential for delivering successful programs.

How EVM Works

Assume, for example, that a contract calls for 4 miles of railroad track to be laid in 4 weeks at a cost of $4 million. After 3 weeks of work, only $2 million has been spent. An analysis of planned versus actual expenditures suggests that the program is underrunning its estimated costs. However, an earned value analysis reveals that the program is in trouble because even though only $2 million has been spent, only 1 mile of track has been laid and, therefore, the contract is only 25 percent complete. Given the value of work done, the program will cost the contractor $8 million ($2 million to complete each mile of track), and the 4 miles of track will take a total of 12 weeks to complete (3 weeks for each mile of track) instead of the originally estimated 4 weeks.

Thus, earned value provides the missing information necessary for understanding the health of a program and provides an objective view of program status. EVM is a means of cost and schedule performance analysis. By knowing what the planned cost is at any time and comparing that value to the planned cost of completed work and to the actual cost incurred, analysts can measure the program’s cost and schedule status. Without knowing the planned cost of completed work and work in progress (that is, earned value), true program status cannot be determined. Moreover, because EVM provides data in consistent units (usually labor hours or dollars), the progress of vastly different work efforts can be combined. For example, earned value can be used to combine feet of cabling, square feet of sheet metal, or tons of rebar with effort for systems design and development. That is, earned value can be employed as long as a program is broken down into well-defined tasks.

Using the value of completed work for estimating the cost and time needed to complete a program will alert program managers to potential problems early in the program and reduce the chance and magnitude of cost overruns and schedule delays. EVM also provides program managers with early warning of developing trend—both problems and opportunities—allowing them to focus on the most critical issues.

Implementing EVM

The two main purposes for implementing an EVM system are to (1) encourage the use of effective internal cost and schedule management control systems, and (2) provide the customer with timely and accurate data for determining contract status by product. An effective EVM system comprises management processes for integrating program planning and execution across cost, schedule, and technical disciplines. Figure 22 shows the flow of activity between key functions such as cost estimating, system development oversight, and risk management.

Figure 22: Integrating Cost Estimation, Systems Development Oversight, and Risk Management
Tip: Click the figure to view a larger version in a new browser tab.

As the lower left of figure 22 shows, a program’s life cycle begins with planning, where systems engineering defines the program’s concept, requirements, and WBS. When these activities are complete, the information is passed on to the cost analysis team so that they can develop the program’s LCCE. Before a system is acquired, however, the cost analysis team conducts a risk analysis examining cost, schedule, and technical impacts. The results of the LCCE and risk analysis are presented to executive management for an informed decision on whether the program should proceed to systems acquisition.

If management approves the program for acquisition, then systems engineering and cost analysis continue in conjunction with the development of the program’s EVM performance measurement baseline.44 This baseline is necessary for defining the time-phased budget plan from which actual program performance is measured. If the baseline is not based on a reliable cost estimate or does not reflect the approved work, the program is at risk for cost overruns, missed deadlines, and shortfalls in performance. Additionally, management will have difficulty successfully planning resources and making informed decisions. After the performance measurement baseline has been established, the program manager and contractor participate in an Integrated Baseline Review (IBR) to ensure mutual understanding of all the risks. This review also validates that the program baseline realistically portrays all authorized work according to the schedule.

Preparing for and managing program risk occurs during both planning and system acquisition. In planning, a detailed WBS is developed that completely defines the program, including all risk handling activities. During acquisition, risks are linked to specific WBS elements so that they can be prioritized and tracked through risk management, using data from systems engineering, cost estimating, risk analysis, and program management. These efforts should result in an executable program baseline that is based on realistic cost, schedule, and technical goals and that provides a mechanism for addressing risks.

Implementing EVM at the Program Level

Implementing EVM at the program level rather than solely at the contract level is considered a best practice. Furthermore, it directly supports federal law requiring executive agency heads to approve or define the cost, performance, and schedule goals for major agency acquisition programs. Specifically, the Federal Acquisition Streamlining Act of 1994 established the congressional policy that the head of each executive agency should achieve, on average, 90 percent of the agency’s cost, performance, and schedule goals established for major acquisition programs.45 When it is necessary to implement this policy, agency heads are to determine whether there is a continuing need for programs that are significantly behind schedule, over budget, or not in compliance with the performance or capability requirements, and identify suitable actions to be taken, including termination. Additionally, OMB’s Capital Programming Guide addresses the use of EVM as an important part of program management and decision making.46 That policy requires the use of an integrated EVM system across the entire program to measure how well the government and its contractors are meeting a program’s approved cost, schedule, and performance goals. Integrating government and contractor cost, schedule, and performance status can result in better program execution through more effective management. In addition, integrated EVM data can be used to justify budget requests.

Requiring EVM at the program level also makes government functional area personnel accountable for their contributions to the program. Further, it requires government agencies to plan for a risk-adjusted program budget so that time and funds are available when needed to meet the program’s approved baseline objectives. Continuous planning through program-level EVM also helps government program managers adequately plan for the receipt of material, for example government-furnished equipment, to ensure that the contractor can execute the program as planned. Finally, program-level EVM helps identify key decision points up front that should be integrated into both the contractor’s schedule and the overall program master schedule so that significant events and delivery milestones are clearly established and communicated.

A Baseline for Risk Management

Using generally accepted risk management techniques, a program manager can decide how much management reserve budget to set aside to cover risks that were unknown at the program’s start. As the program develops according to the baseline plan, metrics from the EVM system can be analyzed to identify risks that have been realized, as well as those that are emerging. By integrating EVM data and risk management practices, program managers can develop estimates-at-completion (EACs) for all management levels. In figure 23, EVM is integrated with risk management for a comprehensive program view.

Figure 23: Integrating Earned Value Management and Risk Management
Tip: Click the figure to view a larger version in a new browser tab.

Often, organizational barriers can complicate integrating the EVM and risk management processes. Senior management should encourage cross-organizational communication and training between these two disciplines to ensure that they are working together to better manage the risks a program faces. Doing so will promote a more thorough understanding of program risks and improve the program’s response to the risks. Additionally, when the program addresses risk in the formulation of the program EVM baseline, there is a greater likelihood of program success.

Cost Estimation and EVM in System Development Oversight

Cost estimating efforts and EVM analysis should be integrated; however, government cost estimating and EVM are often conducted by different groups that rarely interact during system development. Once the cost estimate has been developed and approved, cost estimators typically move on to the next program, often without updating the cost estimate with actual costs after a contract has been awarded. In some cases, cost estimators do not update a cost estimate unless significant cost overruns or schedule delays have occurred, or major requirements have changed. Likewise, EVM analysts are usually not familiar with a program’s technical baseline document, GR&As, and cost estimate data or methodology. As such, they generally start monitoring programs with incomplete knowledge of the risks associated with the underlying cost estimate.

As a result, program managers do not benefit from integrating these efforts. Limited integration can mean that:

  • cost estimators may update the program estimate without fully understanding what the earned value data represent,

  • EVM analysts do not benefit from cost estimators’ insight into the possible cost and schedule risks associated with the program, and

  • neither fully understands how identified risks translate into the program’s performance measurement baseline.

Therefore, it is considered a best practice to link cost estimating with EVM analysis. Joining forces, cost estimators and EVM analysts can use each other’s data to update program costs and examine differences between estimated and actual costs. As a result, both groups of analysts can scope changes and present risks to management in time to address them. Analysts can compare program status to historical data to understand variances. Finally, cost estimators can help EVM analysts calculate a cumulative probability distribution to determine the confidence level in the baseline.

Key Benefits of Implementing EVM

Table 18 describes some of the key benefits that can be derived from successfully implementing an EVM system.

Table 18: Key Benefits of Implementing EVM
Scroll to the right to view full table.
Key benefit Description
Provides a single management control system
  • The criteria for developing an EVM system promote the integration of cost, schedule, and technical processes with risk management, improving the efficiency and effectiveness of program management; they require measuring progress, accumulating actual costs, analyzing variances, forecasting costs at completion, and incorporating changes in a timely manner.
  • Implemented correctly, EVM provides a single management control system that prevents organizations from managing with one system and reporting from another.
Improves insight into program performance
  • Enhanced insight into program performance results from the upfront planning, scheduling, and control EVM requires; this is important because the window of opportunity for correcting program problems occurs early in a program.
  • Studies of more than 700 defense programs have shown limited opportunity for getting a program back on track once it is more than 15 percent to 20 percent complete. Thus, programs operating within an EVM system can uncover, address, and resolve problems before they become out of control.
Reduces cycle time to deliver a product
  • EVM imposes discipline and objective measurement and analysis on cost, schedule, and technical processes; planning and analysis often address and prevent problems from surfacing later.
  • If costly and untimely rework can be circumvented, the time to deliver the end product may also be reduced.
Promotes management by exception
  • EVM directs management attention to only the most critical problems, reducing information overload. Because EVM allows communication of cost and schedule variances relative to the baseline plan, management can focus on the most pressing problems first.
Fosters accountability
  • EVM requires breaking a program down into sufficiently detailed tasks to clearly define what is expected and when; this allows those responsible for implementing specific tasks to better understand how their work fits into the overall program plan, establishes accountability, gives personnel a sense of ownership, and can result in more realistic estimates at completion of future tasks.
  • When technical staff are held accountable for their performance, they tend to better understand the implications of how it affects overall program success; managers held accountable for their planning are more likely to implement a disciplined process for estimating work and tracking it through completion.
Allows comparative analysis against completed projects
  • Consistent reporting of projects with EVM processes (following established guidelines) should result in a database useful for comparative analysis, giving managers insight into how their programs perform compared to historical program data.
  • Data may also be used for planning programs, improving the cost estimating process, and determining which suppliers provided the best value in the past.
Provides objective information for managing the program
  • Measuring program performance gives objective information for identifying and managing risk; it allows early detection and resolution of problems by anticipating what could go wrong, based on past trends.
  • Objective data obtained from an EVM system enable management to defend and justify decisions and determine the best course of action when problems arise.

Source: GAO, DOD, NASA, and ICEAA. | GAO-20-195G

Figure 24 shows the expected inputs and outputs associated with tracking earned value.

Figure 24: Inputs and Outputs for Tracking Earned Value
Tip: Click the figure to view a larger version in a new browser tab.

  1. The system acquisition phase includes both contract and government organization efforts. If government staffing is selected, the effort should be managed in the same way as contract work. This means that government effort is expected to meet the same cost, schedule, and technical performance goals that would be required for contract work to ensure the greatest probability of program success.↩︎

  2. 41 U.S.C. § 3103. A similar requirement applied to the Department of Defense but was later amended to remove the 90 percent measure. 10 U.S.C. § 2220. DOD has its own major program performance oversight requirements in chapters 144 (Major Defense Acquisition Programs) of title 10 of the U.S. Code. Regarding information technology programs, agencies are required to identify in their strategic information resources management plans any major information technology acquisition program, or phase or increment of that program, that has significantly deviated from cost, performance, or schedule goals established for the program. 40 U.S.C. § 11317.↩︎

  3. Office of Management and Budget, Capital Programming Guide: Supplement to Circular A-11, Part 7, Preparation, Submission, and Execution of the Budget (Washington, D.C.: December 2019).↩︎