Spending to plan tells you little on its own: a program can be exactly on budget and badly behind. Earned value management answers the better question, how much work you have actually done for the money spent. The FAR defines an earned value management system as a project management tool that effectively integrates the project scope of work with cost, schedule and performance elements for optimum project planning and control 1.
The three numbers
Every measure comes from three figures for the same period. Budgeted Cost for Work Scheduled (BCWS, also called planned value) is the budget for the work you planned to have done. Budgeted Cost for Work Performed (BCWP, the earned value) is the budget for the work you actually completed. Actual Cost of Work Performed (ACWP) is what that work cost.
Cost variance is earned value minus actual cost, CV = BCWP − ACWP; a positive value is favorable and a negative one unfavorable 2. Schedule variance is SV = BCWP − BCWS, read the same way 3. The cost performance index compares earned value with what the work actually cost, CPI = BCWP / ACWP, and an index of 1.0 means you are spending exactly what you planned for the work performed 4. Above 1.0 you are under running costs 5; below 1.0 the work cost more than it earned, which is an overrun.
Worked example. By month six, Contractor W planned to finish $1,000,000 of work (BCWS). It has finished work budgeted at $800,000 (BCWP) and spent $1,000,000 doing it (ACWP). Cost variance is $800,000 − $1,000,000 = −$200,000. Schedule variance is $800,000 − $1,000,000 = −$200,000. CPI is 0.80. The burn rate matched the plan, yet the program is both over cost and behind schedule.
When an EVMS is required
An Earned Value Management System is required for major acquisitions for development, in accordance with OMB Circular A-11, and the government may also require one for other acquisitions in accordance with agency procedures 6 7. Offerors shall not be eliminated from consideration for contract award because they do not have an EVMS that complies with the standard 8; instead, an offeror proposing a system not yet determined compliant shall submit a comprehensive plan for compliance with the EVMS standards 9.
Once it applies, contracting officers shall require contractors to submit EVMS monthly reports 10, and EVMS requirements are applied to subcontractors using the same rules as applied to the prime contractor 11.
The DoD clause
DFARS 252.234-7002 requires management procedures that provide for generation of timely, reliable and verifiable information for the Contract Performance Report (CPR) and the Integrated Master Schedule (IMS) 12. It also states that if the contract has a value of $50 million or more, the contractor shall use an EVMS that has been determined to be acceptable by the Cognizant Federal Agency 13.
The EVMS clause defines a material weakness in the same words as the business systems clause, as a deficiency or combination of deficiencies in the internal control over information in contractor business systems 14 15.
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