Earned Value Management Tutorial

Module 1: Introduction to Earned Value

Management

Prepared by:

Module1: Introduction to Earned Value

Welcome to Module 1. The objective of this module is to introduce you to
Earned Value and lay the blueprint for the succeeding modules.
This module will include the following topics:
Earned Value Management defined
The differences between Traditional Management and Earned Value
Management
How Earned Value Management fits into a Program and Project environment
The framework necessary for proper Earned Value implementation

Module 1 - Introduction
Prepared by: Booz Allen Hamilton

What is Earned Value Management?

Earned Value Management (EVM) is a systematic approach to the integration

and measurement of cost, schedule, and technical (scope) accomplishments
on a project or task. It provides both the government and contractors the
ability to examine detailed schedule information, critical program and
technical milestones, and cost data.
Earned Value Management is intended to provide data from a contractors
management system to the government in standard data elements that

Relate time-phased budgets to contract tasks

Integrate cost, schedule, and technical performance
Indicate work progress objectively
Are valid, timely and auditable
Are from the internal system the contractor uses to manage
Are at a practical level of summarization

Module 1 - Introduction
Prepared by: Booz Allen Hamilton

Why use Earned Value Management?

By using Earned Value and implementing an Earned Value Management

System (EVMS), the following questions can be answered objectively:
Where have we been?
Where are we now?
Where are we going?
Why use Earned Value? For one, it is mandated by some key DOE directives
and guidance that Earned Value will be implemented. The following pages
will discuss these.

Module 1 - Introduction
Prepared by: Booz Allen Hamilton

DOE guidance for Earned Value

A memorandum from the Deputy Secretary of Energy, dated September 19,

2001.
I intend to continue the direction contained in DOE Order 413.3. The
responsibilities contained in the Order require that you know what is going on
with your projects and that you assist your program managers and project
managers in resolving issues and problems. The quarterly performance
reviews, monthly status updates utilizing the Earned Value Management
System as a metric, and periodic independent reviews are all sources for
project information that allow us the opportunity to intercede before projects
get off track.
Now lets look at the DOE Order 413.3

Module 1 - Introduction
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DOE guidance for Earned Value

Current Department of Energy policy, DOE Order 413.3, Program and Project
Management for the Acquisition of Capital Assets, states the requirements for
contractors project management system
The industry standard for project control systems described in American
National Standards Institute (ANSI) EIA-748, Earned Value Management
Systems, must be implemented on all projects with a total project cost (TPC)
greater than $20M for control of project performance during the project
execution phase.
Finally, below lets look at some Best Practice guidance currently in the DOE.
The Office of Field Management has issued a series of 33 Good Practice Guides.
Though they are not official guidance, each guide describes the good practices
used throughout DOE and industry for specific topic including Earned Value
Management, and provides examples of performance objectives, criteria, and
measures.

Module 1 - Introduction
Prepared by: Booz Allen Hamilton

Earned Value Management History

With the understanding of what Earned Value is and why it used, lets take a brief look at
the history of Earned Value.
1960s - Earned value-based performance management began in the 60s, based initially
on Department of Defense (DOD) Cost/Schedule Control Systems Criteria (C/SCSC).
Earned Value was used as an objective measure for progress, i.e., physical
accomplishment

1970s-80s The DOD continued the use of Earned Value in response to bearing cost
and schedule risk in cost-plus contracting.
Contractors pushing high tech, newly developed weaponry
Military having critical schedule needs (Arms Race)

1990s Policy moved Earned Value into all Federal agencies

OMB Circular: A-11, NASA Policy Directive 9501.3, DOD 5000.2R, and DOE Order 413.3 to
name a few

Module 1 - Introduction
Prepared by: Booz Allen Hamilton

Traditional Management vs. Earned Value Management

To better understand Earned Value Management, lets take a look at how

earned value management compares with traditional management.
There is an important and fundamental difference between the data available
for analysis in a traditional management environment as compared to an
environment using earned value.
Following pages will discuss and contrast the different between the two
management approaches.

Module 1 - Introduction
Prepared by: Booz Allen Hamilton

Traditional Management

In Traditional management, there are two data sources, the budget (or planned) expenditures
and the actual expenditures. The comparison of budget versus actual expenditures merely
indicates what was planned to be spent versus what was actually spent at any given time.
But how much has been produced?
As you can see, with this approach there in no way to determine the physical amount of work
performed. It does not indicate anything about what has actually been produced for the
amount of money spent nor whether it is being produced at the rate, or according to the
schedule, originally planned. In other words, it does not relate the true cost performance of
the project.

As the graph shows, 70

this comparison only60
50
represents the
40
relationship of what 30
was budgeted
20
(planned) versus
10
what was actually
0
spent.

Time Now

Budget 5
Actuals 10

10
20

15
30

20
40

25
50

30
60

35

40

45

50

55

60

Module 1 - Introduction
Prepared by: Booz Allen Hamilton

Earned Value Management

In Earned Value Management, unlike in traditional management, there are three

data sources:
the budget (or planned) value of work scheduled
the actual value of work completed
the earned value of the physical work completed

Earned Value takes these three data sources and is able to compare the
budgeted value of work scheduled and compare it to the earned value of
physical work completed and the actual value of work completed.
Lets take a closer look at how earned value appears in a graph.

Module 1 - Introduction
Prepared by: Booz Allen Hamilton

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Earned Value Management

Notice the three lines on the graph below. These lines correspond to the three
components of earned value: budget (in red), actual expenditures (in blue),
and the earned value of the production (in black). Note how the budget line is
below both the actual expenditures and the earned value lines. What does
this indicate?
First, it is obvious that the project is expending more (blue line) than it was
150
budgeted to spend, to date
125
(red line). Given the
100
progression of each line, it
75
is also apparent that this
50
trend has occurred since
25
Time Now
the beginning of the
0
J
F
M
A
M
J
J
A
S
O
N
D
project.
Budget
5
10
15
20
25
30
35
40
45
50
55
60
But what else can be
Actuals 10
20
30
40
50
60
Earned
8
15
25
30
35
45
interpreted from the graph? Forecast
70
80
90
100 110 120
Lets take a closer look on
the next page.

Module 1 - Introduction
Prepared by: Booz Allen Hamilton

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Earned Value Management

In addition to tracking budget and actual expenditures, the graph indicates

what has been completed or earned.
By comparing the budget line (in red) to the earned value line (in black), it is
immediately apparent that the project is producing more than it was budgeted
to produce to date. Additionally, by comparing the actual expenditures (in
blue) to the earned value line (in black), it is immediately apparent that the
project is spending more then it was budget to date. So while the project is
expending more (blue line) than budgeted (red line), it is also producing more
(black line) than budgeted.
So what conclusions can be drawn from this graph? Lets find out on the next
150
page.
125
100
75
50
25
0
Budget
Actuals
Earned
Forecast

Time Now
J

5
10
8

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100 110 120
Module
1 - Introduction
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Earned Value Management

There are two conclusions the earned value data will immediately let you make;
they deal with schedule and cost variances.
Schedule Variance - the project is experiencing a schedule variance of 15. This
is derived from comparing the Earned (45) to the Budget (30). Another way of
stating this is that the project is ahead of schedule in comparison to what was
supposed to be done in the frame time measured.
150
125
100
75
50
25
0
Budget
Actuals
Earned
Forecast

Time Now
J

5
10
8

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Module 1 - Introduction
Prepared by: Booz Allen Hamilton

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Earned Value Management

Cost Variance - the project is experiencing a cost variance of -15. This is

derived from comparing the Earned (45) to the Actual expenditures (60).
Another way of stating is that the project is experiencing an overrun of 15.
This cost variance is very important because history tells us that overruns in
cost do not correct themselves and need management intervention.
Along with the schedule and cost results discussed, earned value management
enables you to forecast the final results of the project (blue dashed line).
150
125
100
75
50
25
0
Budget
Actuals
Earned
Forecast

Time Now
J

5
10
8

10
20
15

15
30
25

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30

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Module 1 - Introduction
Prepared by: Booz Allen Hamilton

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Summarizing Traditional Management vs. Earned Value Management

In summarizing, Traditional management provides you with

How much money and time a particular job is likely to require prior to starting and once
stated, how much money was spent at any given time.

While Earned Value Management provides you with

How much money and time a particular job is likely to require prior to starting and once
stated, how much money was spent at any given time.

Plus

Once started, what work has been accomplished to date for the funds expended (what you
got for what you spent)

Once started, what the total job will cost at completion, and how long it will take to
complete

Module 1 - Introduction
Prepared by: Booz Allen Hamilton

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Earned Value in a Management Environment

Understanding how Earned Value fits into the program and project
management environment is also essential.
On the following page we will discuss and define items such as project vs.
program, project management, program management and the relationship
between them.

Module 1 - Introduction
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What is Program/Project Management?

Program/Project Management is the application of knowledge, skills, tools,

and techniques to meet or exceed stakeholder needs and expectations.
Program/Project Management requires the ability to get the job done:

On Time!
Within Budget!
According to Specifications!
With a High Level of Customer Satisfaction

Scope

These requirements are know as the

Triple Constraint
So how do projects and programs differ?
Take a look on the next page.

Quality
Time

Cost/Resources

Module 1 - Introduction
Prepared by: Booz Allen Hamilton

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What is a Project vs. Program

The Characteristics of a Project are:

Temporary endeavor undertaken to create a unique product or service
Having a definite beginning and a definite end
The Characteristics of a Program are:
A group of projects
Managed in a corresponding way
To obtain benefits not available from managing them individually

Module 1 - Introduction
Prepared by: Booz Allen Hamilton

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Earned Value Management vs Program/Project Management

Earned Value is a Program/Project management technique used to objectively

evaluate cost and schedule efficiency, thereby facilitating better management
of customer needs and expectations.
Earned Value Management is
a subset of Program/Project
Management.
As this hierarchy indicates,
Earned Value Management is
a component of Project
Management, which in turn is
a component of Program
Management. While many
components comprise
Program and Project
Management, this tutorial
focuses on the Earned Value
Management component.

Program Management
Project Management
Budgeting
Cost Proposals/Negotiations
Cost Collection
Change Control
Earned Value Management
Forecasting
Funding
Resource Management
Reporting
Risk Management
Scheduling

Module 1 - Introduction
Prepared by: Booz Allen Hamilton

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Framework for an Earned Value Management System (EVMS)

So far, we have discussed what Earned Value is, why to use it, and how it fits
into a program and project management environment. Next, we need to
discuss the framework needed to implement earned value.
The EVMS framework can be divided into three phases:
1. Inputs - what is needed to implement Earned Value
1. Earned Value Methods formulas, metrics and performance measurements used
1.

Outputs reporting requirements (structure, time-phases, details)

On the following pages these three phases for developing an Earned Value
Management System (EVMS) will be discussed in more detail.

Module 1 - Introduction
Prepared by: Booz Allen Hamilton

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Inputs needed for Earned Value Management System (EVMS)

As you recall, the first phase of Earned Value is inputs. The inputs required for an EVMS include:
Work Breakdown Structure (WBS)
Organizational Breakdown Structure (OBS)
Project Schedule
Time-phased Baseline Budget
Cost/Resource Control Plan
Change Control Plan
WBS/OBS
Project
Schedule
Resource Planning

If any of these items are not completed or are not completed appropriately, the use of Earned Value will be compromised and your outputs will not
Define/Assign
properly represent the program/project current and future status.
Schedule/Budget

Pl
an

Performance Measurement

Establish Baseline

Early Warning & Detection

These Items are covered in

Modules 2 through 4 and
Module 8

als
tu
Ac

Accounting
System

$$$

Earned Value
Management
System

Informed Management
Decisions
Corrective Actions
Recovering Planning

g
in
nd
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F

Module 1 - Introduction
Prepared by: Booz Allen Hamilton

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Earned Value Method needed for Earned Value Management System

(EVMS)
The second phase of Earned Value is the earned value method. The Earned Value method required for an EVMS include:
Planned Value (PV), Earned Value (EV) Actual Cost (AC)
Metrics and Performance Measurements
Forecasting
Integrated Baseline Review

WBS/OBS
Project
Schedule
Resource Planning
Once again, if any of these items are not completed or are not completed appropriately,
Define/Assignthe use of Earned Value will be compromised and your outputs
will not properly represent the program/project current and future status.
Schedule/Budget

These Items are covered in

Modules 5 through 7

Pl
an

Performance Measurement

Establish Baseline

Early Warning & Detection

s
al
tu
Ac

Accounting
System

$$$

Earned Value
Management
System

Informed Management
Decisions
Corrective Actions
Recovering Planning

g
in
nd
u
F

Module 1 - Introduction
Prepared by: Booz Allen Hamilton

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Outputs needed for Earned Value Management System (EVMS)

The last phase of Earned Value is the outputs. The outputs required for an EVMS include:
Reporting requirements
Proper Analysis of Reports
Correct Action taken

WBS/OBS
Project
Schedule
Resource Planning

Even if the first two phases are completed appropriately, improperDefine/Assign

analysis of the outputs could cause inappropriate or inadequate actions to be
Pl
Schedule/Budget
taken against the program/project and could either create problems
that otherwise would
an not exist or fail to fix the real problem that does exist.
Performance Measurement

Establish Baseline

Early Warning & Detection

These Items are covered in

Modules 9,10 & 12

s
al
tu
Ac

Accounting
System

$$$

Earned Value
Management
System

Informed Management
Decisions
Corrective Actions
Recovering Planning

g
in
nd
u
F

Module 1 - Introduction
Prepared by: Booz Allen Hamilton

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Review of Module 1

You cannot manage what you cannot measureand what gets measured gets
done.
--- Bill Hewlett, Hewlett Packard

Reviewing the major items of this module:

Earned Value Management (EVM) is a systematic approach to the integration and
measurement of cost, schedule, and technical (scope) accomplishments on a project
or task
DOE Order 413.3 is the approved policy
In comparing Earned Value Management to Traditional Management, Traditional
Management does not allow for analysis of the physical amount of work performed.
Earned Value Management allows for both schedule and cost analysis against
physical amount of work performed
Earned Value Management is a subset of Program/Project Management
EVMS can be divided into three phases (Inputs, Earned Value method, outputs) and
all three most be completed appropriately for proper management of the
program/project

Module 1 - Introduction
Prepared by: Booz Allen Hamilton

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Summary of Module 1

At this point, we have examined the basics of earned value. As explored

previously, the following modules address in depth the components that
comprise earned value to help you incorporate earned value into your
projects.
If you have a firm grasp of the concepts covered in this module, you are ready
to progress to the next modules. Otherwise, review this module again to
ensure you have a solid understanding of the basics of the Earned Value
Management System.
This concludes Module 1.

Module 1 - Introduction
Prepared by: Booz Allen Hamilton

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