The U.S. Department of Energy (DOE) uses Earned Value Management (EVM) as a project management tool that measures actual performance of work scope and the associated cost and schedule compared to the approved baseline plan for the project.
EVM has proven to be a valuable tool for project managers and is now being 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 American National Standards Institute/Electronic Industry Association called ANSI/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 project planning stage, all project 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 project execution, project activities “earn” the apportioned dollar value based on the amount of work 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 Budgeted Cost for Work Performed (BCWP) can then be compared to the Actual Cost of Work Performed (ACWP) to determine any cost variance (under- or over-spending).
- The Budgeted Cost for Work Performed (BCWP) can also be compared to the Budgeted Cost for Work Scheduled (BCWS) to determine any schedule variance (ahead or behind schedule).
- The BWCP and ACWP can also be used to predict future performance trends and forecast any anticipated change to the Completion Date or the Estimate At Completion (EAC).
The benefit of EVM is the ability to take physical progress into account when analyzing cost performance. If a project’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 project performance problems. By reliably identifying trends and problems early, EVM helps managers effectively plan, control, and manage projects 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 performance, helping managers make better-informed decisions.
DOE’s EVM approach:
DOE has improved its approach to project management by integrating Earned Value Management concepts in managing major projects, contracts and reporting project status.
EM uses EVM as part of an integrated management system to evaluate project performance. EVM objectively measures performance against the approved project baseline plan that describes the requirements to be met by the project in terms of scope, deliverables or milestones, schedule, and cost. Progress on project performance 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 project baseline management is intended to improve EM’s success rate in completing projects on time and within budget.
The Office of Environmental Management (EM) requires all contractors with contracts greater than or equal to $20 million to implement EVM systems and be certified in their use. The DOE Office of Acquisition and Project Management (APM) is the certifying organization. To qualify for certification, a contractor must undergo a review by an independent team of APM and EM personnel of its EVM policies, procedures and implementation to ensure they meet 32 basic guidelines in the ANSI/EIA-748 standard.