Earned Value Management (EVM) is a Project Management tool used to track and evaluate a project’s performance. EVM combines metrics on cost, schedule, and technical accomplishment to determine, at any given point, a project’s status and performance. Traditional project management methods measures progress based on how much money a project has spent, or how much time has elapsed, with no correlation to how much work is being accomplished. For example, the project has spent 50% of the budget so 50% of the necessary work must also be complete. EVM on the other hand, measures progress through ratios linking cost, schedule, and performance; cost and schedule measurements are incorporated directly into technical performance.
Using EVM, Project Controls Managers can see, at any given time (Schedule), what they have received (Performance) for the money/resources (Budget) they have allocated. This allows for more informed decisions than those that result from looking at production/performance figures that are not correlated to time or cost.
Earned Value Management (EVM) provides management with objective measure of project performance. It helps Project Managers compile and analyze project data and track performance in an environment immune to the subjectivity that results from social and political factors. Unlike other methods that track project performance, EVM shows the value of work in relation to time lapsed and resources allocated. It enables an ‘early warning’ system regarding potential project issues so that Project Managers may make informed, timely decisions that are a result of seeing the full scope of a project’s progress.
Additionally, in many cases the government mandates the use of EVM for large contracts or major capital investment projects.
Office of Management and Budget (OMB) Circular A-11, Part 7 states “Agencies must use a performance-based acquisition management or earned value management system, based on the ANSI/EIA Standard 748, to obtain timely information regarding the progress of capital investments.”
Federal Acquisition Regulations (FAR) Part 34.201 requires:
(a) An Earned Value Management System (EVMS) is required for major acquisitions for development, in accordance with OMB Circular A-11. The Government may also require an EVMS for other acquisitions, in accordance with agency procedures.
(b) If the offeror proposes to use a system that has not been determined to be in compliance with the American National Standards Institute /Electronics Industries Alliance (ANSI/EIA) Standard-748, Earned Value Management Systems, the offeror shall submit a comprehensive plan for compliance with these EVMS standards. Offerors shall not be eliminated from consideration for contract award because they do not have an EVMS that complies with these standards.
(c) As a minimum, contracting officers shall require contractors to submit EVMS monthly reports for those contracts for which an EVMS applies.
(d) EVMS requirements will be applied to subcontractors using the same rules as applied to the prime contractor.
(e) When an offeror is required to provide an EVMS plan as part of its proposal, the contracting officer will determine the adequacy of the proposed EVMS plan prior to contract award.