NEWS AND LINKS
Earned Value Management - What is it and Why it´s Important
Earned Value Management is a management tool that relates resource planning to technical, cost, and schedule progress on their contracts. Essentially, it´s an objective measure of what´s been received by the client for what they´ve spent. All work is planned, budgeted, and scheduled in time-phased increments, constituting a schedule and cost measurement baseline. Among other things, there are two major objectives of an earned value system: to permit the customer to be able to rely on timely data produced by the systems for determining product-oriented contract status; and to push contractors to use effective internal cost and schedule management control systems. Earned value management is an integral part to any project management but as with other things in the business world, the process is only as good as the system in place.
One of the most integral parts of program management is the implementation and maintenance of a strong Earned Value Management system. This system helps ensure that cost, schedule and technical aspects of the contract are truly integrated. Now, it would be nice and easy if there was a universal system that crossed all industries and projects and fit every management need for performance measurement. Unfortunately, things are never that simple. Based on variations in products, organizations, and working relationships, it is impossible to prescribe a universal system for schedule control and cost, relative to the scope of the contract. Hence, earned value criteria sets the baseline within which an adequate integrated schedule, cost, and technical management system will fit.
The aforementioned criteria represent the requirements against which EVM Systems are evaluated. There are 32 criteria that are broken down into five separate sections: Organization, Planning and Budgeting, Accounting, Analysis, and Revisions and Data Management. The criteria are generalized so that it provides cross-contractual flexibility in designing and maintaining an effective system. EVM systems that comply with the intent of the criteria will, among other things, allow for: in-depth planning, information broken down by product/organization or function, objective measurement of accomplishment versus what the plan denoted, reporting discipline/analysis of significant variances, and the implementation of actions to mitigate risk and manage cost and schedule performance. All of these things are fundamental to a strong and fully functioning EVM system. The magnificence of the criteria is that it allows flexibility under which the contractor has the ability to develop a system most suited to varying management and contractual needs, ranging from fully manual processes to totally automated systems.
The criteria approach to Earned Value Management verifies that contractors utilize adequate management systems that integrate cost, schedule and technical performance. This allows for better overall planning and control discipline on government contracts and provides management with an effective tool for decision-making. EVM is an essential asset for any and all program management and is important verification that the customer is getting what they paid for while the contractor is successfully performing under the contract.
Prepared by Dan Gerbasi 1/25/04
Copyright Gerbasi Professional Corp. 2004