EVM: Information Technology's New Safety Net

Agencies at all governmental levels are working to simultaneously modernize and consolidate IT systems, ...

by , / August 10, 2006
increase operating efficiencies and improve process effectiveness, which will result in the close intertwining of IT and business operations. Leaders must, at the same time, balance these objectives with their roles as good stewards of taxpayer dollars, and optimize the use of limited budgets.

CIOs have been looking for ways to strike this balance, and the answer may lie in a methodology called Earned Value Management (EVM).

Born out of the Department of Defense (DoD) in the 1960s, EVM has since evolved, becoming the gold standard for measuring project progress in the public sector. Governments are now turning to the methodology to manage complex IT projects.

Calling All Feds
In August 2005, the Office of Management and Budget (OMB) issued a memorandum calling for federal agencies to adopt EVM to better manage IT project costs, schedules and performance. Not surprisingly, this requirement pushed EVM to the front burner for federal agency CIOs, but state and local CIOs are also looking at it to improve performance for their biggest IT projects.

EVM enables continuous project performance and status assessment, helping agencies effectively measure every project's alignment with available resources and time-based goals. "EVM is a structured method for integrating technical, schedule and cost performance that has long proven effective in managing performance of complex government projects," according to research firm Gartner. "Despite its proven track record in large government projects, EVM is not well known or understood among government IT professionals."

EVM integrates cost, schedule and technical performance information to improve project management and reduce risk. EVM practices help CIOs compare practical work progress against estimations, and when necessary, allow them to take corrective action sooner than later.

Early Adopter
CIOs can measure EVM's impact by looking at other agencies that have used the methodology, such as the U.S. Office of Personnel Management (OPM), which deployed EVM policies and processes, as well as project management software, to develop secure, cross-agency IT solutions for five human resources (HR) initiatives: e-clearance, e-training, e-payroll, recruitment one-stop and enterprise HR integration.

EVM gave the OPM tools necessary to deliver objective project status reports, and enabled the agency to more accurately estimate financial, staff and resource requirements for future projects. With the methodology, the OPM tracked and reported on project cost, schedule and performance throughout the entire project, met the OMB guidelines, and created necessary reports.

The OPM now uses EVM on all IT projects, including the governmentwide Lines of Business initiative, for which the OPM serves as the lead agency. Additionally the OPM is considering an EVM-driven IT project that, if approved, would modernize the federal government's retirement system.

Ten Keys to Unlocking EVM
Implementing EVM requires some cultural change in the way an agency executes program management. It starts with examining how current programs and processes function today, and then identifying a path toward improvement.

There are 10 key considerations to keep in mind when developing and implementing EVM: inputs, resources, schedule, budgeting, evaluation, data collection, accounting, relying on a baseline, monitoring, forecasting and change, which are detailed below.

Focusing again on the final result, this framework provides a road map to improve program budgeting and performance monitoring.

1) The Inputs: Definitions and Details
It may sound simple, but the first (and perhaps most important) criteria for successful EVM practices is clearly defining the project scope -- including project objectives and deliverables. If managers do not define what constitutes 100 percent of the project, how can they accurately represent percent complete down the road? Though understanding project scope is important for any project, it is particularly critical for projects that measure earned value performance. To define scope, agency managers should rely on previous projects as much as possible and utilize Work Breakdown Structure (WBS) when specific details are not available. A WBS allows one to define a new endeavor by laying out all the assumed work within the WBS framework and then breaks down each element into measurable work packages.

2) Resources: Who's Doing What
Next, the EVM policy team should define who will perform the desired work, including identifying any necessary external resources. Understanding and properly selecting items that an agency will need to purchase is an essential extension of the project's scope. For example, clearly identifying the internal and external (contracted) staff resources can have a dramatic impact on the project's cost -- particularly if the project changes over time. While internal budgets can be more informal and allow for some flexibility, there is no "wiggle room" with procured work. Properly outlining the desired work will save an agency from costly contract modifications over the life of the project.

3) Plan and Schedule: Keys to Execution
EVM is essentially a good scheduling system with integrated budgets and resources. The project schedule is vital to earned value because it reflects the project manager's baseline for everyone to follow. Create a project schedule to describe the sequence of work and identify significant task interdependencies. Armed with a detailed project plan and schedule that accurately describe the project scope and planned value, and then measuring the resulting earned value, agency project managers can quickly identify project variances and take action if the project is falling behind its intended plan.

4) Budgeting: Use Rates You Know
Once the project scope and schedule are clearly defined, CIOs will need to estimate the budgets for all defined tasks and resources. Most government agencies use a significant number of contracted resources. IT project managers need to keep track of the various resources, their respective rate structures and map them to newly defined cost accounting processes.

Reviewing and creating a contract inventory will establish accurate cost estimates. IT managers should apply rates discretely (what you're currently paying and the expected cost increases over time) -- especially over long programs -- to project both current and future costs.

5) Evaluation: What's Your Definition of Progress?
Now it's time to formalize the actual EVM evaluation process. The meaning of "on target" varies by agency, and potentially further by functional area or individual project. As a result, only IT managers can determine what progress means. Is it a function of percent complete? If so, how is "completion" defined? Or, is progress a function of cost or timeline?

Success is defined by most organizations as the achievement of certain project milestones within a defined period or budget. Typically organizations specify what physical products, outputs, metrics, milestone and technical performance indicators they will use to measure the actual work accomplished against the scheduled plan. Whatever the metric for progress is for your agency, the key to success is communication of and agreement on these objectives across the project team.

Without these essential definitions, earned value calculations will prove impossible.

6) The Starting Gate: Rely on a Baseline
At this point, IT project managers should define the time-phased budget baseline against which they will measure project progress. This baseline is referred to as the performance measurement baseline (PMB). Establishing an accurate and agreeable PMB is critical to EVM success as it is the baseline against which performance is measured. The PMB should include both direct and indirect costs for each subproject. All key stakeholders should agree on the starting point, as well as midstream metrics and project gates. This formalized process includes ensuring outcomes and agreements are well documented and communicated clearly to all project team members.

By defining, communicating and agreeing upon the starting gate and evaluation frameworks, members of the project team and agency decision-makers understand the baseline for evaluating all work products and overall project success.

7) Accounting: Align Actual Costs to Project Budget
Throughout the process, it is important to keep project managers informed as to how much money they have spent on their projects. It may seem obvious, but realistically, this is one of the most challenging tasks agencies face. Understanding actual costs throughout the project is critical to evaluating earned value. The best way to keep costs in check is to attribute all direct costs to the specific project requiring the resource in a formal system controlled by accounting. When reviewing EVM budget reports on a frequent basis (such as weekly), remember to account for the costs for procured items -- such as those billed monthly.

8) Monitor, Monitor, Monitor
Once the program is under way and project managers have established baselines, it is imperative to continuously monitor the earned value performance to determine cost and schedule departures from the baseline plan -- both schedule and cost variances -- for the duration of the project. Agency management will likely focus on any deviations to the baseline plan, particularly those that go beyond previously defined acceptable tolerances.

The requirement for a monthly (minimum) comparison of project performance includes:

1. comparison of the amount of planned work and the amount of work accomplished provides the schedule variance; and

2. comparison of the amount of the budget earned and the actual direct costs for the same work provides the cost variance.

9) Forecast: Avoid Surprises
One of the more beneficial aspects of EVM is the ability to quickly and independently forecast the total funds required to complete a project, commonly referred to as the "estimate at completion." Based on actual cost and schedule performance against the baseline plan, a project can accurately estimate the total funds it will require to finish the job within a finite range of values. At several points along the project's timeline, agency project managers should utilize the earned value data collected to forecast the final required costs and keep management apprised so they can take corrective actions if necessary.

10) Change: You Can Count on It
Change is the only constant in life -- and in executing government projects. But change is manageable if CIOs plan to address it, whether it is a change in project scope, schedule or budget. Change may also come from an outside force, such as a new administration with different objectives, or unforeseen circumstances that significantly alter priorities within an overall project portfolio.

Managers must "roll with the punches" and identify new risks caused by those changes. By defining change management processes up front in EVM policies, agency management and project teams alike are better prepared to deal with the inevitable change -- whatever form it may take.

CIOs who use EVM tracking practices can make easier adjustments, because they are constantly on top of project status and do not waste time collecting this data. As change occurs, CIOs and their project managers need to re-establish baseline criteria as quickly as possible. The project performance measurement baseline initially implemented is only as good as the management of all changes, for the duration of the project. Unfortunately performance baselines quickly become invalid simply by failing to incorporate changes to work scope into the baseline. EVM evaluations rely entirely on comparing progress against the starting gate and mutually agreed upon objectives.

Meeting Demands
EVM is not a science, but a tool. In a time where fiscal responsibility and service to citizens are of the utmost importance, EVM enables agencies to meet these demands through improved program performance. Not only does practicing EVM empower agencies to keep projects on time, on budget and within scope, but it also enables agency leaders to identify and allocate scarce resources and avoid project overlaps. Additionally the ability to closely monitor project status lets agency leaders adjust to changing project parameters before the project veers off course.
Quentin W. Fleming Special to Public CIO
Joel M. Koppelman Special to Public CIO