Meaningful Numbers

alaurent@govexec.com

In its draft "Capital Programming Guide," the Office of Management and Budget recommends program managers require contractors to measure their progress using earned value rather than traditional spending comparisons. Earned value answers the question, "How are we doing?" at any point in a project by comparing scheduling and cost goals with actual work accomplished.

Program managers typically break down a project into a baseline schedule showing amounts of work (valued in dollars) planned to be accomplished in each time period over the life of the project. The amounts total to the full cost of the project.

Baseline

Work Units A B C D E F Total
Planned value ($) 10 15 10 25 20 20 $100

Traditionally managers track project progress by comparing actual expenditures to planned expenditures at various points during the process and when it ends. But this approach produces numbers that are nearly meaningless because they fail to take into account how much work was accomplished for the money spent. Using the traditional approach in this example shows the total amount spent was $9, or 9 percent, less than planned.

Traditional Approach

Work Units A B C D E F Total
Planned value ($) 10 15 10 25 20 20 $100
Actual Cost ($) 9 22 8 30 22 0 $91
Variance 1 -7 2 -5 -22 0 $9 =9%

Under the earned value approach, as work is performed it is "earned" in dollars or other units, labor costs, for example. Comparing the dollar amount of work planned with the dollar amount accomplished (the earned value) in a given period shows the schedule variance. Below, because unit D was not finished and F was never started, $35 of planned work wasn't accomplished. Measuring earned value shows a schedule variance of 35 percent, far more useful information than produced by the traditional approach above.

Schedule Variance

Work Units A B C D E F Total
Planned Value ($) 10 15 10 25 20 20 $100
Earned Value ($) 10 15 10 10 20 0 $65
Schedule Variance 0 0 0 15 0 20 $35 =35%

Further, earned value also can produce a richer picture of cost variance. Comparing the amount of work performed (the earned value) with the actual cost incurred in a given period shows this cost variance. Below, a positive value denotes spending above plan and a negative value shows spending under plan. In this case, while the work was planned to cost $65, it actually cost $91, a variance of 40 percent.

Cost Variance

Work Units A B C D E F Total
Earned Value ($) 10 15 10 10 20 0 $65
Actual Cost ($) 9 22 8 30 22 0 $91
Cost Variance ($) 1 -7 2 -20 -2 0 $-26 =-40%

Earned value management makes visible a project's progress on a monthly basis. If integrated product teams adopt earned value techniques to measure contract and asset performance, they'll have earlier and more complete data to use to prod contractors to improve cost and schedule controls, according to the "Capital Programming Guide."

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