Earned Value

Earned value is a project-management measure of the value of work actually accomplished, expressed against the approved project budget and schedule. Rather than asking only how much has been spent, it asks how much of the planned work has been completed for that spending.

Earned Value Management (EVM) uses this information to measure project performance and progress objectively, to monitor and project cost in relation to schedule and performance, and to identify emerging compliance issues and risks. In Canadian federal contracting, EVM appears in the pricing guidance for contracting officers and in major defence and shipbuilding contracts, as described in the Practitioner's Guide for Pricing.

What Earned Value Management compares

EVM is a performance-management system, not merely a payment method. It compares planned work, actual costs and completed work against an approved baseline. The Practitioner's Guide for Pricing describes it as a way to measure project performance and progress in a pre-agreed and objective manner.

Terms that sit alongside earned value include:

• Earned Value Management System (EVMS): the system a supplier uses to apply EVM.
• Project baseline: the approved budget and schedule that work is measured against.
• Integrated master schedule: the schedule used to track planned and completed work.
• Cost variance and schedule variance: the differences between planned and actual results that EVM reports.

When PSPC guidance calls for EVM

The Practitioner's Guide for Pricing instructs contracting officers to consider a contract's value, risk and duration when deciding whether EVM is appropriate. It states that EVM is particularly appropriate for higher-value, higher-risk and longer-duration contracts.

The guide also sets out where EVM fits best. It is most suitable where the contract has a pre-established budget and performance can be measured against a schedule. It can be applied where payment is based on cost estimates and the budget is established in advance. It is less applicable where payment is based on actual costs.

Department of National Defence audit material takes the same direction, stating that EVM is required for long-term or higher-value contracts, as set out in this DND audit report.

EVM in shipbuilding and defence contracts

Public Services and Procurement Canada (PSPC) uses EVM in its oversight of the National Shipbuilding Strategy. Canada engaged a third party to assess shipyard EVM systems and to provide monthly project reports and quarterly reports on the Strategy. PSPC also reviewed new and existing shipbuilding contracts to confirm that they included EVM and schedule-related obligations and deliverables, and shipyards are contractually required to provide schedule information. These measures are described in PSPC's response to parliamentary committees and external audits.

DND has applied EVM in major and high-value defence contracts. A CP140 Aurora maintenance contract required the vendor to report EVM, and DND introduced EVM for a high-value task within that contract, according to a DND audit report. The same material points to other long-term contracts where EVM has been used.

Earned value inside government projects

Earned value is not limited to supplier contracts. Shared Services Canada uses monthly earned-value reporting to identify financial variances against the project baseline and to support corrective action, as described in its audit of project cost management. The same logic applies on both sides of a contract: progress is judged against an approved baseline, and variances trigger a response.

What EVM means for a supplier bidding on Canadian contracts

Where a solicitation or resulting contract includes EVM requirements, the supplier must establish or maintain the required EVM or EVMS processes and provide periodic earned-value, cost, schedule and performance information. Bid teams working on higher-value, higher-risk or longer-duration work should read the solicitation for these obligations early.

• Confirm whether the contract requires EVM reporting and how often.
• Check that your baseline budget and schedule can support objective progress measurement.
• Plan for schedule information to be a contractual deliverable, as it is for shipyards.
• Expect the reporting to be used to identify performance and compliance risks during delivery.