Supersedes AFSCP/AFCC/AFLCP 173-5, AMC-P 715-5, NAVSO P3627, DLAH 8400.2, DCAA P7641.47 dated 1 Oct 1987. and AFSCP/AFLCP 173-6, AMC-P 715-10, NAVMAT P5243, DLAH 8315.1, DCAAP 7641.46 dated 1 October 1984
OPR: DLA/AQOF
OCR: SAF/FMC SAF/AQX NSA/N25 AMC/AMCRM-E ASN (RD&A) AP& P DCAA/OAD BMDO/PO

PART I: EARNED VALUE MANAGEMENT CONCEPTS & CRITERIA

1-0. The purpose of this Part of the guide is to provide guidance for understanding earned value management concepts, define objective criteria for earned value management systems and provide guidance in interpreting those criteria for use on large, risky, cost based government programs. Procedural aspects for Government personnel for specifying and using earned value management systems and for evaluating those systems are contained in Part II.

1-1. Concepts of Earned Value Management. Earned value management is a tool that allows both government and contractor program managers to have visibility into technical, cost, and schedule progress on their contracts. The implementation of an earned value management system is a recognized function of program management. It ensures that cost, schedule and technical aspects of the contract are truly integrated.

1-2. Management Needs. A fundamental requirement of the acquisition and/or modification of major systems is insight into contractors' progress for program management purposes. The implementation of an earned value management system (EVMS) on selected contracts within applicable government programs ensures the program manager is provided with contractor cost and schedule performance data which:

(1) relate time-phased budgets to specific contract tasks and/or statements of work;

(2) indicate work progress;

(3) properly relate cost, schedule and technical accomplishment;

(4) are valid, timely, and auditable;

(5) supply managers with information at a practical level of summarization; and

(6) are derived from the same internal earned value management systems used by the contractor to manage the contract.

1-3. Criteria Concept. No single earned value management system can meet every management need for performance measurement. Due to variations in organizations, products, and working relationships, it is not feasible to prescribe a universal system for cost and schedule control, relative to the scope of the contract. The criteria approach establishes the framework within which an adequate integrated cost/schedule/technical management system will fit.

The Earned Value Management Criteria (Section 2) provide the criteria for determining whether contractors' earned value management systems are acceptable. The criteria are general in nature to facilitate their use in the evaluation of contractors' earned value management systems for development, construction, and production contracts. Since these types of contracts tend to differ significantly, it is difficult to provide detailed guidance that will apply specifically in all cases. The criteria should be applied appropriately based on common sense and practicality, as well as sensitivity to the overall requirements for performance management. The procedures described in this document provide a basis to assist the government and the contractor in implementing an acceptable earned value management systems.

The criteria concept does not describe a system! Neither does it purport to address all of a contractor's needs for day-to-day or week-to-week internal control, such as informal communications, internal status reports, reviews, and similar management tools. These management tools are important and should augment and be derived from the earned value cost/schedule management system and should be an effective element of program management by both the contractor and the government.

1-4. Industry Standards. Industry recognizes the importance of earned value in program management, and has developed an industry based standard "Earned value Management System Guidelines" for applying earned value. The 32 Guidelines from this industry standard have become the Department of Defense baseline for earned value management systems.

1-5 Management Systems. In designing, implementing and improving the earned value management system, the objective should be to do what makes sense. The management system that meets the letter of the criteria but not their intent will not support management's needs. Earned value management systems that comply with the intent of the criteria will facilitate:

(1) thorough planning;

(2) timely baseline establishment and control;

(3) information broken down by product as well as by organization or function;

(4) objective measurement of accomplishment against the plan at levels where the work is being performed;

(5) summarized reporting to higher management for use in decision-making;

(6) reporting discipline;

(7) analysis of significant variances; and,

(8) the implementation of management actions to mitigate risk and manage cost and schedule performance.

These are all inherent features of a good earned value management system.

1-6. System Design and Development.

The responsibility for developing and applying the specific procedures for complying with these criteria is vested in the contractor. The proposed earned value management system is subject to government acceptance which may include contractor self-evaluation with government involvement, third party accreditation, or government review. In instances where the contractors' system does not meet the intent of the criteria, adjustments necessary to achieve compliance must be made by the contractor.

Contractors have flexibility under the criteria approach to develop a system most suited to management needs. This approach allows contractors to use earned value management systems of their choice, provided they meet the criteria. Earned value management systems that range from fully manual processes to totally automated (paperless) systems are acceptable. Contractors are encouraged to establish and maintain innovative, cost effective processes, and to improve them continuously.

When the solicitation document, e.g. request for proposal, request for quotation, etc., specifies application of the criteria, an element in the evaluation of proposals will be the prospective contractor's proposed system for planning, controlling and reporting contract performance. The prospective contractor will describe the systems to be used in sufficient detail to permit its evaluation for compliance with the criteria. A discussion of both government and contractor activities during the period prior to contract award is contained in Part II, Section 2, Pre-contract Activities.

Upon award of the contract, the earned value management system description will be the basis upon which the contractor will demonstrate its application in planning and controlling the contract work. The government will rely on the contractors' systems when they are accepted and will not impose duplicative planning and control systems. Contractors having systems previously accepted are encouraged to maintain and improve the essential elements and disciplines of the systems. Part I, Section 3 contains a discussion of the criteria and their relationship to generic management processes. The proposed system description should describe the contractor's management processes as they relate to the criteria.

The cost of implementing EVMS has defied quantification due to the difficulty in separating the incremental cost of EVMS from the normal management costs that would have been incurred in any case. Improper implementation imposes an unnecessary financial burden on the contractor and the government. Typical areas where cost could be mitigated include selecting the proper levels for management and reporting, variance analysis requirements, and the implementation of effective surveillance activities. Surveillance activities are discussed in Part II, Section 3.

Government managers should recognize that effective management by the contractor normally does not require product-oriented cost reporting, in addition to cost reporting by contractor organization. Contractors should recognize the government's need for product-oriented information on contracts that involve substantial cost, schedule or technical risk. Differences arising from these divergent needs, such as the level of reporting detail required, should be discussed during contract negotiations. While the criteria are not subject to negotiation, many problems concerning timing of EVMS implementation and related reporting requirements can be avoided or minimized through negotiation.

1-7. Conclusion. The criteria and associated reporting requirements have proved their value over many years. The criteria approach ensures that contractors have and use adequate management systems that integrate cost, schedule and technical performance. This approach also provides better overall planning and control discipline on government contracts. The associated cost performance reports summarize objective data from contractors' internal systems for contractor and government managers. Substantive improvements in management can be achieved by senior management and the program manager taking accountability for system effectiveness and use. A criteria compliant system, properly used, ensures that valid cost, schedule and technical progress information provide the manager with an effective tool for decision making.

1-8. Uniform Guidance. This document provides uniform guidance for government agencies responsible for evaluating the implementation of Earned Value Management Systems. It uses the concepts contained within the criteria as defined in DoD Instruction 5000.2-R, Appendix VI, Earned Value Management System Criteria and Section 2.0 of the industry standard, "Earned Value Management System Guidelines." The contents of this guide were developed jointly by DoD, FAA and NASA. Within this guide the term "criteria" is synonymous with EVMS Criteria or EVMS Guidelines.