July 20, 2006

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Earned Value Management and Professional Services Automation

By Frances B. Craig

Earned Value Management System methodology (EVMS) has been around for a while but, more recently, news surrounding the methodology keeps cropping up in articles. One major reason is that more and more government contracts are now demanding Earned Value Management reports. Many government contractors are project-oriented services organizations. We have all heard about problems with completing projects on time and on budget, and for government contractors, there is more publicity when something goes wrong, and none when things go right. Hence, government agencies are demanding EVMS. More than a report, EVMS is a methodology to help projects come to successful completion.

Professional Services Automation (PSA) software helps companies improve project-oriented operational performance. Key aspects of operational performance include planning, budgeting, assigning resources, managing costs and deliverables, and ensuring profitability of projects. Comprising software for project and resource planning, project management, time collection and expense collection, PSA can and should be used to support EVMS.

"The Office of Management and Budget (OMB) Circular No. A11," from the U.S. government, addresses how to manage projects. Circular No. A11 refers to the ANSI/EIA 748 Standards for Earned Value Management System Reporting. "A Guide to the Project Management Body of Knowledge" (ANSI/PMI 99-001-2004) contains useful guidelines on Earned Value Management System methodology.

PSA software should match key guidelines of the ANSI/EIA 748 Standard. Here are examples of how this could be done.

EVM Intent Guideline 1. Define the authorized work elements for the program. Tailored for effective internal management control, a work breakdown structure (WBS) is commonly used in this process.

PSA software should provide for unlimited tasks and subtasks under each project.

EVM Intent Guideline 2. Identify the program organizational structure, including major subcontractors responsible for accomplishing the authorized work, and define the organizational elements in which work will be planned and controlled.

PSA software should provide organization level management. Each project should be assigned an organization. Each person in the system should be assigned to a home organization. Costs for labor and expenses can be collected, and reported, by either the project organization or by the person organization.

EVM Intent Guideline 3. Provide for the integration of the company's planning, scheduling, budgeting, work authorization and cost accumulation processes and, as appropriate, the program WBS and the program organizational structure.

PSA software should provide the ability to plan and forecast future work and then convert a plan to a WBS when the project is won. Reporting at both the project and organization level should provide a real time view into project performance.

EVM Intent Guideline 6. Schedule the authorized work in a manner which describes the sequence of work and identifies the significant task interdependencies required to meet the requirements of the program.

Task scheduling should support enforceable beginning and end dates and enable critical path analysis.

EVM Intent Guideline 7. Identify physical products, milestones, technical performance goals or other indicators that will be used to measure progress.

PSA software should allow project managers to manually set percent complete figures based on milestones or performance measures that may be outside the scope of billable hours and expense management. PSA software should objectively calculate percent complete based on hours charged or budget consumed to date and estimates to complete.

EVM Intent Guideline 8. Establish and maintain a time-phased budget baseline, at the control account level, against which program performance can be measured.

In PSA software, the project manager should be able to set the initial budget based on project guidelines and easily convert into a project plan with WBS and task budgets and people assignments. PSA software should be able to collect or calculate all costs via the PSA software user interface or through import files.

Project Managers should be able to set up automatic notifications based on a variety of factors related to percent complete, budget consumption, etc.

EVM Intent Guideline 16. Record direct costs in a manner consistent with the budgets in a formal system controlled by the general books of account.

PSA software should be the system of record for project time and expense collection that support the general ledger accounts.

EVM Intent Guideline 22. At least on a monthly basis, generate the following information at the control account, and other levels as necessary for management control, using actual cost data from, or reconcilable with, the accounting system:

a) Comparison of the amount of planned budget and the amount of budget earned for work accomplished - SCHEDULE VARIANCE.

b) Comparison of the amount of the budget earned and the actual (applied where appropriate) directs costs for the same work - COST VARIANCE.

These and other calculations should be in PSA software.

Here is an example:

EVM Intent Guideline 27. Develop revised estimates of cost at completion based on performance to date, commitment values for material, and estimates of future conditions. Compare this information with the performance measurement baseline to identify variances at completion important to company management, and any applicable customer reporting requirements including statements of funding requirements.

PSA software should provide, in real-time, estimates to completion to better manage the project to on-time / on-budget completion.

EVM Intent Guideline 28. Incorporate authorized changes in a timely manner, recording the effects in budget and schedules. In the directed effort, prior to negotiation of a change, base such revisions on the amount estimated and budgeted to the program organizations.

PSA software should capture budget and schedule changes in an audit trail. Further, the real-time view for project managers provides the earliest possible recognition of potential problems and, thus, the best opportunity to mitigate those problems before they threaten the project schedule.

In conclusion, PSA software is essential in meeting the guidelines of the ANSI/EIA 748 Standard for Earned Value Management System methodology.

The PSA software should have the ability to calculate schedule and cost variance, allow critical path analysis, and help project managers recognize potential problems among other features. Corresponding software can automate much of the EVMS process to make life easier for project managers.

- Frances Craig, President, Unanet Technologies fran@unanet.com

With an impressive career in Information Technology, Frances Craig reengineered her professional services company, Computer Strategies, into a software product company, Unanet Technologies. Ms. Craig has designed and developed state-of-the-art distributed applications including order management, billing and financial applications. With experience in leading IT organizations for Carnegie-Mellon University, GTE Telenet and DHL Courier, Ms. Craig understands the challenges of project-oriented organizations.

Using her innovation of the web-based time sheet in 1997 as a starting point, Ms. Craig established Unanet as the leading vendor of web-based Professional Services Automation (PSA) software. She has lead the company's strategy and positioning, recruited the Unanet management team, board members and advisors, won key customers, and developed alliances with vendors, ASP's and resellers.

Ms. Craig is active in the professional community having served on President Bill Clinton's Advisory Committee on Expanding Training Opportunities, the Women in Technology Board, the Northern Virginia Technology Council's Executive Forum, the Society for Information Management and other organizations.