Consolidated Guidance: Earned Value Methods

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Earned Value Methods

Select an earned value method for each work package in a cost account plan.  Choose the most objective method possible so that work progress can be accurately measured.  When selecting a method, consider the class of work (discrete, factored, or unassessable), the duration of the work package, and whether controlled milestones can be defined.

A discrete work package means that the progress will be based on completing products during each accounting month.  To measure discrete work, select one of the following six methods: equivalent units, 0-100, 50-50, or interim milestone.  If a work package spans 2 or more accounting months and if no intermediate milestones can be defined, the work is classed as factored work.  Although progress on factored work cannot be objectively measured (i.e., progress can only be estimated), completion of a factored work package can be objectively measured.  Select the level-of-effort method for unassessable work, i.e., work that produces no measurable products.

The remainder of this document describes each earned value method in detail.

1.      EQUIVALENT UNITS METHOD

The equivalent units method is based on accomplishing a portion of a large number of similar activities.  Use this method to measure the progress of implementing software units, manufacturing hardware units, and processing large volumes of data.

The equivalent units method is typically used for the software implementation effort of a build.  Consider a build containing 100 units that is to be implemented during a 4-month period.  If each unit were assigned a value of 10 points (5 for completing design, 2 for completing code, and 3 for completing unit testing), the value of build implementation (in equivalent units) would be 1,000 points (10 points for each 100 units).  The time-phased budget (in points) for completing the build implementation effort is five times the number of units to be designed, plus two times the number of units to be coded, plus three times the number of units to be tested.  The cumulative percentage of budgeted value (% BEV) would be the cumulative monthly point budget divided by the total number of points, as shown in the following table.

	Jan.	Feb.	Mar.	Apr.	Total
Budget (mon.)	230	270	250	250	1,000
% BEV (cum.)	23%	50%	75%	100%

In this example, the equivalent units (points) earned at a specific point in time is five times the number of units satisfactorily designed, plus two times the number of units satisfactorily coded, plus three times the number of units satisfactorily completing unit test.  The cumulative percentage of earned value (% EV) is the cumulative number of points earned divided by the total number of points.  For example, after 2 months, the status of the build implementation effort could be as follows:

	Jan.	Feb.	Mar.	Apr.	Total
Budget (mon.)	230	270	250	250	1000
%BEV (cum.)	23%	50%	75%	100%
Earned Value (mon.)	250	300
% EV (cum.)	25%	55%

The monthly earned value (BCWP) in dollars (or other currency unit) is determined by:

            BCWP mon = BCWS mon         x            POINTS EARNED

                                                                           POINTS BUDGETED

And the cumulative earned value is determined by:

            BCWP cum = BCWS cum         x            % EV

                                                                           %BEV

In the software implementation example above, assume that the budget for completing the 100 software units is $218.6K.  Therefore, each point is equivalent to $218.60.

Given the monthly budget and earned value (in points) shown above, the BCWS and BCWP (in $K) after 2 months is:

	Jan	Feb	Mar	Apr
BCWS (mon)	50.2	59.0	54.7	54.7
BCWS (cum)	50.2	109.2	163.9	218.6
BCWP (mon)	54.6	65.6
BCWP (cum)	54.6	120.2

NOTE: Although the total number of equivalent units often changes during implementation, the BCWS mon and BCWS cum do not change.

2.      0-100 METHOD

Use this method when a discrete activity is planned for completion in 1 accounting month.  No value is earned for starting the work.  One hundred percent of the value of the work is earned when the work is completed.  Hence, the completion criteria must be clearly identified and demonstrable.  Apply the 0-100 method to documentation stages (e.g., outline and drafts of chapters), formal reviews (e.g., PDR or CDR), and other similar discrete events (such as purchase of material).

Work Packages	Jan.	Feb.	Mar.	Completion Criteria
Outline	500 s_______s			Approved Outline
Chapter 1 (draft)	1000 s_______s			Draft of Chapter 1
Chapter 2 (draft)	200 s___s			Draft of Chapter 2
Chapter 3 (draft)		200 s___s		Draft of Chapter 3
Chapter 4 (draft)		1000 s____s		Draft of Chapter 4
Chapter 5 (draft)		500 s_______D		Draft of Chapter 5
Chapter 6 (draft)		300 s___s		Draft of Chapter 6
Edit			700 D___D	Edited draft of document
Review			300 D___D	Internal review complete
BCWS (mon.)	1700	2000	1000
BCWP (mon.)	1700	1500

The 0-100 method promotes high visibility because large cost and schedule variances will result if work is not completed in the month scheduled.  However, the variances may be unfairly biased if, for example, 90 percent of the work was completed during the month.  Therefore, apply the    0-100 percent method to a reasonable number of work packages within a cost account so that actual completion dates will average any bias in the work performed.

3.      50-50 METHOD

Use this method for discrete work packages that start and end in less than 3 consecutive accounting months.  Fifty percent of the value of the work is earned in the month the work begins, and the remaining 50 percent is earned in the month that the work is completed.  Associate the start and end milestones with measurable and demonstrable events that are established when the work package is planned.  Use other variations of the 50-50 method (e.g., 40-60 or 30-70) where they are more representative of planned expenditures and would reduce the distortion of earning value at the start of a work package.  For such cases, the percentage earned at the start milestone cannot exceed that earned at the end milestone.

Work Packages	Jan.	Feb.	Mar.	Completion Criteria
Build 1 Test Plan	500 s	500 D		Test purposes written (50%) Test plan complete (50%
Build 1 Test Procedures	200 s	200 s		Six procedures complete (50%) Remaining 6 procedures complete (50%)
Test Build 1		600 s	1400 D	Regression test successfully run (30%) All other tests successfully run (70%)
BCWS (mon)	700	1300	1400
BCWP (mon)	700	800

Apply the 50-50 method (or a variant) to build and acceptance testing, engineering analyses, and other activities that span 2 accounting months.

4.      INTERIM MILESTONE METHOD

Use the interim milestone method when work packages span more than 2 accounting months.  If possible, establish discrete events (milestones) for each month to measure progress toward completion.  Select milestones that are product-oriented and demonstrable, representing logical and justifiable divisions of the work rather than the effort required to complete the milestone with the total budget.  Establish the completion criteria and value of each milestone.  Demonstration of the completion criteria is sufficient and necessary to earn the total value assigned to the milestone.  A portion of a milestone value cannot be earned.

Work Packages	Jan.	Feb.	Mar.	Apr.	Completion Criteria
Software Design	10% s	35% s	20% D	35% D	1.Preliminary design derived from requirements diagrams 2.Idealized design complete 3.Final design complete 4.Design specification complete
BCWS (mon.)	200	700	400	700
BCWP (mon.)	200	700

Use the interim milestone method for engineering analyses that exceed 2 months in duration when intermediate reports are produced; documentation when author drafts, edited versions, and reviews are planned; and requirements definition and system design activities.

5.      APPORTIONED EFFORT

Apportioned effort involves budgeting work and earning value for a work package as a proportion of another related work package whose progress can be measured objectively.  For example, the quality control review of production processing results may be budgeted at 10 percent of the production processing budget.  The value earned monthly by the quality control review work package would be 10 percent of the valued earned monthly by the production of processing work package, regardless of the actual work performed by quality control reviewers.

Work Packages	BCWS/ BCWP	Jan.	Feb.	Mar.
Production Processing	BCWS (mon)	200	500	100
	BCWP (mon)	150	450
Quality Control	BCWS (mon)	20	50	10
	BCWP (mon)	15	45

Use apportioned effort for quality assurance audits and reviews, configuration management activities, and database management support.

6.      PERCENT COMPLETE METHOD

The percent complete method is used for work packages that span more than 3 accounting months and do not have product-oriented, demonstrable milestones that permit the use of the interim milestone method.  Because the percent complete method requires that managers assess progress to estimate how much work was done without regard to effort expended and without benefit of quantifiable events, the accuracy varies with the optimism of managers.  Apply the following controls:

• When assessing progress, do not plan to earn more than 80 percent of the total work package budget until the work package is completed.
• Define objective criteria for completing the work package when it is planned.

Work Packages	Jan.	Feb.	Mar.	Apr.	Completion Criteria
Analyze ECP 6	s			D	Feasibility report and estimated costs prepared
BCWS (mon.)	180	200	270	170
BCWP (mon.)	180	200	260

The percent complete method is often used for long-term studies when intermediate products are not generated It is also used for change proposal analyses, software maintenance, and operations.

7.      LEVEL OF EFFORT

Level of effort is the least desirable of all earned value methods.  Use this method only for work that cannot be related to completing a definable or measurable product but is performed over a period of time.  Full credit is obtained for work solely because of the passage of time.  Such work packages represent essentially unmeasured effort, and thus, should be kept to a minimum.  Project management is typically defined as a level-of-effort activity.

Work Packages	Jan.	Feb.	Mar.
Analyze ECP 6	s		s
BCWS (mon)	250	180	220
BCWP (mon)	250	180	220

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