Contractor Business Systems Series: Part 5 – Earned Value Management System

BRENDAN HALLARD: Hello, and welcome to Cherry Bekaert's GovCon Podcast, where we discuss current government contracting trends, compliance matters, and best practices to guide federal contractors forward. I am Brendan Hallard, Senior Manager with Cherry Bekaert, and with me today is John Bula, Manager in Cherry Bekaert's Government Contractor Advisory Services Group.

BRENDAN HALLARD: As part of our continuing series on contractor business systems, today we'll be talking about Earned Value Management, or EVM, and Earned Value Management Systems, EVMS. Thanks for joining me today, John.

JOHN BULA: Thank you, Brendan. Glad to be here and looking forward to our conversation.

BRENDAN HALLARD: To start, at a basic level, what is EVM and why are we talking about it today?

JOHN BULA: Earned Value Management is a project management methodology that integrates schedule, cost, and scope to measure project performance. Based on planned and actual values, EVM predicts future performance and enables project managers to adjust accordingly.

JOHN BULA: An Earned Value Management System, or EVMS, refers to the software, processes, tools, templates, and management controls an organization uses to implement earned value management. There is not a single standard EVMS; tools are common across organizations, but a system must reflect an organization's structure and how it manages programs.

BRENDAN HALLARD: One thing we've seen recently is that EVMS is being inserted into more solicitations and RFPs. Larger solicitations often include various business system requirements; even if EVMS is not required, it may offer a competitive advantage or additional evaluation points.

BRENDAN HALLARD: We've had many inquiries from contractors asking whether they need an EVMS and what it takes to implement one. EVMS can be a useful tool for program management and contract management, and if you expect a future contract with a true EVMS clause requirement, you should consider implementing one.

BRENDAN HALLARD: John, what from a government contracting perspective might make EVMS a requirement?

JOHN BULA: This is an integrated planning and control system typically required on major contracts, primarily cost and incentive-type contracts. Formal EVMS validation and acceptance is required for programs over the $50 million threshold. Beyond that, surveillance, reviews, and audits by the government delve into much more detail.

JOHN BULA: Key elements include planning, data accumulation and reporting, change control, material and overhead costs, and subcontractor management. Many of these areas overlap with purchasing, accounting, estimating, and material management systems, which makes EVMS one of the more complex business systems.

JOHN BULA: EVMS requires a DCMA crosswalk of the 32 guidelines and extensive data system testing. Data testing examines program structure, scheduling, planning, risk, and change control, and uses terminology such as artifacts, attributes, and data elements. For example, an artifact might be an integrated project management schedule, with data elements like start date, finish date, and actual date.

JOHN BULA: Data element testing can be extensive — potentially hundreds of tests — so EVMS is comprehensive and complex, but beneficial if required.

BRENDAN HALLARD: Good point, John. EVMS is highly technical in terms of the elements and drivers tracked, and it plugs into accounting for cost estimates, indirect rates, and accounting practices. It also flows down to subcontractors on covered programs.

BRENDAN HALLARD: If a program over the threshold is solicited, contractors must demonstrate their EVMS. It can be difficult for the government, whether DCAA, DCMA, or others, to come out and review a business system without a contract requirement. Contractors should understand solicitation clauses related to EVMS.

BRENDAN HALLARD: You should still be able to submit a proposal even if your system has not been government-reviewed, provided you demonstrate the system, provide a system description, and explain how you would implement it on the contract. Be prepared for a follow-up review if awarded.

JOHN BULA: Yes. Keep in mind the thresholds. Formal validation and acceptance is required for programs over $50 million, but there is also a compliance threshold at $20 million. Contractors should be aware of both thresholds.

BRENDAN HALLARD: DCMA is the government focal point for earned value, and its surveillance and review thresholds are often higher than the regulatory thresholds due to bandwidth constraints. A formal EVMS review usually occurs for significant magnitude contracts, although the government can target lower-dollar programs if unique risks are identified.

JOHN BULA: Another important area is having a properly running ERP system. EVMS touches many organizational areas such as allocations, variance analysis, and other program controls. Integration across systems makes EVMS more effective.

JOHN BULA: Even if you are not required to have a full EVMS, parts of it may be beneficial now and can be expanded as you grow into larger contracts. Good project methodology and practices have business value beyond compliance.

BRENDAN HALLARD: A key component of any review is the system description. DOD and the ANSI/EIA-748 guidelines require crosswalking how your system meets the intent of the 32 guidelines. Documenting how your system works, management processes, and the tools used for data and reporting is essential.

BRENDAN HALLARD: Metrics and testing can be extensive. John, any thoughts on metrics and reporting?

JOHN BULA: The system description should include program structure, work breakdown structure, program schedule, baseline, planning and budgeting for control accounts and summary level planning, and performance analysis such as variances and estimate at completion. Change control and work authorizations are also critical.

JOHN BULA: The data testing referenced earlier is significant. It requires detailed testing across those areas, and performance analysis and reporting must tie into other business systems.

BRENDAN HALLARD: If a contractor designs and implements an EVMS, what are some of the benefits of having an approved EVMS?

JOHN BULA: Financially and operationally, an approved EVMS provides an integrated planning and control system for project and program management. Data testing gives a clear metric of system performance and compliance across the 32 guidelines.

JOHN BULA: EVMS provides visibility into planning, variance detection, and change control. Maintaining records and documentation is essential. Although comprehensive and complex, EVMS offers a strong overall sense of program management, scheduling, baselines, and control for major contracts.

BRENDAN HALLARD: The investment in EVMS — resources, effort, and tools — can be significant, but long-term use can yield strong benefits and return on investment for contractors.

BRENDAN HALLARD: We've emphasized the importance of a detailed system description that checks all the boxes and demonstrates how your processes meet the intent of each guideline. Reporting is critical both for system operation and for review snapshots of contract status.

BRENDAN HALLARD: John, any thoughts on reporting best practices for tying to metrics and data elements?

JOHN BULA: Reporting requires coordination with other business systems, particularly accounting for overhead cost reporting, allocation reporting, materials reporting, and variance analysis. Subcontract management and materials are key inputs.

JOHN BULA: If you have other business systems in place, they will integrate into EVMS and streamline reporting. EVMS reporting may be voluminous but becomes more streamlined with integrated systems.

BRENDAN HALLARD: EVMS is not an off-the-shelf solution; it must reflect what a contractor actually does and any unique business processes. Building and understanding how the system must work takes time.

BRENDAN HALLARD: Any best practices for preparing for an EVMS review by a program office or the government?

JOHN BULA: Documentation is key. Prepare a thorough system description, policies and procedures, and a DCMA crosswalk to the 32 guidelines. Review major contracts for requirements and evaluate how your operation runs from a reporting standpoint. Identify corrective actions and any carryover issues from other business systems.

JOHN BULA: Use the DCMA crosswalk as a guide, address gaps, and implement corrective actions to prepare for review.

BRENDAN HALLARD: That is sound advice. Preparing thoroughly before a review increases the likelihood of meeting the review criteria. We can take deep dives into many EVMS areas outside of this podcast and help clients with detailed requirements.

JOHN BULA: We see clients with data testing needs frequently. Data testing is unique, time-consuming, and resource intensive. We help clients streamline data testing and address ranges of compliance or noncompliance.

BRENDAN HALLARD: Thank you, John. I appreciate you discussing EVMS. If you have questions, email john.bula@cbh.com or brendan.hellerin@cbh.com. Please join us again for our next podcast.