It compares the work finished with the estimates made at the beginning of the project, which gives a measure of how far the project is from being finished. Inferring from the amount of work already put into the project, a project manager can get reasonable prediction as to how much resources the project will have used at completion.
EVM was used in the 1800s as industrial engineers looked for ways to measure performance in factories. The United Stated Department of Defense (DOD), in the 1960s, employed the Cost/Schedule Control System Criteria (C/SCSC) which is now referred to as the Earned Value Management System (EVMS), a recognized function of program management, which ensures that technical, cost, schedule, and aspects of a contract are truly integrated. The DOD used the C/SCSC cost system simply because their contractors ran over budget, lag behind schedule, had no ability to guesstimate an acceptable cause-effect relationship of how cost, schedule or scope impacted multiple and simultaneous projects. As a result, the government requested that contractors were no longer permitted to forecast costs by subtracting project actual costs from the original budget. With the EVMS, which includes organized components of the project's schedule, budget estimate and scope of work, project's forecast costs at completion of project are more accurately determined (Warhoe, 2004).
However, after nearly four decades, EVM clearly has not achieved its actual or perceived potential. Of the innumerable projects, less than 1% use the EVM application. One reason suggested in literature for the low usage of EVM and procurement is the contract type selection bias toward cost-reimbursable (CR) contracts. Literature review addressing EVM and procurement, indicate that there are mixed beliefs on contract type selection (Marshall, 2005).
Conventional use of EVM with CR contracts, were limited to large United States government departments such as the National Aeronautics and Space Administration (NASA). Today NASA employs EVM to support President Bush's Management Agenda specifically to improve competitive sourcing by providing better historical performance data; to enhance financial performance by helping measurement of performance against the budget; and to advance NASA budget and performance integration by integrating management of technical requirements, schedule, and budget risks.
In contrast, many project practitioners, experts and literature reviews argue in support of using fixed price (FP) contracts. Kelvin Yu described how EVM was effectively used with a FP contract to renovate a wind tunnel operated by NASA. For instance, Yu utilized EVM in defining the project scope, developing negotiating tools such as "should cost estimate", and directing and integrating the actual work of multiple contractors working on a project. Quentin Fleming and Joel Koppleman agree because both have noted the efficiency and effectiveness of EVM with FP contracts. Authors are suggesting the use EVM with FP contracts and provide sound rationale for their beliefs and claims. They made a good case for continuous use of FP (Marshall, 2005).
For those such as Karen Evans, an Office of Management and Budget (OMB) Administrator of e-government and Information Technology, who testified last spring before the House Government Reform Committee, EVM has not been of much service. Her complaint