earned value management

Earning Value for Material – The Correct Approach – Part 2

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Last Updated May 22, 2025

Earning Value for Material - The Correct Approach

Recall from the previous blog about earning value for material, in which Guideline 21 in the EIA-748-D Standard1 for Earned Value Management Systems (EVMS) states that earned value is measured “…at the point in time most suitable for the category of material involved, but no earlier than the time of actual receipt of material…”

In that previous blog, two high-level types of material categories were discussed for illustration purposes. A common follow on question is “When Guideline 21 mentions category of material, are there pre-set categories of material that companies should use?”

The answer: Material categories are unique to each company, though companies may have general similarities to others in the same line of business. It is also dependent on whether a company has non-production or production type contracts (or both). In the previous blog topic, Engineering Material and Production Material were used as generic examples for material categories assuming a company has some level of production activity.

Even if a company is not a production (or manufacturing) facility, if they have material that sits in inventory for an extended length of time (generally longer than two months), the earned value point should be different from that of engineering (or receipt) type material. Some companies describe their material categories as “receipt type material” and “inventory type material.”

A company’s Earned Value Management (EVM) System Description should describe the various categories of materials that are typical in their line of business.

The easiest type of material category to describe is “tangible” material – objects you can physically touch. This includes items used to build the final product, such as ribs, spars, and bulkheads, wiring harnesses, tubing, pumps, switches, actuators, brakes, hinges, and the like. It can also include major assemblies and subcomponents outsourced to suppliers, like wings, control surfaces, canopies, and doors. Engines are material if purchased under the contract; if they are provided as government-furnished equipment (GFE), they are not part of the material element of cost.

Ancillary materials used during the manufacturing process also fall under the material category. These include items such as paint, caulk, glue, nuts, bolts, rivets and similar components.

All the items listed above fall into a category called “recurring” material. These are materials that are purchased repeatedly and are essential to building the final product.

Another important material category – separate from the components used in the final product – is the tools and fixtures used in the factory to build up the product (excluding capital assets). If purchased under the contract, they are considered part of the material element of cost. Unlike recurring materials, these items are typically purchased once and are used to build many finished products. This type of material is referred to as “non-recurring.”

Some contracts include the acquisition of spares to support the finished product after delivery. If spares are purchased, they count as material. If the spares are manufactured in the contractor’s factory alongside the finished product, the constituent materials that go into the spares also fall under material element of cost.

What about major suppliers? If a major supplier provides a tangible product such as a radar or landing gear, the cost of that subcontract is a material cost. However, the cost of a supplier providing non-tangible products (such as engineering services) is usually classified as a labor expense rather than material. 

When dealing strictly with materials used for engineering and/or production related effort, a number of approaches to claim earned value may be needed. This is based on the products a company typically builds for their government customer. Various materials could also have different handling requirements, including bonded stores, with different rules for use, issue, transfer, borrow/payback and so forth. As a result, the various types of materials may have different methods for planning and use and could all use different earned value techniques.

Another consideration when determining the appropriate earned value techniques for production environments is the approach used to determine what is classified as high value material, critical material, and low value material.

  • High value material and critical material should be planned and earned using discrete earned value techniques
  • Low value material may be planned and earned as apportioned effort or as level of effort (LOE), as well as being discretely measured
  • Low value material may be planned as items in aggregate, or in homogeneous groupings (e.g., lubricants, fastening hardware, bar stock, coatings, etc.).

H&A recommends ensuring your EVM System Description provides the appropriate guidance to project teams on how to properly plan for the various material categories and acceptable earned value techniques that should be used as well as the appropriate earned value points (such as receipt or issue) for the category of material involved.

Also see these related blogs:

Do you need an independent review your EVM System Description to ensure you are providing the necessary guidance to your project teams? Humphreys & Associates has the earned value management experts to assess your EVM System Description and provide recommendations to improve the content. Contact us today.

  1. EIA-748-D Guideline 21 content maps to the EIA-748-E Guidelines 14 and 16 which streamlined the content in D Guideline 21. EIA-748-E Guideline 14 states in part: “Earned value for material items may not be credited earlier than the actual receipt of the material nor later than the consumption of the item.” ↩︎

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Earned Value Management System Success – 7 Steps

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An Earned Value Management System is a common contractual requirement on US federal government agency projects and on some foreign government agency projects. Earned Value Management is an effective tool to provide more visibility into project performance for government customers and for internal management.

As with any new concept or tool, success is dependent on how the system is implemented. Upfront planning can mean the difference between success and failure. Based on more than three decades of experience helping hundreds of companies implement an Earned Value Management System, Humphreys & Associates is well versed in what it requires to create a compliant, effective Earned Value Management System (EVMS).

The seven steps below can help to expedite and manage the implementation of a compliant EVM System. Successful implementation can greatly enhance productivity and the bottom line.

Earned Value Management System Success – 7 Steps

Step 1 – Management Team Commitment

Commitment and support from the management team is essential to the success of the EVMS implementation. Without it, the process will fail. Establishing an implementation team responsible for developing the strategic plan and schedule is a critical initial step. Read more…

Step 2 – Pre-Implementation Assessment & Gap Analysis

Before implementing an EVMS, it important to have a clear understanding of the state of the current project control system. This is essential for determining the full scope of the implementation effort. Comparing the current processes and procedures to the 32 guidelines in the EIA-748 Standard for Earned Value Management Systems is part of the process.

Internal EVM experts or an independent third party commonly conduct this assessment, sometimes referred to as a requirements analysis or gap analysis.

The intent is to produce fact-based information useful for creating a realistic implementation plan. What are the processes, tools, and training that need to be enhanced or implemented? Based on this knowledge, an implementation plan and schedule can be produced that defines the specific tasks and milestones to accomplish the end objectives.  Read more….

Step 3 – System Structure and Integration

At the beginning of the system enhancement or design stage, it is useful to focus on each of the subsystems that support the nine EVMS process areas and how they integrate with each other. When the customer’s reviewing agency reviews the company’s EVMS, it will look at each of the following process areas:

  • Work Organization
  • Planning and Scheduling
  • Work/Budget Authorization
  • Accounting
  • Indirect Management
  • Management Reporting and Analysis
  • Revision sand Data Maintenance
  • Material Management
  • Subcontract Management

The EIA-748 32 guidelines are the foundation for determining if an EVMS meets the requirements for a compliant system. Developing flow diagrams and storyboards are useful tools at the beginning of the design phase to note what needs to be added or enhanced to create a fully integrated EVMS as well as to satisfy the EIA-748 guidelines. Read more…

Step 4 – The System Description Document

The primary document for describing the system and how it satisfies the EVMS guidelines is the EVM System Description. Internal formal procedures support this document. The system description and related procedures are meant to be the all-inclusive explanation of the EVMS characteristics and how the system is used to manage a project from inception to completion.

The EVMS storyboard and system description are complementary work efforts. An excellent starting point for the system description is to develop an outline that describes the subsystems for each of the nine process areas. Read more…

Step 5 – Training

Training is an important part of the implementation process. This includes upper level management, project managers, functional managers, control account managers (CAMs), and analysts. The training should reflect the EVM System Description, as the government reviewing agency’s team will assess whether or not a project is following the company’s EVM System Description. The development and execution of the training plan as part of the overall implementation plan helps to ensure the various end-users complete the training they need. Read more…

Step 6 – System Implementation

System implementation on a pilot project requires dedicated teamwork and is the most time consuming of the seven steps. An easier approach is to implement the EVMS on a new project so that all project artifacts reflect the system description at the onset.

Projects that run effectively and efficiently often translate into higher profit margins and result in more company business. Read more….

Step 7 – Operation and Use Verification

Once in place, periodic internal reviews, sometimes called self-surveillance, can be done to ensure that the EVMS implementations on the various projects continue to comply with the company’s EVM System Description. This helps to prevent the system from atrophying over time. It also provides an opportunity to address additional training needs, resolve common implementation issues, and enhance the system.

Independent third parties can also assist with the self-surveillance process. This provides an added benefit by using experienced outside consultants who regularly perform mock compliance or certification and other types of reviews. The outside consultant team can also update a company on the latest issues the government agency review teams are focusing on, provide a fresh look at how an EVMS is used on a project, or bring new ideas to the table that can improve the company’s EVM System.

Similar to the implementation and use of the EVMS, it is important to establish a repeatable process for self-surveillance, capture the results, identify the problem areas, identify actions to address the root cause of the problems, and track them to closure. Read more….

For a full-length copy of this article, see our EVMS Educational Center.

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