Where's the Value in Earned Value?
From the The Business Driven PMO Blog
by David Blumhorst (Daptiv)
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Here's my thoughts on Earned Value, and although it has some issues, you'll see that I actually think it’s a very valuable tool.
I'm an old-time project manager that actually remembers when Earned Value was known as BCWP. That's Budgeted Cost of Work Performed. If you think about it, that's what the EV metric actually measures. And as a former financial officer, I fail to see why it's called Earned Value. First off, if nothing has been delivered yet, I haven't realized any value from my investment in this project. Second, if this measured the project's value it would mean the value is equal to the cost. With no ROI I'm not approving a project like that!
I'm not sure who initially called it Earned Value, but the project management community seems to have bought it hook, line and sinker! I must admit, BCWP is quite a mouthful, but couldn't they have come up with something a little less misleading?
One more note on the misleading name: If I'm in construction or a service industry where I bill based in percent complete, then I literally am "earning value" as we progress. But the customer sure isn't! So I still object to the term.
That said, EV is one of the best tools for tracking a project's performance to plan. Why? Traditional variances like budget or effort variances turn red way too late. A project that ends up 20% over budget won't show a negative variance until it is almost over, and then it's too late too course correct. Further, trending budget and percent complete at the project level, while better, doesn't account for plans that aren't evenly loaded. If we're buying a bunch of hardware near the beginning of the project, that project will look like its trending way over budget very early.
EVM gets past this by looking at the cost - both labor and material - for every task. Yes, there are other methods of EV measurement, but these are the most common ones here. By tracking planned and actual cost and time at the task level, then using percent complete to determine if we are ahead/behind on each task, we get a much more granular view that accounts for variable loads of cost and effort through the life of the project. And then we can roll that up to the project, program, or even portfolio level. Using our CPI and SPI factors, we can get a good reading on how far ahead or behind we are very early in the project, and can then make timely course corrections.
So, while it may be mis-named, Earned Value is a great objective tool for gauging project progress and status.
Posted on: December 05, 2011 07:56 PM |
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Wayne Mack
Retired| Retired
South Riding, Va, United States
I also do not like the name earned value - I believe it is derived from the mathematical meaning of value and not the financial meaning.
I disagree, however, on the usefulness of earned value where there are many parallel tasks not on the critical path. There are also issues when combining labor costs and capital expenditures. When tasks that are outside the critical path are started either early or late, they hide the progress that is or is not being made on the critical path. Start some non-critical task late (perhaps the staff were not release to your project as initially expected), and the project can go red even though there is nothing affecting the critical path. Likewise, if a large capital purchase, say a large bank of servers, arrives early, the SPI can go through the roof, even if the actual work tasks have slipped.
I still find there is more value in following the status on the critical path rather than having a single number derived from mixing critical and non-critical items together.
In my experience, BCWP was referred to as simply "P." Made it easier for the sake of discussion.
It's always been my understanding that BCWP or Earned Value as it is sometimes referred, was the for the purposes of tracking the costs of a project and how well the project is performing against its baseline or budget. I don't think it was ever intended to assess the health or as a means of forecasting the revenue the project earned the company. In my humble experience, there have been a separate team of people who assess the amount of revenue a project earned teh company and that team had its own set of tools to formulate those amounts.
It's interesting to read an article about how Earned Value is being used in a way that I'm not necessarily sure it was intended to be used.
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