Some Serious Misunderstandings About Earned Value (update)

The Department of Defense Earned Value Management Implementation Guide, October 2006 says:

1.1 Concepts of Earned Value Management. Earned Value Management (EVM) is a program management tools that integrates the technical, cost, and schedule parameters of a contract. During the planning phase, an integrated baseline is developed by time phasing budget resources for defined work. As work is performed and measured against the baseline, the corresponding budget value is "earned." From this earned value metric, cost and schedule variances can be determined and analyzed. From these basic variance measurements, the program manager (PM) can identify significant drivers, forecast future cost and schedule performance, and and construct corrective action plans to get the program back on track. EVM therefore encompasses both performance measurement (i.e. what is the program status) and performance management (i.e. what can we do about it). EVM is program management that provides significant benefits to both the Government and the contractor.

1.2 EVM and Management Needs. A fundamental requirements for managing any major acquisition system is insight into the contracts' performance specifically the program management and control. Proper EVM implementation ensures that the PM is provided contractor performance data that:

• relates time-phased budgets to specific contract tasks and/or statements of work (SOW)
• objectively measures work progress
• properly relates cost, schedule, and technical accomplishment
• allows for informed decision making and corrective action
• is valid, timely, and able to be audited
• allows for statistical estimation of future costs
• supplies managers at all levels with status information at the appropriate level, and
• is derived from the same EVM system used by the contractor to manage the contract

That's it, other than the other 96 pages of detail in the document.
    But notice there is no "business value" phrase in this statement. The production of Business Value is a separate issue. An important issue, but completely separate topic. Earned Value Management (EVM) is NOT about business value creation and management. No matter how much the agile thought leaders would like it to be. It is about knowing the performance efficiency of the planned budget (BCWS) in terms of Percent Complete within the planned period of performance to produce the "Earned Value," BCWP.

When it is stated

The ... claim is that EVM enables you to objectively measure the value being produced by project teams. Their inherent assumption is that these project teams are actually earning value for your organization, yet in practice we know that this couldn't possibly be true.

    This is simply wrong. The value of Earned Value is not business value, it is the "earned" dollars (BCWP)(EV) from the "planned" dollars (BCWS)(PV).

    All the proposed enhancements with burn down, burn up, business value are outside the scope of earned value as it is practiced by the earned value professionals.

Simple Training Example

Here's a Gentle Introduction to Earned Value Management, that may help clarify the concept of "earning value," while NOT speaking about the business side - that is the cost of the cokkies. Beacuse of course the cookies are not sold, they are Christmas Cookies.