Just finished reviewing my notes from a DAU course on Earned Value and the validation of Earned Value Management Systems (EVMS). In the first hours of the first day, there is a slide that admonishes the students to:
- Use precise terminology
- Use the correct terms
This is because many times terms are used interchangeably and many times incorrectly
For programs applying Earned Value Management
- Earned Value Management Systems (EVMS) - a company's management system and related sub-systems that establishes the relationship between the cost, schedule, and technical aspects of the work. Measures progress objectively with earned value metrics; accumulates actual costs; allows for analysis of deviations from plans; allows for forecasting achievement of milestones and contract events; allows for forecasting estimates costs; and provides for discipline in incorporating changes to the baseline in a timely manner.
- Earned Value Management - a program management tool that integrates work scope, schedule, and cost parameters of a program, in a manner providing objective performance measurement and management.
- Earned Value - the valie of completed work. The same as Budgeted Cost for Work Performed (BCWP).
Here's why. There are many voices out there how misuse these words. Some are well placed voices, working for brand name computer firms, with platforms that people listen to.
The classic is the complaint that EVM can;t be used on IT projects because it does not measure business value produce by the project. This of course is not only wrong - see the third bullet - it is uninformed. Because of this misinformation, there is now a group of software developers that have come to believe that EVM is not the right tool, simply because of this serious mistake in understanding.
So Here's The Replacement
Earned Value Management is a close fit with the development of software in the agile paradigm. Planning the outcomes in a planning session, assigning costs to the development of the outcomes with the Budgeted Cost of Work Schedule (BCWS) is simple - how may people do you have on this iteration? How much do this cost your firm? How many hours for the iteration x (Salary + Overhead + G&A + Fringe + Cost of Money)? This is your budget for the work that is to be performed.
Someone has to pay. Your firm pays if it is an internal project. Your customer pays if it is external.
What's the schedule - the period of performance for this work? In agile (Scrum) it is the duration of your iteration, the release cycle, the epic, or what ever you want to call the longest period of performance for your work efforts.
Now the reason for Earned Value Management
When the number of story points is defined in the planning session, these might be considered the measure of physical progress to plan, so let's consider them so for the moment. As the iteration progresses, these story points are earned when they result in 100% Physical Percent Complete - the perfect agile term - Working Software (according to the definition and units of measure of working).
The formula (the simplest one) for Earned Value is EV = BCWS x Physical Percent Complete.
In the agile world the Physical Percent Complete is either 0% or 100% for each story and its assigned Story Points. This notion of defining the value the Earned Value up front and then earning it is both an Agile notion and an Earned Value Management notion. What is missing from the Agile notion is the Budget for earning that value. But not problem, almost all Scrum teams have fixed resources assigned during the iteration, so the budget is the number people times their burdened cost.
In the End
Ignoring for the moment the notion of AgileEVM, EVM Lite, and any other made up term - there is ONLY EVM RIGHT - the principles of Earned Value Management are universally applicable to all projects, for the simple reason that project management performance measurement is about:
- Defining what done looks like
- Build a plan to get to done
- Allocating resources to produce th work that delivers the product or service
- Handling the risk encountered along the way
- Using tangible evidence of progress to plan from the work performed to deliver the products or services.
Earned Value Management is about measuring physical progress to plan. It is a natural process of iterative and incremental development. Don't let those supposed experts tell you otherwise. EVM is not about measuring business value. That's another measurement - usually a Capabilities Based Planning, some form of business modeling, or even a monetized Balanced Scorecard approach.
Earned Value Management is about measuring the performance of your development work in units that are meaningful to the decision makers. Story Points have no unit of measure meaningful to the decision makers. Consumption of money is meaningful, Story Points are just an ersatz representation for money.