There is on going discussion on forums and in publications about Earned Value and the confusesion between EV and Business Value.
Here's content from Ray Stratton's The Earned Value Management Maturity Model, Management Concepts, 2006 that makes it clear what EV is about. For any one interested in the actual use of EV in the proper way, this book is a most.
- Planned Value (Budgeted Cost of Work Scheduled - BCWS) - The Planned Value of the Work
Planned Value (BCWS) is the planned value of all the work activities in the schedule. Each piece of work has two attributes: its planned value (its allocated budget) and its planned completion date (the time in the schedule it is to be completed, or the iteration in which it is to be completed).
- Earned Value (Budgeted Cost for Work Performance - BCWP) - The Value of the Work Completed
Earned value results from completing work activities. Assessment of this earned value compares what was planned to be earned (the budget) with what was actually accomplished at the planned time in the schedule, using some meaure of physical percent complete. Those meassures range from 0/100 (you did it or you didn't) to Apportioned Milestones (we agreed up front that when you had this done you'd get 30% credit for being done).
- Actual Cost (Actual Cost of Work Performed - ACWP) - The Cost of the Completed Work
The cost of completing each piece of work, usually reported against the Work Breakdown Structure. Comparing actual cost with planned cost (budget) indicates if the projects expenditures are following the budget plan.
There are other terms used in Earned Value
- Budget - generally is the Budget At Completion (BAC). How much money is expected to be spent for the project.
- Management Reserve - is money held at the project manager level for technical and cost issues that come up during the project.
- Overhead - (burdened cost) is a "tax" on the project cost to pay for the organizational infrastructure.
- Undistributed Budget - money in the BAC that has not been allocated to defined work.
No where in these terms and the formulas that result from their use is "Business Value" defined or used. That is in a separate and distinct set of performance measures. Earned Value's performance measures are the basis of answering two important project management questions needed to provide the Business Value
- When will we be done with the project?
- What will it cost on the day we are done?
Along the way the business value can be measured according to processes like Balanced Scorecard or other business investment processes. But it's not Earned Value's job to do that measuring.
