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.