Earned Value Management has been around for years as a tool for improving insight into the status of technology projects, especially for DoD, NASA, DoE, DoT, and other large-scale federal efforts.
Unfortunately, its entire premise, namely that the work done has “value” equal to its budget, is (it would seem quite obviously) fundamentally and completely flawed.
There is no useful correlation between cost and value.
Further, for these terms to have any sensible meaning, they must be interpreted in the eyes of the customer. This is the entity paying the bills (incurring the cost), and who only receives value from their investment when the resulting solution begins to deliver tangible business value to that customer—increased revenue, market share, productivity, quality, responsiveness, or lower costs, delays, and waste. The fact that x% of the budget has been consumed is a useful cost accounting metric (burn rates, variances, etc.), but has nothing to do with any value received by the customer. In fact, often no real tangible business value can legitimately be booked until huge chunks (or, even all) of the budget has been spent.
This fatal disconnect from reality has been highlighted in an earlier posting, "Earned Value" has nothing to do with value, nor with "earning" anything except more cost.
, and a related posting Value, not Cost, Accounting: The Only True Window of Progress
When you examine EVM you see that its principal judgment is the %-complete judgment. This is an often arbitrary and certainly highly subjective assessment of how much “real work” has been done to-date when compared with how much was “planned” to be completed by now. In the topsy-turvy EVM world where cost=value, this is used as a proxy for progress.
For those of you who feel that EVM is a helpful tool, our solution is that you simply define %-complete to be the percentage of the requirements that have been validated, accepted by the customer, and delivered to production.
This is simple. Everything else stays the same. All the existing EVM formulae remain unchanged. The only change is that the proxy for value and progress is not how much of the budget has been spent, but how much of the requirements have been delivered.
Of course, this does not address the fundamental flaw. But, this simple change not only radically simplifies a key EVM black box (the %-complete judgment), but also begins to subtly shift the project planning and management to think more in terms of exactly how do we deliver requirements to our customers more quickly, more frequently, and much earlier in the life-cycle.
In other words, how can we actually earn real value