Earned Value is a misnomer, that conflates “Budget” with “Value”
In industries where the disciplines of Project Management evolved, such as defence and infrastructure, it was probably a reasonable assumption to make, as delivery of the project’s output was intrinsically linked to building business value.
However, with the explosive growth of the use of projects as a vehicle to deliver business change and improvements, starting in IT departments and expanding to all projects that contribute to transforming a business to an improved delivery state, it is a fallacy to link Budget and Value together.
In fact, there are many well-known instances of projects, across both the public and private sector, where projects ended up not just creating less value than the budget allocated to the project, but actually destroying business value, and in extreme cases, the businesses themselves.
“Projects end up not just creating less value than the budget allocated to the project, but actually destroying business value, and in extreme cases, the businesses themselves”
Therefore, to properly measure the “Value” that a project delivers, we must first identify and define the expected value (financial and/or non-financial) that an organisation expects to receive from undertaking the project. This is usually to be found in the Business Case, as the Benefits portion of the Cost/Benefit Analysis.
The mindset change that must now occur is to move from using Business Cases to not only ‘justify’ the project expenditure, but use the planned Benefits as the baseline against which we measure and forecast the true value created by a project.
In the same way, we should use a project’s schedule and budget as the baseline against which we measure project delivery performance.
Matt will be speaking at Bringing Projects to Life on 16 June [See Conference Programme] and will be running a benefits mapping workshop entitled Benefits Management: Visualising the Pathway from Projects to Benefits on 21 June.
“Benefit mapping is a tool to visualise an investment story in enough detail to enable decision-makers to understand complex investment programmes.”
About Matt Williams
Matt Williams is the Managing Director of Connexion Systems, an Australian-based provider of innovative services and systems that enable project organizations to maximize business value generated from portfolios of capital investments.