Friday, April 07, 2006

Achieved Value vs Earned Value

Achieved Value vs Earned Value
Ok, let’s swirl back to Value.
What is the difference between EV and AV and which should we use?  The answer is relatively straight forward – always use AV.  CEOs (and their boards) are interested in Achieved Value defined as how much of the organizational value proposition has been achieved based upon the amount of operating expense spent to date.  CIOs are generally interested in the throughput that drives this value – how much perceived value have the teams achieved.  
Earned Value is mostly a measure of how well you are tracking to plan.  The key here is what is meant by “plan”.  If the plan is kept up to date, then you are tracking a metric which expresses deviation from desired status.  If the plan is not updated from the original plan, then you are measuring variance.  Both are lagging measures.  Neither help you or your boss forecast completion date nor acceptance.
This may sound rather coarse and 1980’s retro, but the reality is that your CEO is incentivized to keep the company profitable and focused on its mission.  Just like the archetypical PM is not incentivized by the growth and well being of the project staff, but rather by the successful completion of the project itself.  Therefore, the CEO needs to focus on the Achieved Value produced by his organization.  In some areas, this is easily calculate-able: your Marketing juggernaut increases awareness of your product in the appropriate demographic by X%.  Your Sales team increases both penetration and sale size of your product within that demographic (in part due to the new awareness).  But what about the IT organization, how do they measure Achieved Value?  And since you mentioned it, what do you mean by throughput?
Excellent segue.  
First, let’s recap: Earned Value measures the cost of what you have completed at any point in time and associates it to the plan.  Achieved Value measures how much value what you have completed brings to the company.  
CEOs are measured by how much value they bring to the shareholders.  It is a rare board that takes an interest in any plan other than the financial forecast.  If the CEO can make those numbers, he is golden.  
On the other hand, the CEO typically measures his CIOs by their reliability.  It is understood at the C-level that IT is a cost center and that it exist primarily to facilitate the achievement of the financial goals of the other branches of the organizational tree.  If the CIO can deliver on his commitments, he becomes golden, and a rare commodity.  Reliability itself becomes a measurement of Throughput in the IT organization – When we set throughput goals, our reliability is the measure of what percentage of this that we produce.  Indeed, we can have reliability factors greater that 100%, but unfortunately, we rarely do.


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