Thursday, June 2, 2011

Another business value v earned value misstep

PMI's Aerospace and Defense Community of Practice (CoP) hosted a webinar in May entitled: "Considerations for Using Agile in a Government Contract Environment", meaning for the most part a U.S. government contract, as different from state and local contracts and non U.S. contracts. If you're a PMI member, you can join the 'A&D' CoP and then click on past webinars for a recorded version.

Now, about BV vs EV: In fairness, the webinar presenter, Peter Brosella, said he knew little about earned value. He then proved his point by putting up a slide with a chart of earned value vs time and labeled it 'business value'. His description of the slide was more about business value than earned value, but he discussed both ideas without really distinguishing between them. And, none of the 100+ PMPs watching in real time took the issue on. (I tuned into the recorded version last week) What does that say?

It says there continues to be rampant confusion in the Agile community over the 'value thing'. It's really not that hard. Business value and earned value don't measure the same thing, and they don't measure in the same time-frame, but they use similar words. One more time:

  • Business value is about earning a return over time from the investment made in the project, to include the continuing post project investment to maintain and support the deliverables.  

    Business value improves the balance sheet.  Why?  Because customers add to assets by buying the product--if it's a product for sale--or employees place fewer demands (liabilities) on the business because operating efficiency is better if the deliverable improves internal operations.

  • Earned value is about getting your money's worth by transforming an investment into a deliverable that has the potential for business value attainment.  "Transforming an investment.." is what is otherwise known as the project process.  EV is the value placed by the sponsor/investor on the deliverable that has intrinsic but unproven business value. 

    Consider the timeline: At the moment a deliverable is made operational, whether at the end of a sprint or iteration or other project milestone, it's accumulated an 'earned value' but has earned nothing in business value.  So, at the moment of delivery to production: EV = some proportion of budgeted value, and: Business Value = zero.

    By some accounting measures, EV should have no effect on the balance sheet.  Money assets are transformed--by the project process--into other asset classes of equal value, thereby not affecting the balance sheet at all.  Only if the actual cost, AC, is greater than EV would the balance sheet be affected.

There have been so many posts and counter-posts (see the thread on Glen Alleman's Herding Cats) on this 'value thing' of recent that sometimes it seems like agilists are like teenagers who've just discovered sex and are sure they've done something unique that generations before somehow missed.  And, like teens, it takes years and a lot of experience before it realized that the world did not begin in 2001 in Snowbird.

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