The four measures that serve as the basis for all earned value performance assessments and forecasts are Budget at Completion (BAC), Planned Value (PV), Earned Value (EV), and Actual Cost (AC). Definitions for each of these terms can be found in the PMBOK. My summary of each is as follows:
Budget at Completion: This is everything that is projected to be spent in order to get the project done. It is the upper limit for every project chart (unless you’re over budget and that sucks).
Planned Value: This is the projected value of the project (based upon expenses) according to the baseline set forth by the project. In short, it's looking at the calendar for how much you should have spent by this point.
Earned Value: This is the number of what the project’s spent based upon the work that’s done. The way I remember this is that the name Earned Value derives from PMI’s idea that value is determined by the checklist, and this method calculates the amount of the checklist that’s completed in terms of dollars.
Actual Cost: This is the number of what’s actually been spent in order to have the project proceed this far. It’s the product of looking at the project’s actual expenses at the time of the analysis.
These metrics are used by project managers in waterfall systems to lie to their management and encourage a culture of micromanagement (especially if the project is behind schedule). The real world examples of this facilitating a destructive cycle abound in the literature. I’ll use the example that PMI published on Boeing’s 787 (references below).
These traditional tools can be helpful in answering questions about the status of a project. That’s why they’re in the PMBOK, but the leadership this information is presented to must be taught what it means. Eric Ries calls these calculations Vanity Metrics and they have no real value other than making an organization feel good or feel bad about its current circumstances. Other than that they really don’t serve a purpose.
Does an incomplete iPhone have any actual value? Does an incomplete airliner have any actual value? No. They don’t. So why do we calculate earned value? There is no value from the project until the product is complete. I really wish that PMI would re-name the EV term to IV. It’s an invested value nothing has been earned yet. I’d strongly recommend that a PM calculate this information for their own internal use (it’s nice to see the chart as it looks pretty), but beware of ever sharing it. This chart has been known to facilitate the ugly beast of micromanagement in many organizations. PMI should really put a warning in this chapter.
Shenhar, A.J., V. Holzmann, B. Melamed, and Y. Zhao. (2016). The challenge of innovation in highly complex projects: What can we learn from Boeing’s Dreamliner experience? Project Management Journal 47(2), p. 62-78.
Vega, G. (n.d.). Leadership implications in complex projects: The Boeing Dreamliner and Jim McNerney. Retrieved from PMI website: https://learn.umuc.edu/d2l/common/dialogs/quickLink/quickLink.d2l? ou=225860&type=coursefile&fileId=Leadership+implications+in+complex+projects+-+a+case+study+in+leadership+and+communications+management.pdf