Earned Value Management and Net Present Value are both measurements of a programme. They measure different things. EVM measures whether the programme is delivering against its plan. NPV measures whether the programme is worth delivering at all. Most programme directors know EVM. Most finance directors know NPV. A Director of Portfolio needs both, because the programme that is performing well against plan may simultaneously be destroying shareholder value.
What EVM measures
EVM answers the question: is the programme doing what it said it would do? The Schedule Performance Index measures whether the programme is ahead of or behind plan. The Cost Performance Index measures whether the programme is spending more or less than planned for the work completed. An SPI of 1.02 and a CPI of 0.98 means the programme is slightly ahead of schedule and slightly over budget. The programme governance system reads this as: on track, minor cost pressure, manageable.
EVM does not answer the question: should this programme exist? A programme can have perfect EVM metrics — SPI 1.0, CPI 1.0, on time, on budget — and still be a bad investment. EVM measures performance against plan. It does not measure whether the plan produces a return that exceeds the cost of capital.
What NPV measures
NPV answers the question: is this programme worth the investment? The Net Present Value discounts all future cash flows — costs and benefits — back to today’s value using a discount rate that reflects the cost of capital. If the NPV is positive, the programme returns more than it costs. If the NPV is negative, the programme destroys value.
The defence-specific complication: the ‘benefits’ of a defence programme are often non-financial (capability, deterrence, operational advantage) and the discount rate is set by HM Treasury’s Green Book at 3.5% for the first 30 years. The NPV calculation becomes: do the quantifiable financial benefits, combined with an estimated value of the non-financial benefits, exceed the present value of the programme’s costs? The answer is often: we do not know, because the non-financial benefits have not been quantified.
Where the two diverge
The divergence between EVM and NPV is the diagnostic. When both are positive, the programme is performing well and worth delivering. When EVM is positive but NPV is negative, the programme is executing well against a plan that should never have been approved. When EVM is negative but NPV is positive, the programme is delivering badly against a plan that is still worth pursuing — recovery is justified. When both are negative, the programme should be terminated.
The most dangerous quadrant is EVM positive, NPV negative. The programme is on time, on budget, and the governance system is reporting green. But the benefit realisation date has slipped beyond the discount rate’s break-even horizon, or the operational context has changed so that the capability is no longer needed, or the cost of capital has increased so that the programme’s return no longer exceeds the threshold. The programme is performing perfectly and destroying value simultaneously. No EVM metric will detect this. Only the NPV calculation will.
Why both matter for a Director
A Director of Portfolio who governs by EVM alone sees delivery performance. A Director who governs by NPV alone sees investment performance. Neither view is complete. The Director who uses both simultaneously sees the programme the way the delivery team sees it (EVM) and the way the board sees it (NPV) in the same meeting.
The practical application: at every portfolio review, present EVM and NPV side by side. When they agree, the conversation is simple. When they diverge, the conversation is the most important conversation the portfolio board will have this quarter — because the divergence reveals a programme that is being delivered well toward an outcome that is no longer worth delivering.