if you don't want to group by dept, then the SUM needs to be outside the CASE structure, like this:

DECLARE @FYStartDate AS DATE

SET @FYStartDate = '2012-07-01'

SELECT PPDate, --Dept,

SUM(CASE WHEN Dept in ('8310', '8330', '8380', '8500', '9360', '9550', '9610') THEN [Value]/520 --measured quarterly

WHEN Dept = '7120' THEN [value] --hard coded

ELSE Value/80 --measured bi-weekly

END) AS 'Earned FTE'

FROM #trends

WHERE Dept not in ('6570','6580','6645','7221','9831') --don't include these dept's

AND PPDate >= @FYStartDate

GROUP BY PPDate--, Dept

ORDER BY PPDate--, Dept