Introduction
Among the biggest challenges to implementing a full scale EVMS is reconciling true actual cost in an organization's accounting system to the project. The company's accounting systems may not accommodate the Work Breakdown Structure (WBS) of the project and may need manual mapping from the general ledger to the project cost accounts. Some projects or programs involve more than one organization, and the complexity of combining two accounting systems into one may be too daunting to even attempt, and, finally, many times it is not possible to align cost with the appropriate time incurred, because many costs do not come through an accounting system until as late as two, three, or more cost periods after the costs were incurred. This requires manual loading of estimated accruals of cost, which means the constant reconciliation of actual and accruals. All too often, the result is for the organization to abandon EVMS because it becomes too hard or requires too much additional management cost to justify the benefit that EVMS brings.
One alternative used by the U.S. Navy ERP Program was a resource-based methodology that avoids using the accounting system for actual cost. There were multiple government organizations and contractors providing support to the program using different accounting systems. This created an insurmountable problem when trying to gather actual costs. The solution to this problem was to use resource-loaded schedules to establish the program cost and schedule plan or Budgeted Cost of Work Scheduled (BCWS). To collect actual costs, the program implemented timekeeping to record the hours worked against each cost account. This establishes the Actual Cost of Work Performed (ACWP). In addition, the program management team updated work accomplishment in the scheduling tool that establishes the third component of the EVMS—Budgeted Cost of Work Performed (BCWP). With these three components captured, the program was able to generate the required Cost Performance Reports (CPR). In this case, the navy used Primavera as their primary scheduling tool and the timekeeping module, Cost Manager, as their CPR tool. Other tools can be used, but this paper focuses on the methodology, not the tools.
Building the Baseline
The key to this methodology is resource-loaded schedules. There are many ways to resource load a schedule. Two of the more common approaches are to load resources by: (1) individual name or (2) by generic labor categories. Regardless of which method is used to load resources, you should estimate the hours planned for each resource and establish a rate per hour for each hour. The hours and rate assigned against the schedule produce the time phase cost plan or BCWS, against which actual hours and rates can be applied. In some cases, rates may not be necessary. Tracking planned hours against actual hours may be all that a project needs. Applying rates, however, does provide the account manager with a monetary metric to more correctly reconcile actual cost against account budgets that are usually in dollars rather than hours. There are a number of ways rates can be derived. Two of the more common approaches are to: (1) use actual rates (burdened cost of a resource to the project based on salary, benefits, general, administrative, and overhead costs) for each individual resource or (2) use average costs of general resource groups. The first approach of using actual rates is the most methodical way in which to reflect actual costs, because the hours incurred generate the same costs in the EVM system as in the accounting system. This approach works well for small projects but, as we discuss later in this paper, it may become too difficult to do on very large projects involving multiple organizations. In this case, generic labor categories can be established that individual resources can be “coded” to, and average rates can be applied to the labor categories. It is not as applicable for capturing real costs but still establishes a credible baseline or BCWS.
Tracking Cost and Schedule
Once the BCWS is established in the resource-loaded schedule, with estimated hours and rates included, you can begin tracking schedule status using the Schedule Performance Index (SPI) and the actual cost against planned cost with the Cost Performance Index (CPI). Schedule status is done by tracking task completion within the scheduling tool. Depending on the earned value method applied to the task (0/100, 100/0, 50/50, or % complete), the earned value of the work accomplished can be calculated. This is usually accomplished within the scheduling tool, as most of the relevant scheduling tools now offer this capability. Tracking the actual costs can also be done within some scheduling tools that offer timekeeping modules. The timekeeping tool needs to use the same labor categories and rates used to develop the baseline cost and schedule. For example, if the project used actual rates for each individual, then the costs should be collected the same way so that variances are not introduced because of rate differences. This means the timekeeping tool needs to have rates associated with each individual regardless of which methodology is used and it requires the individual or a timekeeper to enter hours into the tool to record the actual hours worked. The hours then generate actual costs of work performed when the rates are applied. In most cases, individuals are required to enter their time in their company timekeeping tool as well as the project timekeeping tool, though only direct hours worked on the project are recorded in the latter tool. This does create a burden on the individuals to track time in two places and requires oversight by tool administrators and account managers to make sure everyone is correctly entering his or her time. In large projects, you can expect 5% to 10% of the workforce will be errant or late with their project timekeeping, which means a 5% to 10% artificial variance in the EVMS, hence efforts should be made to control the accuracy of timekeeping.
Another burden of this approach is keeping individual staff and rates up to date in the timekeeping database. If the rate methodology used individual rates, then not only should you change individual names for staff turnover, but salary changes require changes to rates as well. For large projects involving multiple organizations, it can be extremely difficult and tedious to maintain most up-to-date rates if there are frequent changes over the life of the project, such as turnover of resources, annual promotions, annual salary increases, or escalation. Careful coordination between participating organizations and the project office are extremely important to increasing the likelihood that rates remain correct. If the objective is to track actual costs as close to the cost in the accounting system to understand the real cost variance, then the rates in the timekeeping tool should be up to date.
Using the generic labor categories and generic rates, only requires managing individual staff names as they roll on or off of the project. As a new individual joins the project, he or she is assigned to a generic labor category that already has preestablished rates that do not change each time a new person comes aboard. Generic labor categories and rates can reduce the administrative burden on the project team; however, it can reduce the accuracy of true cost. Account managers and project managers should be careful to track actual accounting costs against budgets to help confirm they do not exceed monetary budgets by over relying on the EVMS. Although not perfect, this approach does provide correct cost and schedule performance.
The EVMS Triad Complete
The final step to this methodology is the Cost Performance Reporting (CPR). The specific inputs are BCWS, BCWP, and ACWP. The CPR reports use these data to generate cost and schedule variances, performance indices, and estimated completion and costs. There are many tools on the market today that can generate these reports, as well as provide analysis of cost and schedule performance, but you can generate these reports in MS Excel spreadsheets.
Final Words
The resource based EVMS described in this paper is not an approach that is considered “certified” by government standards, but it is an alternative approach to applying EVMS principles without the significant challenges associated with building a government certified system when it is not required or possible.
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