Right Sizing: Finding the balance between Accounting’s "numbers" and Your EVMS

This week we tackle the third of five in our five essential frameworks discussion, we will review the Accounting Considerations from the ANSI/EIA-748 guidance.

If you’re actively using Earned Value as a management tool, then it’s very likely you have a love/hate relationship with the accounting folks.  You love them when they provide details and data you need to answer variances, and they serve as a bit of a watchdog for your project costs.  However, you hate them when their systems or processes are not set up correctly to effectively manage projects.  That wouldn’t be so bad, except in many cases they are reluctant to change the setup, or complain it’s too difficult.  Remember that people are a bit more willing to change if you offer to do most of the work for them, and in this case, it behooves you to do it because it will make for more effective and less painful project management.  While integrating the accounting software with your Earned Value Software can be challenging, it is well worth your time.

So, what can you do right now, to guide or change the direction of the accounting system setup so it is Earned Value friendly?  Take a look at the requirements for a certified EVMS in the ANSI/EIA-748 and implement the basic framework so your organization can grow into a certified system when, or if, the time comes.  It’s a solid framework that will only help you manage your projects, whether you need to be certified or not.  If you’re working with an existing setup, map out a crosswalk showing how to go from the old setup to the new setup.  This may include using different software, but most likely it will just be changes to codes and processes, since most accounting systems are robust enough to handle an EV friendly design.  

What are the accounting considerations from ANSI/EIA-748 we should consider?

1. Record direct costs in a manner consistent with the budgets in your accounting system.  This sounds relatively simple, right?  Here’s the part that most people miss: they fail to collect their actual cost in the same manner as the budget.  If you budgeted for 5 tons of gravel to be “earned” upon delivery under control account XYZ, then record the actual costs upon delivery as well (in the same control account), instead of when it is ordered or under control account ABC.  This sounds like common sense, but it is all too common to record actual cost in a way that’s different than how it was budgeted, or under a different control account.  Make sure you formalize the process to aid in consistency each month.
2. At a minimum, your project costs must be reconcilable with the accounting system.  Costs associated with your project should have a charge code pointing them to the correct control account, or at least to the correct project.  If you are using control accounts and charge codes, it’s extremely important that they are only pointed to one corresponding WBS element.  Double counting the costs or having to determine how to split the costs between the applicable WBS elements is just a headache waiting to happen!  This also means that the WBS you’re using to account for the costs will roll up to the parent WBS successfully.  I have seen people attempt to point costs to a level 5 WBS element, and then also at level 2 or 3.  If you’re WBS is set up correctly, and you’re only allocating costs to one element, this won’t be a problem.
3. Everything described in item 2 above, is also applicable to the OBS; that is, control accounts and charge codes must correspond to only one OBS element for accurate performance reporting.  This also helps you hold the correct departments/groups responsible for their work on the project.
4. If material or unit costs are applicable, make sure your processes are consistent in how you budget and account for them between the accounting system and the project.  This will help you measure performance for these items on the project.
5. The standard also discusses allocated indirect costs to the project.  However, for organizations that aren’t required to have a certified EVMS, I think this one can be less rigid, or even skipped altogether.  You can still manage the project well enough without spending a lot of time on the indirect costs—let the department responsible for the project handle it. 

For this section of the ANSI/EIA-748, you can easily see that consistency in planning and costing (including taking credit for performance) is key.  The right earned value software can make it easier to be consistent in planning and costing, as well as making it easier to be consistent between the accounting system and the project.  Let these rules be your guiding principles with the accounting considerations for an EVMS, and you’ll be well on your way to a headache free framework that yields the highest results for the least amount of effort!

Have you experienced any headaches with aligning your project or accounting system with EVMS principles?  Please share your story in the comments.  Stay tuned for the next blog; we’ll discuss the most crucial Analysis and Reports criteria of an EVMS.

- Melissa Duncan (About Melissa)

Read the previous posting Right Sizing: Shrink to Fit - One Size Does Not Fit All

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Earned Value legend as there may be a few of us that don’t yet have this memorized…

CA=Control Accounts
CAM=Control Account Manager
CPI=Cost Performance Index

EVM=Earned Value Management

EVMS=Earned Value Management System

EAC=Estimate At Completion 
IPMR=Integrated Program Management Report
LOE=Level of Effort
OBS=Organizational Breakdown Structure
PC=Project Controls
PM=Project Manager
RAM=Responsibility Assignment Matrix
SPI=Schedule Performance Index
WBS=Work Breakdown Structure