De-mystifying Earned Value – Cost Account Manager

In many cases, tell a project manager they must use earned value analysis on a project and you will hear a groan.  Earned Value Management has been tainted with an aura of overwhelming bureaucracy and incomprehensible numbers and ratios.  While some organizations may have done their best to confuse and confound project managers and project teams with Earned Value Management – it is really a very basic and easy to use set of project analytics.  This blog post will explain the role of the Cost Account Manager.  To learn more about de-mystifying earned value, download my ebook on the topic which can be found at the end of this blog.

Cost Account Manager

A common question when an organization embraces earned value management is, “Who does the earned value analysis?”  Earned value is usually a shared responsibility between the Finance, the project manager, and the Cost Account Manager (CAM).  Finance does the system work and prepares the formal report.  The project manager and CAM do the project level work and interpret the analytics.  On small projects, there may only be a few cost accounts and the project manager will normally act as the CAM for the entire project.  On large projects there can be dozens or even hundreds of cost accounts.  On those projects, CAMs will be assigned to each cost account and the project manager analyses earned value metrics at the project level.  Often I find that one CAM will have responsibility for several accounts.

Budgeting

The CAM’s responsibility starts at the time of project budgeting.  The CAM should either create the estimate for the work in their accounts, or review the estimates being created by others to ensure accuracy.  There are four areas of particular concern that a CAM must closely review:

• A clear definition of the end of the task – the definition of done – and any assumptions associated with the work are validated with the rest of the project team and stakeholders.
• The expected start and finish date of the task are based upon the final project schedule.  Schedules often are developed iteratively and the dates for activities may change several times in the planning stages of the project.
• The estimates for all resources that will be involved on an activity are included.  Task leaders have a tendency to under-estimate or forget about other resources required to accomplish a task.  Therefore the total estimates they provide are too low.  Validate that all organizations and individuals who must work on the task are included in the estimate.
• What allowance for risk, if any, has been made in the cost or schedule estimates?   This question must be negotiated with the individuals on the task and the project manager.  If the task is a high risk task, either the task estimate should include risk mitigation resources or the project leader should be aware of the risk and have a contingency plan. 

If the task estimators have done a good job, the CAM will only need to spend a few minutes to budget each account and set the Planned Value (PV).  The CAM should strive to get the PV as accurate as possible.  Errors in the PV will lead to variances and variance reporting.  It is easier to take a few minutes up front and get an accurate PV than to write variance reports every month.

Project Execution

The CAM must track project execution and make an Earned Value (EV) estimate for every open task at least once a month.  This normally does not take long.  For tasks that have not started, the EV is zero – no value has been earned.  For tasks that are complete, the EV is the value of the PV – all value has been earned.  So the only tasks requiring any effort for estimating EV are the tasks that are underway during a given month.  For many of those tasks the EV can be set using the 0-100 or 30-70 rules that were discussed in the Variance blog post.  Again, this takes very little time.  The only difficult tasks are those assessing progress at the micro-task level.  If the project was planned at the micro-task level, this is still easy – take credit for all the completed micro-tasks. 

The difficulty is determining the amount of EV for a long complex task that was not planned at a micro-task level.  The common phenomena is that the task stays on schedule until the EV gets to 90% complete, and then it hangs-up at 90% complete for month after month as the project team members try to complete that task.  Be wary of “percent complete” from individuals doing task activities.  Some project team members may tell the CAM what they think the CAM wants to hear in order to avoid conflict and confrontation.   If task leaders are claiming a high percentage complete, the CAM should ask what gives them the confidence to make that assessment.  If they have a good answer, trust their assessment.  If they become evasive or can’t provide any support for their assessment, dig deeper.  In that case, the CAM may need to make their own independent assessment.

A CAM should strive to make the EV as accurate as practical.  An inaccurate EV will lead to errors in the earned value metrics of SV, CV, SPI, and CPI.  When a CAM develops a reputation for always being wrong on their EV, their credibility with Finance, the project manager and stakeholders will suffer.  If any of these believe that the CAM is intentionally providing a wrong EV (to avoid variance reports for instance), the CAM’s integrity and credibility is ruined.  This can destroy the CAM’s career.

Analyzing the Earned Value Metrics      

The CAM is the individual who prepares the variance report and often the CAM will determine which method to use for creating a project or cost account forecast which were discussed in the blog post on Forecasting.  Since the CAM created the PV at the time of project budgeting and provides the EV on a monthly basis, they are usually the most knowledgeable person about the costs and schedule of the tasks in the cost account.  The calculations for variance, performance indices and forecasts are very easy and straightforward.  Therefore the role of the CAM is not primarily one of doing math; rather it is interpreting the values and providing insight to the project manager, project team and stakeholders.  This insight should lead to improved project performance, realistic expectations, and lessons learned that can be used on the next project.