Friday, May 1, 2015

Good Timekeeping: Who manages project time? Accounting or the Project Team?

Introduction

You have a decision to make - timekeeping is a requirement for all work on projects for a client.  This time is required to bill the client for incurred costs - if the project is based on a Time and Materials (T&M) contract type or to inform the client of the headcount and effort being expended on behalf of the project. So this is clearly a Project function, right?
However, the same time is also used by the Accounting department's Payroll group to determine the hours that each employee will get paid.
Many companies have ERP or Accounting systems with Payroll and Work Order systems included in the same system.  These companies opt to empower Accounting to manage this time entry and time reporting.

Best Practice for Time Management

Rules for determining the 'best' practice:
  1. Choose the method that makes the most sense to users.
  2. Data flow should be based on business logic - not software systems.

What makes most sense?

Again, the best method is based on the answers to a questions.  
What cost code or activity is time charged to?  Is this code intrinsic to a project?  The only clean, unambiguous assignment of time is to a plan item or activity.  This is based on the principle that you should ONLY be working on a planned item - if not, why not?  It is counter-intuitive to be working and billing the client for an item that is not planned.
So, if a plan item is the focus of the time charges, who manages the plan item?  
Accounting? No.  
Accounting manages general ledger (GL) accounts that are used by all projects.  These buckets of cost enable Accounting to help the company to manage its business with the benefit of hindsight.
Plan Items are typically in a Plan.
A plan, when scheduled, provides a timeline over which the planned costs are spread.
Each plan item is associated with a project-specific work breakdown structure code (WBS) that can also be used as a charge code for time.
So, it makes sense that, as the Project team manages the plan (in addition to all of the other project aspects), the project team is best positioned to manage the collection and recording of the project's incurred time.

Change Management

As a project proceeds, there is often a rapid scope development and approval cycle that results in additional WBSs and plan items being available to be used in Timekeeping.  This further reinforces the need to ensure that timekeeping is project-centric as opposed to Accounting-centric.

Project KPI Management

Primary among the indexes that are used in project management are the Cost Performance Index (CPI) and the Cost Variance (CV).  These are calculated using these formulas:
CPI = Earned Value / Incurred Value
CV = Earned Value - Incurred Value
Incurred Value is either the actual hours or the costs that are associated with the time and materials expended in getting the planned work done.
These indexes are valuable for the entire project as well as for each breakdown level in the project.  Incurred value that is derived in an Accounting, GL-based recording system will simply not have the granularity needed for a KPI-based understanding of the project's status.

Conclusion

It should be clear that Timekeeping is logically an intrinsic Project function.  A timekeeping system should be tightly integrated with the project plan, the project WBS, as well as have a means for each WBS cost to be translated to GL codes for integration into your ERPs time management and Payroll.
Put the responsibility for accurate time tracking on the back of the project team - they created the plan, they should be allowed to track its costs and then pass their data electronically, seamlessly into your Accounting department's ERP.

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