PROJECT HEALTH MONITORING BY EARNED VALUE ANALYSIS
Framework for Creating an IT labor Charge Back System
1.
2. SOP 98-1 and the HP PPM Center Capitalization Framework
· Based on the EmblemHealth's SOLC, we implemented a standard project template within
HP PPM Center.
· Within the standard project template each of the SOLC phases is identified as either
capitalized or non-capitalized according to the guidelines under SOP 98-1 (see SOLC
project phases listed below, including their capitalization designation).
· By assigning the capitalization designation at each phase level, we alleviate the
necessity to define each individual task within each phase level as either capitalized or
non-capitalized.
2 3 4 5 6 7
Transition
Evaluation
Maintenance &
Support
Implementation
Milestones:
Users Trained
: System Deployed
"'fransition to MTN team
Validation
Milestones:
QASign-<>ff
Traceability Matrix
Validation Sum Report
Release Stmt Sign-<>ff
QA Audit Report
Development &
Construction
Milestones:
Infrastructure Build
Code Freeze
Design
Milestones:
Sign-off from Architecture
Sign-off of Design Spec
Sign-<>ff of Sys Arch Plan
Requirement
Definition
Milestone,:
Sign-off of Reqs Sp~c
Sign-off of Project Plan
Validation Plan
Milestones:
Sign-off from
PMO
Initiation
Capital Eligible
3. Standard Project Template Based on the SOLe
File Edit
Demand Mgmt
Project Mgmt
Change Mgmt
Time Mgmt
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4. EmblemHealth
• Group Health Incorporated (GHI) and HIP Health Plan of New York (HIP) announced
their intention to merge in 2005 and both are currently affiliated and operating under a
common parent company, EmblemHealth, Inc.
• With 5,400 employees, HIP and GHI together are now the largest health insurer
based in New York State, serving more than 4 million people with over 92,000
providers in 142,000 locations across the Tri-State region.
HP Project and Portfolio Management Center - phase I
• GHI started using HP Project and Portfolio Management (PPM) Center for time entry
,anddemand management for 150 users in late 2005. The initial implementation
satisfied the following goals:
1. IT work requests demand management
2. Allow departmental chargebacks for staff operating costs
3. SOX compliance
4. Provide real time reporting for business users on request status
5. Classification of Non-Eligible Capital Labor Costs
Based on the guidelines for SOP 98-1, certain costs will not qualify for capitalization.
The following non-qualifying costs are exempt from capitalization:
1. Preliminary Project Stage Costs:
a. Making strategic decision regarding allocating resources between
projects.
b. Determining what the software and systems need to do.
c. Exploring alternate means to achieve specific performance goals.
d. Determining if the technology required exists.
e. Vendor selection process for purchasing external software.
f. Consultant selection process to work on the project.
2. Post Implementation/Operation Stage:
a. Training costs
b. Application Maintenance
3. Process of converting data from the old to the new system
6. Classification of Eligible Capital Labor Costs
Getting Started
• To standardize the classification of capital projects, the project submitter is required
complete the following questions within HP PPM Center. These questions are based
on the criteria within SOP 98-1.
1. Is this project for the development or purchase of internal use software?
2. For existing internal-use software, does this project add additional software
functionality (i.e., does the modification or upgrade enable the software to
perform tasks that it was previously incapable of performing)?
3. Is this project for the development or purchase of a new hardware system?
• A "yes" response to question 1 and a "yes" response in either 2 or 3 would qualify the
project as capital eligible.
• A representative of the Finance committee will review and approve a project's capital
status.
• Once Finance approves the designation of the project as a capital project, the
projects labor costs will be reported as capital or operating based on the associated~
SD..LC..pbase where the labor costs 'HeF8 incurr@d, _
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7. HP PPM Center Configuration Issues for Capitalizing Labor Costs
Initial Challenge
• Employee hourly pay rates were assigned a blended rate that is based on an
average within their IT peer group and includes their base salary and fringe
benefits. Without an assigned cost for each staff member, we could only report on
hours. This would limit our ability to compare budgeted costs against actual costs.
Solution
• By adopting the 4-5-4 retail calendar, we were able to standardize the number of
hours in a month. A month would either be 4 weeks at 140 standard hours or 5
weeks at 175 standard hours.
Results
1. We will be able to always close the weekly staff time entry period on Sunday.
This will facilitate closing the monthly period and producing the chargeback reports
by the first week of the next month.
2. When we use standard hours, it will allow us to normalize the hours in a given
month. By normalizing the hours in the month, we ensure that we are not
overstating costs in a given period for an employee who worked more than 35 hours
in any week during the month. The formula for normalizing monthly hours is «(all
actual hours on a task / all actual hours) x (standard hours for month) * Rate of
pay)).
8. Retail Calendar
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9. HP PPM Center Configuration Issues for Capitalizing Labor Costs
EXAMPLE: Use the retail calendar to normalize the employee's hours:
Employee number 1 is a salaried worker and is paid $2,800 monthly. Based on a 35 hour week
his hourly wage is $20. Based on the 4-5-4 rule this month's standard hours is 140 (4 weeks *
35hrs).
• In this month the employee worked 46 hours over the normal 35 hour week for a total of 186
hours. The employee's time was split between multiple tasks that included capitalized and non-
capitalized work.
• If we used the base configuration within the system, we would enter $20 per hour as the rate of
Pay. The month end report would show that the employee worked 186 hours at $20 dollars per
hour for a total pay of $3,720. The net outcome is that the employee's salary is overbooked by
$920 dollars.
By using the formula ((all actual hours on a task / all actual hours) x (standard hours for
month)* Rate of pay)) we are able to normalize the employee's hours and limit the accrued
costs to the employee's actual pay. See the calculation below:
Task # Actual Hrs. Formula Normalized Hrs. Monthly Costs
Task 1 100 (100/186)*140 75 $1,505
Task 2 23 (23/186)*140 18 $346
Task 3 15 (15/186)*140 11 $225
Task 4 8 (80/186)*140 6 $120
PTO 40 (40/186)*140 30 $602
Totals 186 140 $2,800
11. Incorporating Non-IT Users into HP PPM Center
Primary benefit of using HP PPM Center for non-IT groups:
• Service groups within the organization can chargeback labor costs for services delivered.
Projects can be controlled through the PPM system project governance model.
Configuration Guidelines:
• Any business unit that has defined resources and a defined customer base can utilize HP PPM
Center.
• All chargeback reports are resource concentric. If you own the resource, you would chargeback
the resource cost to the department that requested the work and you would credit your
department for the resource costs expended.
12. Monthly IT Cost Allocation
• Operating and capitalized labor costs will be credited to the IT budget and charged to
their respective cost center accounts.
• Capitalized labor costs will be pooled on the balance sheet, and as the projects are
completed, these capitalized costs will be amortized across the organization.
• Non-project related costs will be charged back based on PC count.
Net Impact:
• IT budget is right sized
for internal IT costs
• Business budgets now
accurately include all of
their operating costs. H
• Corporate leaders can
more effectively align
and allocate resources
for maximum return
Capitalization
(cap hours)
Chargeback
(non-cap hours)
Remaining ITOosts Allocatetl Based on Departmental pes
13. Improved visibility and management of demand queue:
• By implementing HP PPM Center in 2005, we were able to control the business IT requests and
to allow the business users to view the status of their work requests in real-time mode.
Increased budget accuracy
• By charging back their direct operating expenses, we were able to properly allocate a portion of
the IT budget.
Accurately report on capitalized labor costs
• Today, not only are we able to control the inventory of work requests in the system but by
creating the standard project template, which is based on the seven phases of the SOLC, we are
able to segment and report on capitalized labor costs.
Single instance of the truth for all project and non-project work requests
• By selecting HP PPM Center as the EmblemHealth tool for reporting and controlling projects, we
are able to present a common, consistent view and status reporting for all enterprise projects and
non-project work requests.
Establish a framework for monitoring and controlling labor costs
• Our goals have been to consistently add value by providing a framework for monitoring and
controlling labor costs, business departmental work requests and projects. By using HP's PPM
Center we have been able to reach those goals.
