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Actuals

7 replies [Last post]
Rola Sabbah
User offline. Last seen 10 years 22 weeks ago. Offline
Joined: 5 Dec 2009
Posts: 61

hi every body,

i want to ask something concerning actuals. Does any body here update actual cost for activiites with real cost , not the earned value ? we do this for WBS level on Excel sheet in order to implement EVA.

i think it will take a big effort to calulate actual cost for each activity, how do you do it? what do think the best approach for this.

Replies

Rola Sabbah
User offline. Last seen 10 years 22 weeks ago. Offline
Joined: 5 Dec 2009
Posts: 61
Thx every body
Bogdan Leonte
User offline. Last seen 2 weeks 5 days ago. Offline
Joined: 18 Aug 2012
Posts: 284

Greeting,

Vladimir regarding One of our customers manages two schedules in parallel: one reflects Earned Value, another one includes only those actuals that were accepted and paid for. One shows the real situation, another one - project status based on accounting data. Of course second schedule is late. Comparing these schedules project manager may forecast future cash flow.

Here are my 2 cents regarding this matter (Vladimirs' post and the general topic):

I created a very simple cost structure for a project in oder to explain, this should be enough to get the general ideea:

  • 5 cost components;

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cc.png

  • 2 cost centers;

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ccenters.png

  • 1 user field Theorethical Profits [Cumulative] fith the following formula.

c_sum_Price (Tender Price [Cumulative]) -  c_sum_Costs (Project Costs [Cumulative])

According to contracts between contractor and supplyers I create activities (milestones) for payments;

According to contracts between contractor and customer I create activities (milestones) for revenue from paid invoices;

(These milestones will not be concidered in scheduling)

I create the Payments VS. Income Cash-Flow (Cost Center), which you can see is below 0.

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actuals_and_accounting.png

Using table report on a daily level and a Payments VS. Income + Financing I calculate the amount of money the contractor needs to sustain the execution of the project. (This is a workaround since this Cash-Flow will not be monitored) only the cost componet for Internal Financing (the amount of money the contractor needs for the project)

When project progress is updated I can compare the theorethical profit to the actual payments. Also based on the date of the payments and revenue I can monitor the Internal Financing cost components, thus future cash-flows.

Also the Internal Financing cost component can be submitted to Risk Analysis (3 Scenarios, not Monte Carlo).

There are 2 problems with this method:

1. Critical path no longer exists since floats are computed for all activitries (some option for float calculation for milestone activities might be a way to solve this, or some flag activities, for which only costs will be computed)

2. Risk analysis for finish date is not recommended for activities: payments, revenue, internal financing; since some milestones for the previous mentioned activities in the pessimistic scenario may occur earlier than in the most probable and so on.

This is the only method I have found for which I can consider all the information of the project in one file and syncronize it with the accounting department.

P.S.: I don't know if all this can be done in any other software other than Spider, since it allows the simulation of revenues and it has the The 3 Scenarios Method for risk analysis. 

You can download the file from here: http://www.speedyshare.com/7apht/Actulas.001.sprj

Best Regards,

Bogdan

 

 

Rafael Davila
User offline. Last seen 14 hours 11 min ago. Offline
Joined: 1 Mar 2004
Posts: 5228

Vladimir,

Spider have a richer cost feature than most other software, but it is not only about individual cost codes, Spider provides for cost centers. 

It is not just about lump sum costs but also about time distributed productivity.

What is most relevant, labor and equipment productivity, is visible within Spider but not with other CPM software.

Job costing might help but job costing reports are considered confidential in my area. In such case we can track costs, resource hours, productivity and volume of work per period and at a single click save the file without costs or delete unwanted cost codes and cost centers before submitting the file to the client.  

Spider I consider the exception, they listen but they cannot do magic, cost control and recording will always be time consuming as even when you purchase nails it should be accounted, the same for every item your pick-up brings every day from the hardware store.  

I would rather use a Job Costing System integrated with the Accounting System and complement time distributed resource hours and volumes of work from Spider as needed, to keep production progress on the record. Spider is the only CPM software that allows me to do this. The cost function in Spider I generally use it to estimate future time distributed costs and a need to consider when your schedule is subject to financial constraints.

Needless to say our 75% of contractors that do not have a formal Job Costing System integrated with their Accounting can opt to keep track of costs and production within Spider while those without Spider will only be able to keep track of costs without the production part. But for contractors it is all about unit costs not lump sum.

The idea on keeping a separate version updated with accounting data on every month seems a good alternative, easy to implement in Spider as long as both versions are implemented using Spider. Our reality is a bit complicated, we are required on every job to use software of the client chosing. 

In practice these 75% of our contractors end up doing some cost tracking of particular items the best they can. This is not perfect and there is always the possibility some costs will be missing. The accounting system keep tracks of everything, even the toilet paper is an expense any accounting system will include.

Best Regards,

Rafael

Rafael,

project management software does not replace accounting tools but ...

When actual costs shall be tracked project schedule includes payments and supplies as separate activities with separate cost components.

One of our customers manages two schedules in parallel: one reflects Earned Value, another one includes only those actuals that were accepted and paid for. One shows the real situation, another one - project status based on accounting data. Of course second schedule is late. Comparing these schedules project manager may forecast future cash flow.

Actual schedule is updated weekly, Accounting based schedule is updated monthly.

Regards,

Vladimir

Rafael Davila
User offline. Last seen 14 hours 11 min ago. Offline
Joined: 1 Mar 2004
Posts: 5228

If you have 10 lighting fixture types, 10/ea Type A at 500$/ea, 40 Type B at 230$/ea, 80 Type C at 180$/ea, 2 Type D at 560$/ea ... and they are distributed on 20 installation activities each with a different amount of each. How do you distribute the allocation for labor, equipment, material, subcontracts, other [labor burden, insurances, fuels ...]?

Even simple things as concrete becomes difficult to account and distribute to each activity. Usually you buy concrete on a contract basis at a unit price for each concrete type that will vary depending if overtime delivery, if less than a full truck load. How are you going to account for it? Well in traditional job cost accounting many set up a single cost account for concrete materials and never distribute to individual activities cost accounts. Remember each individual activity might have several cost components each with their own cost account.

There is also the issue on committed costs and advanced payments for materials ordered for fabrication for which you have to pay over 50% prior to fabrication such as Elevators, prior to shipment you have to pay the remaining 50% and you have not started installation yet.

Traditional job costing is many times easier without the complications of additional distributions per activities, some jobs have thousands of activities. Still Job costing is not as easy, here less than 30% of contractors have formal job costing that will allocate each cost type on an accrual basis to job cost accounts. If you add the distribution of each cost account to individual activities you add another layer of accounts on top of that, this is a monumental task.

If this is not enough contractors that use traditional job costing have a need to track quantities or volume of work but most CPM software lacks the functionality to track volume of work. They need information on a different way and CPM software developers do not understand it well, they just do not listen.

http://www.foundationsoft.com/resources/articles/77-unit-cost-and-production-reporting.htm

If still not enough, on every job clients force the contractor to use CPM software of their choosing for every job, so integrating enterprise financial systems with the many CPM software they are required to use makes no sense at all. 

I do not know a single contractor that would even consider tracking cost per activities. At thousands of activities per job each activity with several cost accounts and different WBS as requester by each client forget it, it is nuts.

If still not enough just consider what happens when activity finished but costs continue to acruee, or what happens when cost loaded for payment purposes as exposed on the following article.

http://www.nflaace.org/index_files/john_orr_cost_loaded_schedule_updating_pdf.pdf

For cash flow projections, our contractors combine their accounting records that include all payables and use the data to get a single number per elapsed time period per job and estimate remaining cost to complete cash distributions at a summary level for each job using the CPM projections. These cash flow projections are required by surety companies on a yearly basis, at time more frequent but never weekly.  

CPM schedules are somewhat good for future time distributed cost projections that never happen as planned, some are excellent as a management tool for activity and resource planning while others not so functional are not so good, none are so good as to substitute accounting tools.

Raymund de Laza
User offline. Last seen 27 weeks 6 days ago. Offline
Joined: 22 Nov 2009
Posts: 762

Rola,

Actual Cost data gathering and encoding is the challenged faced by most Contractors. Usually, data are available but allocating to Cost Accounts may be the challenges.

Say, Materials are delivered at warehouse and issued to site, payments (Credit) for the Materials are not paid yet to suppliers but when activity was completed, supply and installation amount are already collected from the client and paid to Sub-Contractors. In this example, what will be the actual cost for the specific period?

Proper Engineering Accounting shall apply and continous training shall be introduced at site personnel.

 

Regards,

 

Mike Testro
User offline. Last seen 1 week 3 days ago. Offline
Joined: 14 Dec 2005
Posts: 4418

Hi Rota

It depends on how the accountants input actual cost into the cost records - to what degree of detail.

As I understand it the whole point of Oracle buying up Primavera was to create a common WBS system so that reported costs from P6 were instantly comparable with actual costs in the accounts.

For this to happen both teams have to play by the same rules.

You also have to account for cost lag input - are the costs entered when they are paid or when they are incurred.

This was always a problem in my QS days doing a cost / value reconcilliation.

Best regards

Mike Testro