Yasser,

the writing on the wall is very clear. Use PM software to perform EV. Don’t bother doing your "real" cash flow in PM software but use it as the "basis" to generate your real cash flow in whatever accounting system you’re using.

don’t read the rest, it just confuses people.

Hello all,

@Vladimir

"Accounting software does not generate cash flows. So both cash flows shall be generated by the project scheduling software."

A Cash flow is usually generated after pricing/planning is done. If you reread what i wrote properly, you will see that I clearly said:
- Prepare the cash flow forecast from within CPM scheduling software.
- Export this cash flow forecast and integrate with if necessary other company wide numbers.
- Apply Business ratios or whatever performance metrics being used in your company.
-Each time Schedule is updated and/or there are revisions to the logic, the cash flow forecast in this schedule will also have changed.
- Export New cash flow forecast and integrate with other company finan.
- Apply Business ratios/performance metrics and repeat the above...

I never said don’t do cash flow forecasting in CPM... Dunno where you got that from.
i said "I analyze it" outside the CPM software.

And Its correct to say that the project manager doesn’t need numbers to the cents. There is a kind of tolerance at project level that doesn’t exist in the accounting department especially that an accounting department needs to take into considerations stuff like insurance, income tax, Sales tax ..etc.. that doesn’t really matter to the Project Manager.

As i commented it is the HOW that really matters.

HOW?????

You may not be able to understand because you provided very small information on your status and project.

Alway remember: the how complication is directly proportional to the project budget.

If the project is small: for example constructing a dog house, then, you can do it yourself by applying simple accounting principle.

"2- How to represent costs on activities that has deferred payments?? Answer: use accruals, this is an accepted accounting techniques very little known to die hard planners but widely known to commercial managers."

Thank you,
Scarlett

Vladimir,

Where I work also duplicate schedules are forbidden, but no one follows this as in occasions you want to take control of your own job while the Owner insists in not accepting you schedule for whatever irrelevant excuse. Yes, at times we are forced to create a schedule that is in accordance to the reality of the job and not in strict accordance to the Owner’s caprice.

Also is not uncommon to have incapable reviewers. It is not uncommon to find reviewers that do not allow changes in logic or activity count, unless approved by him. Some do not even allow you to schedule activities for constructive change orders, others do not allow you to schedule activities related to additional work, under way but with no final agreement, some directed by force account or a change directive, others at the risk of the contractor. Yes at times at the risk of the contractor as it is not uncommon for our government contracts to state no change order is valid until signed by a named high official in a Government Agency, these officials after a 15% in change orders above original contract price must get approval of the Board of Directors of the agency which meets once in a month.

I would like some functionality that updates the activities actual to all your versions based on activity ID/Code. Some versions will have a few extra activities, other a few less activities. A few less should be no problem, just disregard the data, a few more update them individually. Only my Top Secret version will be cost loaded with actual costs.

We consider costs a confidential issue, we never disclose true costs to anyone outside the company, here it is not like in Europe where contractors willingly disclose their costs to everyone.

Are you going to keep your tail within your legs or are you going to take charge of your means and methods? I am the Contractor, give me the functionality and let me worry about the contractual issues.

Ahh! We found a software developer with common sense. Two thumbs up to Spider Project.

Best regards,
Rafael

That is why all this discussion happened.

You shall certainly compare apples to apples. And entering real costs you will have the forecast of future profit.

But this is not what shall be shown to the client. The same works have internal cost and contract cost (price) and for the Client you shall submit the results based on the price.

I expected that P6 can produce EVM reports for separate cost accounts and in this case you may have one cost account for youself and another one for reporting to the Client. But nobody confirmed yet that this is possible.

If it is not possible then you will need to manage two schedules with different costs - one for youself, and another one for the Client.

Best Regards,
Vladimir

ACWP - BCWP = COST VARIANCE when BCWP = Budgeted Costs on Work Performed

BCWP - ACWP = PROFIT/(LOSS) when BCWP = Billings on Work Performed

Yasser,

You can use a single cost account for Budget and a single cost account for Billings; or you can use a combination of costs accounts for either.

Coding will help you identify and group cost/billings accounts, for example you can add a prefix C to cost accounts and a prefix B to billings accounts, this will simplify your selection of account range(s).

Best regards,
Rafael

Yes, Yessir.
You can use this indicator if your contract is Fixed Price.

From your question I understood that you want more deep cost analysis of the project performance. I think that the same understanding was shared by other participants of this discussion.

Now when you clarified your question the answer is simple:

Yes, if your contract is Fixed Price,
No, if your contract includes Cost reimbursement.

Best Regards,
Vladimir

Yasser

The formula is correct and will give your margin if all costs are covered by the software:

- ERP (acounting, controlling) software: Yes
- Planning software: In general it will be only an indicator because many cost will not be maintained in the planning software - e.g. fees, taxes, money transfer/exchange, legal issues... You can transfer data from accounting to planning system for more exact figures.

Regards

Dieter

Yasser,

I supposed your thread becomes a university of "Ss" who wanted to make it simplier but can never find a way! When somebody said, there’s only one way! And where’s the Truth?

For me, Accounting works on a "given" situation with accuracy (and must be).

Planning on the other hand works on a "guess" most of the time, and working very hard to validate that guess! Until a situation arise in reality, it remains a guess.

Vladimir has presented his solution and everybody wants to discount it.

Now they are saying that "EVA" can be worked-out by Planning and Accounting, so I guess they must elevate the qualification of a Planner.

cheers!

Hello Vladimir
You said:
"To estimate project profit for the contractor it is necessary to be able to compare project costs and what will be paid for the same works. It is necessary to take into account that project delays increase indirect costs. It is not necessary to be precise but these estimates are necessary for decision making."

A: OF course it is necessary , i never said the contrary. And I personally do that better through my accounting software. That doesn’t mean it can be only done the way i do it. Its just I prefer to mirror the info i get from a cost/resource loaded CPM schedule into my accounting software and work from there.
But of course there are other valid ways to doing it!
Regards,
Roland

Roland,

I advocate leaving the financial part to the accountant unless the financial part becomes a constraint to the schedule. And this happens.

For the traditional way of contracting we are used to build jobs that have full Owner and Contractor’s financing, the availability of funds is no constraint to the schedule. But there are jobs where the financing is a constraint to the schedule.

I know of a local resort that has been in the making for over 25 years, this resort has its own waste water treatment plant, a marina, a couple of hotels, a gulf club, a school, and the list goes on. Financing and cash flow is what the owners have for breakfast, lunch and dinner, it is all about leverage, NPV, ROI and all the financial ratios we know. To these people the functionality built into Spider Project would be welcomed, easier than playing ping pong with a Spreadsheet and a CPM schedule.

Spider project is not the usual high end CPM software, it stands above. This I realized recently as I could not believe these functionalities could be analyzed together in a single package. Multi constraining algorithms that look for optimum solutions considering multiple sets of constraints is quite complicated, the software can look for solutions that are either optimum or near to optimum in a way you cannot do it under separate software.

Primavera/ORACLE falls short to this challenge; I thought they were capable of the most basic multi resource constrained optimization that is only two sets of constraints, a set for logic links and a set for limited resources. Well I found through a 10 activities sample job they cannot even do optimization with the lowest amount of multi constraint sets (just two).

Judging from the limitations and bugs embedded in P6 I bet on Spider Project for CPM Schedules, on Microsoft for Databases and SAP for ERP.

Best regards,
Rafael

Roland,

project schedule model consists of thousands activities with durations measured in days or hours. Each activity is resource loaded, has its own calendar, dates, etc. What do you mean by exporting project model to the accounting software? Export all activities and resources? And return discounting costs for each activity? I don’t know the accounting software that does it.

For management decisions I will not need advanced accounting software, plus or minus a couple of dollars does not matter much. I need to know that my decisions will improve project success criterion that in many cases is the profit.

If cash flow forecast is done in the CPM software why to export it at all? It is easier to apply discounting in the CPM software itself.

Project planner will not become accountant if the schedule is cost loaded. The cost of resources, materials, activities, financial restrictions can be imported from the accounting software but the budget is created basing on the scheduling results. And different scenarios may generate different budgets.

Of course export of project portfolio cash flow into ERP system is useful and many our customers do it.

Look at the investment project in Spider Demo. There are options to calculate project schedule taking into account project financing schedule (cost center) and material flows (material). If you will uncheck these boxes or just schedule the project (not level) you will find that the new schedule generates higher profit but you will need more money and frames (molds) than you have.
Of course you can move activities manually if your software does not have this feature. But it is not easy to find the best solution in the large schedule.

I don’t consider this functionality as the main Spider Project advantage. There are a lot of them.

But I still think that P6 can produce budgets and earned value analysis by cost accounts. I just don’t know this software well enough.

Best Regards,
Vladimir

Hello Rafael

I think we both agree, unless i misunderstood your post, that we’re both advocating to leave the financial part to the accountant and the planning to the planner.

1-Now that doesn’t mean that I am stating anything against project performance metrics like EVA or EVS.. On the contrary they are, most of the time, necessary.

2-On the other hand, project metrics are correlated but are just a part of Business /financial metrics on a company level.

@Vladimir

3- as i said in nr 1 above, I am not saying Project performance metrics embedded in CPM software are useless. I specifically answered the person who asked that question in the manner I did because the guy asked "how do i calculate a project profit margin". If that is specifically what he wants to do and not more, then accounting makes it easier to him then having to busy his planners with updating two versions of the schedule each time.
4-
"no accounting software calculates future profits and losses that depend on the project schedule"
Correct!
In fact, the most appropriate method, in my opinion, is using the output of EVA or similar methods in CPM, mixing those with the numbers from the Accounting software (most accounting software allows you to export in many formats) and running customized advanced financial analysis on them much more advanced then any one software can do for you.

5-
"no accounting software calculates project schedule basing on financial restrictions"
Correct.
I have many times setup project cash flow forecasts that assume financial restrictions using accounting principles and used those results while devising my schedule using regular CPM software. I never found it a hard task enough to require it a feature of the CPM software i am using. I assume from reading your other posts that this is a characteristic in your program that allows you to do it all in one single program? I still have to try it. Already downloaded a demo and I’ll tell you what i think when i have the time to use that feature.
6-
One contractor may suggest higher cost but shorter schedule. Is it profitable or not?
This is a question of Cash flow forecasting and you could simply use the CPM software to export a cash flow forecast which you input into your accounting software. Afterwards perform Discounted Cash flow methodology to figure out how profitable is that option to you.
Again mixing the best of both worlds.

Now I understand the advantage of having all of these financial features integrated into your CPM software. I am not against such a thing. What I am really concerned about is turning the planner’s job from helping out the project management into maintaining the schedule and finishing within budget and time into wasting his time doing accounting choirs.
After all , the planner doing such a thing is inputting data that the company’s accounting department will have to do anyway to have a more global corporate look into loss and profit.

A great way to take advantage of what your software offers as far as financial features is probably having the ability to export such financial information directly from your software to an accounting software which integrates the Project’s fin. status and projections with others projects and business ventures and therefore the same thing is not being done twice and everyone is happy and has the info he needs to complete his job... Just a thought..

Roland,

As a Construction Contractor, I don’t believe cost loading a schedule is justified in order to get a Billing S curve, which anyway is composed of Early and Late range that is going to vary as job progress. About tracking costs this is 1000x better handled through your accounting software, no need to get into the details of job costing which I call merely budgeting if production is not tracked.

I agree with you with an exception. Costing is better done outside CPM unless cash flow is per se a constraint. Vladimir have shown me of occasions where this can be applied to CPM.

That your car has 1,000hp and a 100 gallons tank does not mean you are to be running wild. Apply the power when usefull, do not waste your fuel. I believe we all can agree on that.

Best regards,
Rafael

Hello there,

I think the real glitch in this question or method of thinking is not really what any software can or will do but rather the scope of issue itself.
Why reinvent the wheel?
I would prefer to leave the schedule for planning purposes and Loss/Profit calculations as well as business ratios for accounting software. And there are really good accounting software that can do the job easier for you then having to try to find a way to trick Primavera or other scheduling software to quasi-do it for you.
I am assuming that you are a contractor and therefore any cost you’re paying, whether be it employee salaries, expenses, purchases, worker’s daily wages as well as your revenues are passing through an accountant or accounting department. In this case, most of the work is already done for you. If you’re using the right accounting software tailored for your type of business and by simply doing your accounting choirs, business ratios such as profit per project, gross margin profit..etc..etc.. are just a click of a mouse away.
There are really good accounting software tailored for contractors on the market today,which can do all of this for you that you are asking. All what your accountant has to do is his normal duties and voila.
Regards

Roland Tannous

Vladimir

In my opinion Primavera reps should have answered.

In P6 cost accounts can be assigned to resource assignments and to expenses NOT to activities. By this more cost accounts can be assigned for each activity (each resource, each expense can have a different account). But you can display all assigned accounts in the Activity view and Group & Sort by cost account or -id. Some of the Earned Value fields are summarized on group level.
In P7 seems to be some improvement, but I didn’t yet install it.
EV-curves or spreads can be displayed in the "Activity Usage Profile" and in the Tracking View.

So you can do it by cost account.

From how you described Spider, it seems to be stronger.

Regards
Dieter

Yes, in one program and in the baseline.

Hi Anoon,
yes, different figures, different totals (internal costs, contract costs, optimistic, pessimistic, etc.), different forecasts and EVA.

I still hope that someone will answer to the question if it is possible to apply EVA to cost accounts in P6.

Best Regards,
Vladimir

Hi Yasser,

Using cost accounts in P6 is very helpful especially when you are cost-mapping or mirror your cost-loaded programme with BoQ.

Best regards,
R. Catalan

Yasser,

I don’t use P6 and so cannot give you detailed instructions.
In P6 Help it is written that EVA can be applied by cost accounts.
Resource and cost assignments you can refer to different cost accounts. So you can create special resources or just apply additional costs with different cost account to the same activities. It is logical to suppose that P6 can report on separate cost accounts, and provide EVA by cost account. Total cost in this case will not have any sense.
It may become your solution.

I never did it myself. I use another software where to have parallel costs for the same objects is usual and easy.

I hope that you will get more help from some experienced P6 user.

Best Regards,
Vladimir

Yasser,

sorry, hijackers are always around

Vladimir said, "Profit is the difference between the price and the cost" I don’t know that EVA is so complicated when I originally thought that it only comes from ADAM.

I may add questions like:

1. How do you derive Prices? and How do you derive Costs?

2. Supposing you got only Costs, How do you make profits?

Vladimir,

From the first posting, #1.

The challenge is how to perform EVA without showing the client our profits; that is to say W/O making two schedules, one for the client and another for internal reporting purposes. That is too much for planners.

Seems like updating various versions of the same schedule is too much for many.

Best regards,
Rafael

Profit is the difference between the price and costs.
I don’t know how to track the expected profit in Primavera. In Spider Project it is easy including discounting. In long projects it is necessary.

Best Regards,
Vladimir

Hi Ronald,
I am glad that we have common approach to Enterprise Cost Management.

I will explain why I decided that you do too much in the accounting software.

In your message you replied to my words:
"To estimate project profit for the contractor it is necessary to be able to compare project costs and what will be paid for the same works."

with this:
"OF course it is necessary , i never said the contrary. And I personally do that better through my accounting software."

It is my fault, because I meant not only to estimate project profit but also profits/costs on project phases and activities. For this task project cash flow is not enough.

We also discussed the case when activities have two costs - internal and external. Project Management software should generate two cash flows but it failed. Without exporting both cash flows to the accounting software it will not become very helpful.

Best Regards,
Vladimir