Project Management & Accounting – AX2012R3.Concepts and core functionalitiesMudassar Hassan

Project Types• Time and material - In Time and material projects, the customer is billed

for all costs that are incurred on a project. These include costs for hours, expenses, items, and fees.

• Fixed-price - The invoices in fixed-price projects consist of on-account transactions. These projects are invoiced according to a billing schedule that is based on a project contract. Revenue for a fixed-price project can be calculated and posted throughout the project by using the

– completed percentage method,

– or when the project is finished, by using the completed contract method.

Companies can often benefit from using the value of the work in process (WIP) to calculate the degree of completion of a project or group of projects.

Project Types (cont..)• Cost project - Like Investment projects, Cost projects are typically used

to track internal projects, and only hours, expenses, and items can be recorded for costs projects. Cost projects are usually of shorter duration than investment projects. Unlike Investment projects, Cost projects cannot be capitalized to balance sheet accounts. Instead, their project transactions are posted only to profit and loss accounts. Because Cost projects are typically used to track internal projects, they do not ordinarily have to be associated with a customer account. However, if your setup requires that item requirements be created for purchase orders, you do have to associate the Cost project with a customer. This is because item requirements are managed as sales order lines, and the system requires that a customer be specified. However, this setup will not result in item requirements being created automatically from a purchase order. For Cost projects, the Create item requirement setting is ignored.

Project Types (cont..)• Internal - Internal projects are used to track costs on a project that

is internal to your organization. This type of project can provide a planning tool to manage resource consumption.

• Time project - Time projects are used to track time that is associated with non-chargeable and non-productive activities, such as a project to track sick time for workers. Transactions in Time projects are not posted to the ledger. Instead, they are included in worker utilization reports. Only hour transactions can be recorded in Time projects. You use an hour journal or timesheet to register these hours to the project. After the hours are registered, they appear as project transactions, but without a corresponding voucher transaction.

Project Transaction Types• Hour – Transactions are linked to the financial compensation of project

workers, such as consulting, installation, or design.

• Expense – Transactions are associated with a project, unless the transactions are related to items or costs. Examples include travel expenses or vendor services.

• Item – Transactions are linked to items that are purchased for resale, and to items that are consumed in a project, such as when a customer purchases a new computer for the project through the company.

• Fee – Fixed revenues are associated with a Time and material project, such as a bonus for the early delivery of a project blueprint plan and budget.

Project Category Groups• Categories represent types of costs or revenues that are defined for an entire

organization. Each category must be assigned to a category group. Categories and category groups are organized by type. These types correspond to the transaction types that are available in Project management and accounting.

• The benefit of dividing category groups and their corresponding categories into types is that when you select a category on a transaction line, the categories that are available for selection are limited to the category types that are defined for the transaction. For example, if you enter an expense transaction, the categories that you can select for this transaction are limited to expense type categories.

• You can use project category groups for several purposes:– Group similar cost categories, such as worker hours, materials, and travel expenses.

– Set up default ledger posting by category group.

– Set up line properties by category group.

Transaction categories and category groups• In Project management and accounting, you can categorize revenue and expenses on

projects to control posting to the general ledger, and for detailed reporting and analysis. By categorizing expenses and revenues separately from the general ledger, project managers can get additional details about project performance.

• To make it easier for companies to categorize transaction types, categories in Microsoft Dynamics AX are shared between Production control, Travel and expense, and Project management and accounting. To create a new category to use with project transactions, you must first create it as a shared category.

• Category groups let you share properties, primarily posting profiles, between related categories. At least one category group must be created for each transaction type, and each project category must be assigned a category group. Because project categories are assigned to a single group, they are associated with the same transaction type as the category group.

• When you enter a project category on a transaction line, the category selection is limited to the categories that are set up and linked to this transaction type. For example, when an expense transaction is entered, only expense categories are available.

Line Property• You can set up default line properties for projects and project categories.

When you create a new project, you can use the default line properties, or you can modify them for specific lines. You can set up the default line property at the project or project group level, at the category or category group level, or by using any combination of the two types.

• Set up line properties that have a Table, Group, or All relation to projects and categories. The relation that you select determines the priority for the line property that is applied when you enter a transaction in a journal.

– Table – The line properties apply only to the specified project.

– Group – The line properties apply to all projects in the specified project group.

– All – The line properties apply to all projects.

Work in Process (WIP) calculation• A work in process (WIP) amount is the total accumulated costs or revenue on a

project that is still in progress. Depending on the project group, actual project costs and revenue for hours, expenses, and items can be posted to a WIP financial account on the balance sheet. When you invoice a customer for a project or close an internal project, the accumulated costs for the project are reversed from the WIP account.

• On external projects, calculating a WIP amount ensures that the costs and revenue that are recorded for projects are recognized and posted on the profit and loss statement in the same accounting period.

• On internal Investment projects, a WIP amount is calculated in anticipation of costs being capitalized on balance sheet accounts when the project is completed.

• You can calculate WIP values based on cost value or sales value. The method that you use depends on the project type. The following table provides details about each method.

Work in Process (WIP) calculation (cont..)

Method Description

WIP - cost value Actual costs for hours, expenses, and items are posted to a financial account on the balance sheet. When costs on a project are invoiced to the project customer or an internal project is completed, the costs and associated revenue are posted to profit and loss accounts.This option is available for all project types.

WIP - sales value When actual costs are posted to a project, the costs are accrued as revenue. This is done by crediting a revenue account on the profit and loss statement and debiting a WIP - sales value account.This option is available only for Fixed-price projects and Time and material projects.

Revenue Recognition Accounting Rule• Revenue recognition is an accounting principle to recognize the revenue

when it is earned or realized. In other words, companies shouldn’t wait until the revenue is actually collected to record it in their accounting books. Revenue should be recorded when the business has earned the revenue. This is a key concept in the accrual basis of accounting because revenue can be recorded without actually being received. An example would be the milestone delivery in an ERP implementation project.

• There are basically 2 methods of assessment principles available here:– Completed contract: More conservative approach ideal for short term fixed-price

projects where the cost and revenues are matched at the end of the project. Costs and payments received from the customer accumulated as WIP in the balance sheet during the project course, matching and revenue recognition happens when the contract is completed.

– Completed percentage: More optimistic approach ideal for long term or complex fixed-price projects where the revenue and costs added to profit and loss accounts as the work progresses and revenue recognition happens periodically based on the contract degree of completion.

Revenue Recognition Accounting Rule (cont..)• Both of these methods requires estimate process to be run for the matching

and revenue recognition in fixed-price projects.– Matching Principle: This setup defines how matching of revenue to the costs should

happen on the fixed-price project. We can choose to match directly with the Sales value or split it into realized cost and a calculated profit. Based on this selection, the setup categories for estimate will be enabled for us to specify which provide ledger account integration.

– Calculation Method: This setup specifies the method to calculate the transaction sale amount applicable for Sales value matching principle only. The default calculation method being None.

– Cost Template: This setup specifies how work in process (WIP) is presented in a fixed-price project estimate and how the percentage of completion is calculated. It defines the percentage of completion to be calculated based on cost amount or quantity/hour consumption, specifies whether calculated percentage can be changed manually or not, defines the cost groups/cost lines to be part of percentage of completion calculations and finally to specify the cost to complete methods for those cost lines.

– Period Code: This setup specifies the control periods used in calculating the project estimates. Generally when running the periodic estimates for matching and revenue recognition, the frequency is setup as accordingly into the system. It can be setup for Weekly or Monthly or Quarterly based on the project requirement.

Project Budgets and Forecasts• Microsoft Dynamics AX provides two ways to manage and control

your projects: project forecasts and project budgets.

• You can use forecasting if your organization has an operational perspective and focuses on revenues and costs derived from specific transactions. You can use budgeting if your organization focuses more on the financial amounts.

Differences between the project forecasts and budgets• Forecasting cannot be done based on a period of time and are always date specific where as project

budgets and allocated over a fiscal period or the span of a project.

• Forecasting can be done using every attribute that are entered on a project where as budgeting can be done at project, activity and category level.

• The forecast transactions can be inquired and viewed in the forecast forms and you can see the forecast for all the projects in the whole company where as the budget transactions can be viewed in the budget balances screen and is project specific.

• No formal approval process or agreement in involved in creating and maintaining the forecast where the budgets require a formal approval process and sometimes may require baseline paper work. For forecasting the user just needs access to the forecasts forms.

• Forecasting can be based on quantities where as the budgets will primarily based on the financial amounts.

• In Forecasting , only allow or disallowing of cost overrun is possible where as ib budgeting user can be promoted with a warning when the cost overruns.

• Automatic forecast controlling in done by the forecast reduction functionality and the actual transaction amounts are subtracted from the forecasted amounts without any audit trial. This make is difficult to trace the actual transactions where as in budgets, actual transaction amounts are subtracted from the remaining budgets and this facilitates a transparent audit trial.

Project Budgets• Microsoft Dynamics AX supports two methods for projecting and controlling project costs and

revenues: project budgeting and project forecasting. By using project budgeting, you can enter estimated revenues and costs for a project and then use it to control actual project transactions. Project budgeting is a simpler method than forecasting, although it does integrate with forecast models. It uses a single entry form for original budget details and for revisions, and it allows projections based only on amount, category, or activity.

• In project budgeting, all original budgets and revisions must be sent to project workflow for approval. Workflow gives you increased control over the process and creates a change history record.

• Project budgeting resembles general ledger budgeting but can be set up more quickly and easily. Many of the options in general ledger budgeting, such as number sequences or currency, do not have to be set up separately for projects.

• Project budgets are automatically associated with two forecast models, one for original budget and one for remaining budget. This is so that reports that are based on forecast models can use budget data. When a project budget is committed, the system creates forecast transactions based on the associated models, which are used for reporting and control purposes.

Project Forecasts• Microsoft Dynamics AX provides two methods for projecting and

controlling project costs and revenues: project forecasting and project budgeting.

• When you use project forecasting, you can enter forecast transactions in forecast forms for each transaction type. Every attribute that is available for an actual transaction can be used for a forecast transaction; for example, line profitability, line attributes, workers, or descriptions. You can also project how long after you incur a cost that you will invoice a customer.

• Project forecasting transactions are based on units and amounts.

• Each project forecast must be associated with a forecast model. A forecast model, which is created in the Forecast models form, acts as a container for the forecast transactions. Forecast models can be designated as submodels for a model, which allows you to forecast by regions, time periods, or departments.

Project Forecasts (cont..)• You can copy the forecast transactions in a model to create a new

model, and also transfer the transactions to the general ledger. Because there is a one-to-one relationship between a forecast and a model, each forecast model makes up a separate budget for a project.

• Forecast models can use forecast reduction as the control mechanism for projects. With forecast reduction, actual transactions reduce forecast transaction balances. However, because forecast reduction is applied to the highest project in the hierarchy, it provides a limited view of changes in the forecast. For example, if a worker is associated with a subproject, the actual transactions for the worker are posted to the parent project. Therefore, it may be difficult to determine which transaction in which subproject caused a reduction to the forecast amount. Because of this, it can be difficult to track the changes. We recommend that you create a copy of a forecast model specifically for use by forecast reduction so that you can use reports to view what was originally forecasted.

Production Orders for Projects• A project-related production order can be linked to a sales order or

item requirement by using either the finished item or consumed item method. If the production order is created manually, there is no link between the production order and the sales order or item requirement (no link to order). If the production order was created automatically to fulfill a sales order or an item requirement, there is a link between the production order and sales order or item requirement (link to order).

Project Invoicing• The project type determines which invoicing procedure should be

applied. Only the two external project types, time-and-material and fixed-price projects, can be invoiced. Time-and-material projects and fixed-price projects are always attached to a project contract.

• Fixed-price projects – The customer invoice amount is based on invoice billing schedules. Invoicing is performed through an on-account setup, also referred to as a billing schedule. Fixed-price projects can be invoiced per project or per project contract.

• Time-and-material projects – The customer invoice amount is based on transaction lines that are entered on projects. Transactions can be invoiced per project or per project contract.

Item ordering methodsThe following table lists methods for ordering items and describes how the items are consumed.

MethodPurpose Consumption

Sales orderEnter a sales transaction directly on a time

and material project.

Item transactions are consumed when the

customer invoice is posted.

Inventory journal

Enter and maintain item records quickly. If,

for example, you want to enter an item

requirement based on a printed list, the

inventory journal can be applied.

Item transactions are consumed when the journal

is posted.

Item requirement

Enter items that will not be consumed

immediately. This method lets users track

the number of items that have been

consumed in a single item requirement

record.

Item transactions are consumed when the

packing slip is updated. That is, the item

requirement is created when the packing slip is

posted.

Purchase orderEnter transactions in one of three locations,

depending on the purchasing method.

Item transactions are consumed on a packing slip

update or when the customer or vendor is

invoiced.

Item Requirement• The item requirement functionality is basically used for reserving

items in the company’s own inventory(a certain amount or unit of items) for a project and then consume when it is needed. Dynamics AX system will then create separate deliveries on each packing slips. This also means that an item requirement can be consumed partially.

• It is created and managed as a sales order line on single sales order that is associated with that specific project. It also allows creating purchase orders and production orders from an item requirement.

Item Requirement (cont..)• The difference between an inventory item journal and an item

requirement in a project is that, an item requirement will be useful when the purpose is not consume items in the project immediately, and rather reserve them in the inventory and consume them partially when needed. Where as an item journal will be preferable to enter and post and quick item consumption in a project.

• There are several advantages that users can take when using the item requirements functionality such as the BOM explosion, Net requirements analysis etc.

Consume item requirements in a project• After you create an item requirement, the item or items can be consumed from the

current inventory if at least one of the following conditions is true:– The item was picked from the current inventory.– The item can be purchased through a purchase order.– The item can be created through a production order.

• In Microsoft Dynamics AX, an item requirement is managed as a sales order line on a single sales order that is associated with a project. This item can be immediately consumed from inventory, or it can initiate a production order or purchase order for the item. Item consumption is recorded as a posting that registers that the item was used in the project.

• If you create an Item requirement or sales order related to the project, you can use e.g. Master planning to create the purchase order without the Project reference, but with a reservation.

• Per standard process a purchase order created from a project directly will always consume the goods.

Registering Item Consumption• You can register consumption of items in Project management and accounting in

several ways. You can either sell or purchase from a project or reserve items for a project.

• Sales order items - To sell items from a project, you can create a sales order from the project itself. You can only create sales orders from time and material projects.

• Consumption items -You can order items for consumption on a project from the company's inventory, or you can purchase them from an external vendor. Items can be consumed on all types of projects except time projects.

• The way in which you order items depends on where you are ordering them from:– To order items from the company's inventory, you must enter the order as an item requirement.

If you use the Item requirements form, you can set it up so that you receive items as partial deliveries. This means that you can postpone consumption of a quantity of the items until the items are required.

– To order items from an external vendor, you must create the order as a purchase order in the Purchase order form.

Purchase Orders for Projects• You can use one of three methods to create a purchase order in

Project management and accounting.Method Purpose Consumption of items

Create a purchase order directly

Use this method to purchase items from an

external vendor for consumption on a project.

You can create the purchase order in the

following ways: Items are consumed when the vendor

invoice is updated.

From the project itself. In this case the project

is already defined for the purchase order.

Create a purchase order from a sales

order

Use this method if you want to purchase items

when you create a sales order from a project.

Items are consumed when the sales order

is invoiced to the customer.

Create a purchase order from an item

requirement

Use this method if you want to purchase items

when you create an item requirement from a

project.

Items are consumed when the item-

requirement packing slip is updated.

Invoicing purchase orders in Project management and accounting• The line property that is attached to a purchase order line for an

item determines whether the purchased item is invoiced to a customer. There are two invoicing options:

– If you do not want to invoice the customer, and a non-chargeable line property is attached to the purchase order line, the purchase order is invoiced and no further action is necessary.

– If you want to invoice the customer, and a chargeable line property is attached to the purchase order line, you must update the vendor invoice and invoice the customer by using the invoicing system in the Project management and accounting module.