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D-E Accounting at Project Completion


D-E Accounting at Project Completion

This article describes how to execute D-E Accounting when the Project is completed.

                When his Project is completed, the Cost Engineer is obliged to inform the Project Manager, and through him also the Project Sponsors, about the final financial status and the financial history of the Project.  Referring to the total Project, his reports must depict the Project's financial FORECASTS, ACTUALS, BOOKINGS and COMMITMENTS, compared with the BUDGET, all distributed in the Project time-frame, and illustrated by histograms and S-Curves. Referring to all major Project Objects and to all Project Participants, his reports must show clearly all overruns and under-runs, supplemented by appropriate comments as "what, who, and why", allowing to draw conclusions that may become useful in the future.

                In this Project Stage, the Cost Engineer depends solely on the information gathered by himself in the database of his Project. He needs to execute the following tasks:

  1. Close the Accounting Books.
  2. Create Project Final Financial Cost Statement
  3. Create Project Final Time-Cost Report
  4. Create Project Objects Final Cost Status Report
  5. Create Project Participants Final Cost Status Report
  6. Create Final Work Progress Report
  7. Close the Petty Cash, if applicable
  8. Distribute and archive Project Cost Data

    In this article like in the previous one, we assume, that the Cost Engineer used TECA, the project accounting computer program that is an integral part of the already published book. To illustrate the above tasks, this article refers to the same very simple project, the Oklahoma Transit Gas Pipeline (estimated cost of US$ 154 millions, and planned duration of 16 months)  that was demonstrated in our Articles #10, #11, and #12.  

    Now it is evident that the Project was completed with the expected delay of two months. In this article, we review the procedures of "Book Closing", done at the end of the Project Period #18. We also review all the final cost reports that were created and published by the Cost Engineer.


1. Close the Accounting Books

                As you may know, in the Business Accounting the accounting books must be closed every year, at the end of each business year, in order to permit creating financial statements and calculating the business Profit/Loss.  In Project Accounting, the accounting books are closed only when the Project is completed, and there the comparison with the Budget and the Date of Completion are the criteria, and not any Profit/Loss

                When using the computerized accounting of TECA, "closing the accounting books" means that the Cost Engineer does the following:


2. Create Project Final Financial Cost Statement

                After executing the Consolidation Procedures, the Cost Engineer reviewed the cost summary screen, and subsequently generated the Project Financial Cost Statement at the Project Completion.

                Click here to display the screen entitled General Financial Cost Statement, from which the report can be generated. It shows that the money spent to finance this project (BOOKINGS) amounts to $174,257,920, and that the total overrun of the Budget amounts to $11,787,820, i.e. 7.26%.  The difference between BOOKINGS and FORECASTS of 5.26% (i.e. $8,544,025)  - and also that one between ACTUALS and FORECASTS of 2.26% (i.e. $3,862,942) - indicates clearly that the final cost of labor, materials and engineering was much higher than that originally estimated, where the overrun figures can be obtained by comparing BOOKINGS with FORECASTS.

                Thus the overruns for CONSTRUCTION, MATERIALS, and ENGINEERING appear as follows:

               There is some cash left over, i.e. the difference between COMMITMENTS and BOOKINGS, amounting to $641,570, that shall be refunded to the Project Sponsors. Click here to see the Project Financial Cost Statement at the project completion. Notice that the same cost figures that appear on the program screen, appear also in this report.


3. Create Project Final Time-Cost Report

            After executing the Consolidation Procedures, the Cost Engineer generated the Project Final Time-Cost Report from the screen (click here) named Costs in Periods - Total Project. This report consists of several sub-reports:            

         Additionally, the Cost Engineer provided the following commentary to this report:

        The project duration was extended for two months, mainly due to construction problems encountered at the construction of the Albina Compressor Station where pile foundations - never previously envisaged - had to be provided at the additional cost of $2,500,000. Moreover, there were also difficulties with the pipeline crossing under the river Narew, the cost of which became almost #2,800,000 higher than the cost of crossing under the river Bug. The inclement weather in spring of 2008 delayed the earth work job of digging and backfilling.

        The shapes of all S-Curves (click here) permit to draw the following conclusions:


4. Create Project Objects Final Cost Status Report

            The Cost Engineer generated the Project Object Final Cost Status report from this program screen: (click here).

            Click here to see The Final Project Objects Cost Status Report. It shows that in total the cost of all Project Objects (i.e. Cost Accounts) amounted to $169.576,837 that is $4,632,942 more (i.e. 2.8 %) than the forecast. There are several Project Objects showing the overrun of the Forcast, for example:

           However, there are also such Project Objects, the final cost of which was lower than estimated; for example:


5. Create Project Participants Final Cost Status Report

            The Cost Engineer generated the Project Participants Final Cost Status report from the same program screen as above, except that he selected the radio button EXPENSE: (click here).

            Click here to see The Final Project Participants Cost Status Report. It shows that as much as $173,487,920 represents the total amount paid to all Project Participants. This amount represents $3,911,083 more (i.e. 2.2 %) than the the corresponding total Earned Work. There all Contractors and Suppliers, except for the engineering firm where the costs were fixed, were paid more than their corresponding Earned Work.  This means that in the case of Suppliers, their materials were much more costly that these estimated. Similarly, in the case of Contractors, this means that their work was slightly more costly than estimated.

            In case of Suppliers:

In case of Contractors:


6. Create Final Work Progress Report

            After executing the Consolidation Procedures, the Cost Engineer reviewed the current Work Progress screen (click here), and added there his comments, such as explaining reasons for late start or late finish of some Project objects. Subsequently, from this screen,  he generated the Final Work Progress Report.  

            Click here to display the complete report comprising five (5) pages. You may notice that the data of all Project Objects was broken into three parts: Construction, Materials and Engineering. This reports lists all Project Objects (Cost Accounts), indicating l late starts and late finishes where applicable.


7. Close the Petty Cash, if applicable

            On this project, there was no need for the Cost Engineer to handle the project petty cash accounting. However, if he would be responsible for Petty Cash, then he should ensure that all cost expenses were paid, any money advanced and not claimed be returned, and the Auxiliary Accounting book was properly closed.


8. Distribute and archive Project Cost Data

            Having all above tasks completed, the Cost Engineer prepared two (2) folders. Into each one, he inserted copies of all above mentioned reports, adding in front one index page with listing all reports. He also made backups of the Project Database into two CD disks. Then he created disk labels, describing there the project name and its duration, and pasted one label  on each CD disk. After that, he inserted one CD disk to each folder.  Subsequently, he forwarded one folder with his attached memorandum to the Project Manager. Other folder was formally archived, jointly with other important project documents, in the company archive related to this Project.



Remarks

            This article, similarly like the previous articles, proves that D-E Project Accounting facilitates greatly execution of cost control tasks and makes the job of the Cost Engineer easier, more efficient,  and much more reliable than so far possible. Utilizing the existing project database, and the TECA computer program, the Cost Engineer was able to close the project accounting, generating the first-class cost reports with minimum of his efforts and time.

           The high quality of the project cost control and reporting, made possible thanks to D-E Accounting, should convince you to use this new way of project cost planning and control in your projects too.   


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