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:
- Close the Accounting Books.
- Create Project Final Financial Cost Statement
- Create Project Final Time-Cost Report
- Create Project Objects Final Cost Status Report
- Create Project Participants Final Cost Status Report
- Create Final Work Progress Report
- Close the Petty Cash, if applicable
- 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:
Ensure that all Project Objects are completed. The Cost Engineer had reviewed status of all gWBS Accounts, and ensured that the final progress is properly indicated as 100% completion, and that the latest progress had been posted. Click here to see the Listing Global WBS Accounts screen, and notice that the progress figure of every account shows 100% and the Project Period is #18. Moreover, every value of Current Progress shows zero ($0), indicating that posting to the Expense Journal had been done.
Ensure that all received invoices were posted. The Cost Engineer had reviewed all current invoices with the Project Accountant, and ensured that even the latest invoices - whether so far paid or not - appeared as posted in the Booking Journal. Click here to see the Paid; Invoices, Credit Memos and other Bills screen, and scroll down to see the corresponding report. You may notice that every invoice that appears in the Booking Journal is listed there, and the time of posting is also indicated.
Ensure that all Journal Entries are posted. The Cost Engineer clicked there also the button VERIFY BALANCE, letting TECA to verify all cost figures instantly. Click here to see the All Journal Listing screen, and notice that the checked boxes indicate posted entries. There the sum of all DEBITS is equal the sum of all CREDITS, showing that the Total Balance of all Journals is zero, as it should be.
Ensure that the Trial Balance do balance. The Cost Engineer clicked there also the button CHECK TRIAL BALANCE, letting TECA to verify all cost figures instantly. Click here to see the Trial Balance screen, and notice that the sum of all DEBITS is equal the sum of all CREDITS, showing the Total Balance balance as zero, as it should be.
Execute the Consolidation Procedures. The Engineer clicked there the button FINANCIAL COST CONSOLIDATION, letting TECA to execute the financial-cost part. After that, he clicked the button TIME COST CONSOLIDATION, letting TECA to execute the time-cost part. Click here to see the Cost Analysis Menu screen and notice the two buttons.
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:
- $2,878,715 - for Construction
- $4,706,442 - for Materials
- $958,868 - for Engineering
- $8,544,025 - in total
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:
See the curves red and green: Starting with the Period #6, the work progress lagged approximately 10% behind the forecasted one, until the Period #13 when additional work effort was made, allowing to accelerate the work progress, Nevertheless, the two months delay of the project was necessary; click here to see this S-Curve.
See the curves blue and brown: Because the payment to Project Participants were made quarterly, always too much cash remained available to the Project, with the surplus cash in order 20% to even 30%, However, it was the policy of this Project Management, to cover the amount of available cash to the sum of all issued purchase orders, and not to that of received invoices; click here to see this S-Curve.
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:
- Compressor Station "Zefir", overrun 12.0%, $1,992,430
- River Crossing "Bug', overrun 12.9%, $1,201,512
- Pipe Materials, overrun 12%, $1,216,965
- Welding Materials, overrun 12.7%, $562,210
However, there are also such Project Objects, the final cost of which was lower than estimated; for example:
- Valve Installation, under-run 41.0%, $2,127,326
- Equipment Rental, under-run 40.1%, $1,496,740
- Compressor Station "Albina", under-run 7.4%, $1,050,378
- Transportation and Freight, under-run 15.1%, $468,695
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:
- Worgong Suppliers, Inc, overrun 16.1%, $811,490
- Pelargo Pipes and Valves, S.A., overrun 3.8%, $762,960
- Kerton Dundas Piper, Inc, overrun 11.0%, $495,770
In case of Contractors:
- Delmargo, Ltd, overrun 1.0%, $414,055
- Edward Earthwork Company, overrun 0.8%, $211,461
- Mastrong Welders, Co.", overrun 0.5%, $93,857
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.
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.