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D-E Accounting at Project in Progress, Early Stage


D-E Accounting at Project in Progress, Advanced Stage

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

         To some degree, this article is similar to our previous Article #11, because the Cost Engineer needs to execute the same nine tasks, and references are made also to the same pipeline project. However, because now the project is well advanced, some tasks become more complex, as explained in this article. Moreover, analyzing the D-E Accounting reports, the Cost Engineer is now able to predict quite well whether his project can be completed within the planned time and the budget.

        As you already know, in the D-E Project Accounting, there are three distinct stages:  Project Initiation, Project in Progress, and Project Completed. This article explains the second stage: PROJECT IN PROGRESS. In this Stage, the Cost Engineer depends on the data furnished to him by the Field Engineer, the Project Engineer, the Procurement Engineer, the Project Accountant, and the Project Manager.

            During each Project Period, the Cost Engineer needs to execute the following tasks:

  1. Enter Project Progress data into the Expense Journal
  2. Enter Change Order data into the Forecast Journal
  3. Enter Project Billing data into the Booking Journal
  4. Enter data about Project Funding into the Commitment Journal
  5. Handle Petty Cash for Project Team Members, if applicable

 At the end of each Project Period, the Cost Engineer needs to generate and to publish the following reports:

  1. Current Work Progress Cost Report
  2. Current Project Financial Report
  3. Assessment of Project Expenditure Conduct
  4. Current Project Time-Cost Report

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 previous Article #10 and Article #11.

            Data about the current progress of the Project arrive always from these sources:

            In this article, we review the bookkeeping done during and at the end of the Project Period #13.  Our other  Article #13 covers the subject of  the same pipeline project at the completion.


1. Enter Project Progress data into the Expense Journal

            The Cost Engineer used the progress data submitted to him by the Field Engineer, the Procurement Engineer, and the Project Engineer to make entries into the Expense Journal. Considering the data volume, the Cost Engineer made three separate journal entries in each Project Period: for CONSTRUCTION, for MATERIALS, and for ENGINEERING. Click here to see the summary screen of the Expense Journal.

            The booking procedure is quite simple. The reported progress data - referring to Project Object selected from the combo 'C and  expressed either as the Earned Value (%) or Earned Work ($) - is entered into the CREDIT column. The equivalent Earned Work ($) is  entered  into the DEBIT column, referring to the responsible Project Participant, selected from the combo 'E'.

            Click here to see the Expense Journal Entry for MATERIALS, related to the Project Period #13. Because refers to MATERIALS, the progress is defined by the dollar amounts of issued purchase orders entered into CREDIT column, being offset by the equivalent dollar amounts in DEBIT column, allocated to the responsible Suppliers. Notice, that by clicking on the button SHOW, the corresponding account can be displayed. Click here to see the Cost Account M006.C Compressors, Motors, Machinery, and notice that the current cost exceeds already the forecasted cost for $405,075, meaning that the equipment will become more costly than estimated. Click here to see the Expense Account PELAR.C Pelargo Pipes and Valves, S.A. Notice that the current change order will result either in  the purchased materials becoming much more expensive than estimated, or in the overpayment of this supplier for as much as $610, 527, a fact that needs some explanations from both the Procurement Engineer and the Project Accountant. 

            Click here to see the Expense Journal Entry for CONSTRUCTION, related to the Project Period #13. Because refers to CONSTRUCTION, the progress is defined as the increments of the Earned Values that automatically supply the dollar values entered in the CREDIT column, being offset by the equivalent dollar amounts in DEBIT column, allocated to the responsible Contractors.

            Whenever a Cost Account has its corresponding gWBS Account, the values of Earned Value (called Global Earned Value) and Earned Work (called Global Earned Work) must be obtained from the gWBS Account to supply the required input data for the expense journal entry. This procedure is also simple. Click here to see the listing of the four gWBS Accounts of the pipeline project. After having updated the progress of each gWBS Account (as explained below), the Cost Engineer generated two reports by clicking the buttons EARNED WORK BY OBJECT and EARNED WORK BY PARTICIPANT; click here to see the two reports that supplied the input data that appears in  the expense journal entry, mentioned above.

            Updating for progress any gWBS Account is explained by referring to the Cost Account C022.c - Compressor Station Zefir. Click here to see the screen, showing the previous Period #12 being just upgraded to the current Period #13 by clicking the button NEXT PERIOD. Then scroll down to see the same screen with the Earned Work figures, already updated by the Cost Engineer. As you can see, the positions Ln#4 and Ln#5, and also Ln#7 through Ln#9 were updated by selecting percentage figures from the combos, and the progress of the position Ln#10 was even reduced to 5% only. Clicking the button UPDATE resulted with the progress being recorded in the database. Once this procedure had been repeated in every gWBS Account, the two reports, mentioned above, were generated.  

        Click here to see the Expense Journal Entry for ENGINEERING, related to the Project Period #13. Here the progress wa defined either by an increment of the Earned Value, or by the Earned Work (such as planned engineering costs expressed in dollars) entered in the CREDIT column, being offset by the equivalent dollar amounts in DEBIT column, allocated to the responsible Engineering Firms.


2. Enter Change Order Data data into the Forecast Journal

            There was only one Change Order issued on 02/15/2009, i.e. during the Project Period #13 - Change Order #CHP-04 - "Albina" Modifications - that increased the total Project Forecast for $1,818,300. The Cost Engineer made the entry into the Forecast Journal. Click here to see the journal entry screen. As you can see the cost for CONSTRUCTION was obtained from the gWBS Account C021.c Compressor Station "Albina", class of which is C3d (Construction-Direct), and the cost is $1,653,000, calculated as explained below. There is also the related additional cost for ENGINEERING of $165,300 that was provided by the Project Engineer.

            Creating any Change Order on the gWBS screen is simple; click here to see the related gWBS Account screen. Firstly, all check boxes were cleared off by clicking the C button. Then check box of each affected Ln-position was checked and the Estimated Cost values were overtyped to reflect the revised estimated costs affected by the change order. As you can see, the positions LN6 and LN7 were checked; click here.
            Then the button CHANGE ORDER was clicked to display the Change Order screen; click here. There the buttons IMPORT SELECTED and IMPORT OLD were clicked to display the affected Cost Positions.  The button REPORT was clicked, yielding the Change Order Report; click here. After that, the button SAVE CHANGE ORDER was clicked, and the TECA program saved the data and asked if the user wants to create the forecast journal entry. If YES, TECA displayed the screen of the Forecast Journal with already inserted data, ready for posting; click here.
            Subsequently, after the journal entry had been posted, the gWBS Account was updated for the new Total Forecast value. This was done by displaying the gWBS listing screen (click here), checking the affected gWBS Account, and clicking there the button UPDATE GWBS ACCOUNTS.
            Finally, click here to see the automatically updated gWBS Account screen, showing the revised Total Forecast value.


3. Enter Project Billing Data data into the Booking Journal

            Using all invoices related to this Project Period, the Cost Engineer made the entries into the Booking Journal. Considering the data volume, the Cost Engineer made three separate journal entries in each Project Period: for CONSTRUCTION, for MATERIALS, and for ENGINEERING. Click here to see the summary screen of the Booking Journal.  As you may notice, in this project the invoices were paid quarterly. 

            The booking procedure is quite simple. All invoices were entered into the CREDIT column, identified by the accounts of the Supplies, and then they were offset by entering sums of the corresponding amounts into the DEBIT column, identified by the proper Generic Booking Accounts.

            Click here to see the Booking Journal Entry for CONSTRUCTION, showing invoices covering the costs incurred during the Project Periods #9 through #12, as quarterly billing applied in this project. As you can see, there are three invoices, amounting to $14,556,800, offset by the same amount booked to the Generic Booking Account Construction-Direct.  Similar journal entries were made for MATERIALS (click here) and for ENGINEERING (click here).


4. Enter data about Project Funding into the Commitment Journal

            In this Project Period there were no project fund supplied, and hence no need for any entry into the Commitment Journal. The last entry refers to the Project Period #8. Click here to see the summary screen of the Commitment Journal.


5. Handle Petty Cash for Project Team Members, if applicable

            On this project, there was no need for the Cost Engineer to handle the project petty cash accounting.


6. Current Work Progress Cost Report

            At the end of this Project Period, the Cost Engineer prepared and issued the Work Progress Report. He generated this report simply by clicking a few buttons, after executing the Consolidation Procedure, as already explained in our Article #8.

            Click here to display the program screen from which this report was generated, and scroll down to see four pages of the complete Work Progress Report, related to the pipeline project, showing the progress status at the end of the Project Period #13. This report was generated automatically, using the current data from the project database, plus additional comments supplied by the Cost Engineer regarding the progress of various project objects (Cost Accounts), associated with Construction, Materials and Engineering.


7. Current Project Financial Report

           At the end of this Project Period, the Cost Engineer prepared and issued the Project Financial Report. This report shows the financial status at the end of the Project Period #13.

            Click here to display the Project Financial Report. It shows that the Project if financially 83.90% advanced (as per Actuals), with payments consisting of 78.06% (as per Bookings), and that so far the supplied project funds are equal 92.32% (as per Commitments), where the percentage figures refer to the Budget.

            Click here to display the TECA program screen from which the Current Cost Status reports for all Project Objects (i.e. Cost Accounts) and for all Project Participants (i.e. Expense Accounts) were generated.

            Click here to see the report for Project Objects. The percentage figures indicate the work done, and 100% means the work completed. As you can see, this is comparison of FORECAST with ACTUALS. Because the progress of CONSTRUCTION is measured by Earned Value (percentage), generally it should not exceed 100%, but it may, depending on how the incremental Earned Value was reported. However, for MATERIALS and sometimes for ENGINEERING - where the progress is measured by Earned Work (dollars), the progress figure may be often higher than 100%, e.g. when ordered materials cost more than forecasted. As you can see, there is one Cost Account, "River Crossing Bug" with an overrun of 22.2%, and there are aslo nine (9) material accounts and four (4) participant accounts showing some cost overrun; click here.

            Click here to see the report for Project Participants. This report shows that all Contractors had been already paid $52,689,575 that represents 87.2% of the earned construction work; Suppliers - $66,605,437 that represents 98.3% of the ordered material costs; and Engineering Firms - $5,525,168 that represents 68.0% of the earned work of engineering. Overall $124,820,180 were paid that represents 91.6 % of the total Earned Work recorded so far.


8. Assessment of Project Expenditure Conduct

        Although in this project the invoices were paid quarterly, the progress was recorded monthly. Hence, to get the reliable comparison, the Cost Engineer generated the special screen (click here and scroll down for the report) where the cut-of date was that of the end of Period #12, when the invoices were paid.

        Here the figures are different than these above, but they represent more accurately the ratio between EARNED costs and PAID costs. This report - showing status at the end of Project Period #12 when the paid invoices corresponded with the earned work - shows that then all Contractors had been paid already the $52,689,575 but this represents 93.8% and not 87.2% of the earned construction work; Suppliers - also $66,605,437 but this represents 99.1% and not 98.3% of the ordered material costs; and Engineering Firms - also $5,525,168 that represents 74.2% and not 68.0% of the earned work of engineering. Overall $124,820,180 were paid that represents as much as 95.4% and not  91.6 % of the total earned work recorded then. As long as in total never is PAID more than EARNED, the project expenditure conduct can be judged as sound.


9. Current Project Time-Cost Report

            At the end of the Project Period #13, the Cost Engineer prepared and issued the Project Time-Cost Report. This report shows the time-cost status of the Project, showing the relationship between BUDGET, FORECASTS, ACTUALS, BOOKINGS, and COMMITMENTS, all within the time frame of the Project.

            Click here to display the Project Time-Cost Report, related to the pipeline project, status at the end of Project Period #13. This report - showing the relationship between FORECASTS and ACTUALS in every Project Period - indicates that by now the project should have been 91.4% advanced (FORECAST), but it is only 83.9% (ACTUALS). It can be safely assumed that the Project will be delayed for two months. Why?

            The forecasted cumulative progress of 83.5% appears as forecasted already in Period #11, but now is Period #13 with only the 83.9% of actual progress. Because the difference between #13 and #11 is two months, then two month delay must be assumed, unless the work progress would be accelerated. How much would have the work be accelerated to meet the planned deadline? The average monthly progress would need to be an average 5.03 % [(99.0 - 83.9)/3]. However, assuming that the progress during the last period would be as originally planned, i.e. only 2.0%, then the progress in the next two months would have to each 6.55% [(99.0 - 2.0 - 83.9)/2], what appeared improbable. Therefore, the Cost Engineer  recommended to extend the project duration, as well as the Project Calendar, for two additional Project Periods.  The progress in the following five months should be at least:   3.8% + 3.8% + 3.7% +  2.8% + 2.0% = 16.1%  (i.e. 99.0 - 83.9). Moreover, he predicted that the budget overrun will reach at least the forecasted cost of the last two Project Periods (2.8% + 2.0%), i.e. approximately $7,800,000, that is slightly more than the Contingency ($7,700,100).

            Scroll the screen down, to see related the Histogram and S-Curves, now comprising BUDGET, FORECASTS, ACTUALS, BOOKINGS and COMMITMENTS distributed in the time frame of the Project. As you can see, the S-Curve of ACTUALS lags consistently below the S-Curve of FORECAST. Extending this curve to reach 100% requires at least the two Project Periods, what  means two month delay. Furthermore, the S-Curve of COMMITMENTS is already touching that of FORECAST, and this indicates that pretty soon another project funding should be provided by the Project Sponsors.



Remarks

        This article, similarly like the previous one, shows that D-E Project Accounting - by facilitating execution of the above listed nine (9) tasks - allows the Cost Engineer to keep track on the project costs and to report about the project costs swiftly and in the well organized way.  During this Project Period, the Cost Engineer maintained the four journals. At the end of this Project Period, he generated several project cost reports that allowed him to analyze the project finances and to predict the final project completion time and the expected budget overrun.

         The high quality of the project cost progress reporting, obtained with minimum of efforts on part of the Cost Engineer, should convince you to apply the dual-entry accounting method in your projects too.     



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