COST ENGINEERING has a new tool; this is the D-E COST ENGINEERING, where D-E means Dual-Entry accounting method utilized in D-E PROJECT ACCOUNTING..
What is D-E Project Accounting? It is very similar to Business Accounting, except that it is designed to handle Cost Planning and Control of Engineering Projects. It allows the Cost Engineer to control project costs efficiently and accurately, covering the whole project scope, inclusive of accounts of contractors, suppliers and engineering firms involved in the project. Business Accounting and Project Accounting are similar but they have different objectives. Business Accounting seeks to know the PROFIT/LOSS, but Project Accounting seeks to know the overrun or under-run of BUDGET. Moreover, Project Accounting follows distribution of all costs in the project time-frame, and the planned completion date becomes the main criterion. Both Business Accounting and Project Accounting utilize the Dual-Entry Accounting Method where DEBIT must be equal CREDIT.
Since over 500 years, business people throughout the world utilize the dual-entry accounting method to manage shops, factories, banks and any other enterprise where the financial PROFIT must be calculated, based on several thousands of daily transactions. Only the dual-entry concept allows them to establish the PROFIT in a well defined manner, and also to eliminate data entry errors thanks to this famous equation: DEBIT = CREDIT.
Some Cost Engineers believe that the otherwise excellent Business Accounting is not suitable for managing their Project Cost Planning and Control, and this because BUDGET and not PROFIT is that what matters. Click here to compare the basic equations of Business Accounting versus Project Accounting. However, using the single-entry accounting method, to which he is accustomed, the Cost Engineer is unable to handle hundreds of accounts belonging to contractors, suppliers, engineering firms and other entities that supply services or material to his project. Hence, this job is delegated to the Project Accountant, who usually is not an engineer but a CPA, and who easily handles this part of the project cost control using the double-entry Business Accounting, but who knows nothing about the Earned Value and about the project progress control and reporting.
As you may know, Project Cost Engineering comprises five major components: BUDGET, FORECASTS, ACTUALS, BOOKINGS and COMMITMENTS. Today, the responsibility for the project accounting job is divided: the Cost Engineer handles BUDGET, FORECASTS and ACTUALS (using the single-entry accounting method of project cost control), and the Project Accountant handles BOOKINGS and COMMITMENTS (using Business Accounting with the embedded dual-entry accounting method). This situation appears quite normal to Cost Engineers, who are even satisfied that they must not handle the total project cost job alone. However, this is not good. Why?
Project Accounting must be able to cover the total project costs, similarly like Business Accounting covers the total business. No businessman would accept an accounting system, where there would be divided responsibility, with one person handling only INCOMES, and other person only EXPENSES, without any calculable relationship between INCOMES and EXPENSES. Yet today, the Project Manager must accept the situation where one person - the Project Engineer handles BUDGET, FORECASTS, ACTUALS only, and another person - the Project Accountant handles BOOKINGS and COMMITMENTS only, and there is no calculable relationship between ACTUALS and BOOKINGS. Such divided responsibility always leads to problems, misunderstanding, budget overruns, and project delays.
Surely, the Cost Engineer should be the CFO (Chief Financial Officer) of the Project, but he is not. The very important part of project costs, that deals with the real money (BOOKINGS and COMMITMENTS) - that should be carried by the Cost Engineer - is being carried still by the Project Accountant only. Besides the aspects of billings, payments, and funds needed (subjects well familiar to accountants), Project Accounting involves Budget, Forecast, and Actuals (Earned Value and Earned Work) that are totally foreign to accountants. There are also the important project time-cost aspects (project cost schedule and project cash flow forecast) that only Cost Engineers can understand. Moreover, accountants must close the books every calendar year, whereas Project Accounting starts and ends with the Project. Furthermore, in the present system of the project cost control, there is no clear relationship between the work done, assessed by Earned Value (%), and the work paid, assessed by paid invoices ($). This lack of relationship - plus the divided responsibility for the project costs between the Cost Engineer and the Project Accountant - makes the Cost Engineer unable to discover very early any danger of possible overrun of the project budget.
Only dual-entry Project Accounting - as depicted on this website, described in the book, and facilitated by the computer software (TECA) - can ensure the proper cost planning and control of engineering projects. Click here to see the explanatory graph, showing the dual-entry relationship that governs Project Cost Engineering within the dual-entry (DEBIT=CREDIT) network.
By implementing dual-entry accounting method in Project Accounting, the Cost Engineer can easily handle the total project costs, with the Project Accountant playing the secondary role only. This website explains this new advanced method of Cost Planning and Control of engineering projects, referring to the recently published book - entitled PROJECT ACCOUNTING FOR COMPLEX ENGINEERING PROJECTS - and referring also to TECA, the project accounting computer program, being the book companion. The book - with the attached computer program - is already available in technical book stores, as well as via Internet from Infinity Publishing or AMAZON. Click here to read more about the book and its Table of Contents. If you want to acquire the book and the computer program, but you live in Africa or Asia, or any other country, where currency restrictions do not allow the publisher to sell the book, click here.
This website features several articles that explain the theory and practice of Project Accounting, where the dual-entry accounting method is implemented. One group, called General Articles, supplies the overview of the dual-entry accounting method applied to Cost Engineering. Another group of articles, called E-mail Articles (already e-mailed worldwide to many Cost Engineers and Project Managers), describes various aspects of Project Accounting individually and supply hints how to run the D-E Project Accounting computer program TECA.
Only the dual-entry accounting concept (DEBIT=CREDIT) permits Cost Engineers to grasp the whole financial aspects of project cost planning and control, that is particularly important in case of planning and controlling costs of complex, costly, and long-duration engineering projects.