Global WBS Accounts in Project Accounting

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Global WBS Accounts in Project Accounting

Project Cost Planning and Control in mega engineering projects 

ABSTRACT:

This article demonstrates  that Cost Engineering of complex engineering projects can be greatly enhanced by utilizing Global WBS Accounts. First the need for the Global WBS Accounts is defined, and then the new concept of Earned Work (in addition to Earned Value) is explained,  referring to the computer program TECA that handles the dual-entry project accounting. For more information on this subject, read this book PROJECT ACCOUNTING FOR COMPLEX ENGINEERING PROJECTS.

To plan and to control costs of complex and/or long-duration engineering projects, Project Management needs such a project accounting that can supply information arranged at the strategic level. There all project costs must be clearly summarized referring to large project objects, without too much detail, but with dependable information showing for what and when money was spent, and how much more money must be supplied and when.

Here we can draw an analogy to military operations during the war, where generals must control the army from their headquarters. The generals oversee the operations at the level of army corps and divisions, and only occasionally at the level of brigades and platoons. Surely, what generals want to see are reports that show the outcome of fighting broken down separately for each army corps and division only. If they want to know details regarding performance of any brigade or platoon, they will ask for that separately.  

 Similarly, in projects such as nuclear power plants, international airports, offshore oil and gas facilities, multi-national on-shore and off-shore pipelines, complex petrochemical plants, highway systems with bridges and overpasses, many large NASA projects, and some military projects of US Army and US Navy – where costs may reach billions of dollars, and the project duration may extend for several years – the Cost Engineer must be able to generate global reports. Such reports must summarize and group the project financial costs in the format easily understood by the top management of the Leading Engineering Firm and of the Project Sponsors. The financial progress shown in the Project Cost Accounts must arrive from the data gathered and progress-maintained in the corresponding Global WBS Accounts.

 

Let us define the “Project Accounting”. It consists of four major parts:

o      FORECAST – comprising cost estimates and change orders, including BUDGET created from the First Forecast, plus Prorates and Contingency.

o      ACTUALS – comprising information about the project progress.

o      BOOKINGS – comprising billing related to Project Participants, i.e. contractors, suppliers, engineering firms, and other business entities or individuals who provide services and materials to the Project.

o      COMMITMENTS – comprising data about the monetary funds furnished by Project Sponsors, i.e. business-, private-, or government entities that finance the project.

 

 

        Every Global WBS Account shall comprise several Cost Positions from the Cost Estimate. The gWBS Accounts shall correspond with Project Cost Accounts that belong to CONSTRUCTION, or MATERIALS, or ENGINEERING, comprising Cost Positions of certain type, such as Construction Direct, or Construction Indirect, Materials Direct, or Materials Indirect, or Engineering Direct, or Engineering Indirect. Each gWBS Account must reflect some major Object of the Project, and the sum of FORECASTS of all gWBS Accounts must be equal the Total Project Cost stipulated in the Project Cost Estimate. The globalization of Cost Accounts will not make the project accounting less accurate. Namely, in Project Accounting, done according to the Dual Entry accounting method, all invoices, purchase orders, and other bills must offset the costs of individual Project Objects, referring to corresponding payments, identified by dates and related document references. 

To define the progress of any Global WBS Account, calculations are required, yielding the current cost data of every Global WBS Account, comprising the Global WBS Earned Value (for Project Objects) and the Global Earned Work (for Project Participants). Obtained from the combination of the progress figures (Earned Values) of the associated Cost Positions belonging to the Global WBS Account, these data shall be then used as the periodic input data into the Expense Journal for the corresponding Project Cost Accounts.


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