… continued from part (4)

The following screenshots summarize – for reasons of completeness – the project transactions and postings generated for the example used.

As shown already before in slightly different form, a simple actual-budget comparison is not sufficient to control long-term projects. In the example used the project was running behind schedule and above budget right from the beginning until the end of the project (see the schedule and cost variance lines). Yet, the actual-budget comparison did not provide any indication that a problem might exist until August 2016.

… continued from part (3)

G. Dynamics AX Project Analysis
Within this subsection, the standard Dynamics AX earned value management tools will be analyzed and compared to the additional analysis option arising from the project setup and posting exemplified before.

G.1. Dynamics AX Standard Earned Value Analysis Tools
The standard Dynamics AX earned value analysis tools consist of an EV chart and an actual vs. forecast chart and are illustrated in the next screen-print. As both charts rely on the standard Dynamics AX SSAS cubes, a processing of those cubes is required before project analysis can be made.

What you can identify from the EV chart is a single EV data point that is identical to the planned value as the project has been finished. Interestingly, the EV data point is reported at the beginning of the project as all transactions have been recorded in future periods. As the EV chart is only able to calculate and illustrate one single EV data point, not detailed EV analysis over the lifetime of the project can be executed. What is more, actual costs values cannot be identified from the chart. Whether this is a bug in the authors Dynamics AX test environment or whether this is a general lack of the EV chart tool could not be identified.
The lower actual vs. forecast chart compares the actual and forecasted, that is planned, project values. As mentioned in the beginning of this post, such a comparison does not make much sense as the underlying reason for the actual vs. forecasted difference cannot be identified.

Based on this analysis, it can be summarized that the standard EV analysis tools available in Dynamics AX are not of much use for a detailed project analysis.

G.2. Alternative Dynamics AX Standard Earned Value Analysis Tools
Now let’s have a look at the additional project analysis opportunities that the project setup and project postings shown above offer.

The first thing that you can identify when opening the fixed price project estimate window is the EV that has been calculated and posted for the different project stages and that can be identified in the accrued revenue column of the estimate form.

In addition, the cost variance can be identified in the general tab of the estimate form.

Through a personalization of the estimate form, the EV and cost variance can be identified by default in one single screen for the different project stages without implementing any system adjustment.

Unfortunately, the schedule variance cannot be identified by default in the estimate form. Yet, as the schedule variance is defined as the simple difference between the planned and earned value, a simple system modification allows also including this value in the estimate form as well as other project reports.

If you shun making a system modification for executing the EV analysis you can also use the Management Reporter (MR) for doing this analysis. The only prerequisite for doing the analysis in MR is that forecast values have been copied to the budget module.
Once this has been realized the EV analysis can be executed by setting up a simple MR report that combines actual and budget values. Example:

H. Summary
Overall it can be summarized that Dynamics AX fully supports the Earned Value Management technique through a corresponding project setup.

What is more, the project accounting approach illustrated in this blog post allows creating project and financial statements based on the POC (percentage of completion) as well as the CC (completed contract) method in parallel and thus allows you following different accounting principles such as local GAAP, IFRS and US-GAAP in parallel.

… to be finalized in part (5)

… continued from part (2)

F. Dynamics AX Project Processing

F.1. Record Fee Transactions For The T&M Project
After finishing all the necessary setups, project work started. The first thing that I did was recording three fee transactions for the T&M project that are used for invoicing the customer.

Please note that project fee transactions do not generate any ledger transaction at the time they are recorded through a project fee journal as no costs are related to project fee transactions.

F.2. Invoice Customer Through T&M Project
After recording the fee transactions – for reasons of simplicity and illustration – I directly invoiced the customer. The outcome of those invoice transactions can be identified in the following screenshots.

Please note that project revenue is recognized through the invoices created from the T&M project. This way of recognizing revenue is required in order to make the EV calculation work.

F.3. Record Hours & Expenses
My next steps were recording the hour and expense related transactions for the fixed price project for each of the different project stages. Example:

F.4. Mark Project Stage As Completed
After the work for each project stage was finished, the stage was marked as complete, which resulted in a recalculation of the progress percentage (POC) for the whole project.

Example: Before marking the first project stage as completed, a POC of 9,56% can be identified.

After marking the first project stage as completed, a POC of 9,7% is calculated due to the change in the remaining effort column.

F.5. Run Project Estimate
After posting hours and expenses and marking the different project stages as complete, fixed price project estimates were run and posted.

Example for running the project estimate for the first project stage:

Note: The cost template that is used here has the completion method “work in progress percentage” selected as illustrated in the next screen-print.

Result: The outcome of the estimate calculation can be identified in the next screenshot.

What you can identify from the above screenshot is the POC of 9,7% that was identified earlier in the WBS form. In addition you can identify a “contract value” of $1218000 that is identical to the planned value of the project that has been setup as the on-account milestone for the fixed price project.

Based on the POC and the “contract value”, an accrued revenue (“earned value”) amount of $118088,64 is calculated based on the following formula:

After posting the first estimate, the following ledger transactions result:

From an accounting perspective, those transactions can be interpreted as follows:

• First, the hour and expense transactions that are initially posted against the WIP cost value account do not have an influence on the company’s overall profitability as they are recorded on Balance Sheet (BS) accounts only,
• Second, the transfer of the amounts posted on the WIP cost value ledger account to the project cost account when posting the estimate reduces the company’s profit as costs are shifted from balance sheet accounts to income statement accounts,
• Third, the WIP sales value and accrued revenue posting that records the EV for the first project stage can be used for project controlling purposes to match project costs and revenues and to calculate the cost and schedule variance. As statistical accounts are used for recording this posting, no immediate effect on a company’s profitability – as reported in external financial reports – can be identified.
• Fourth, the first customer invoice posting in Feb-16 records the project revenue that is used for external reporting. This transaction together with the WIP sales value and accrued revenue transactions allow combining and analyzing projects in line with the POC (percentage of completion) and CC (completed contract) method.

F.6. Repeat Steps F3 – F5
For each project stage, repeat the steps F3-F5 until project work is finished.

… to be continued in part (4)