5. Project Contracts: Driving Project Success with Financial Control in Dynamics 365 Finance

In today’s fast-paced business landscape, the ability to manage projects efficiently and align them with financial goals is critical. One of the most powerful tools for achieving this in Microsoft Dynamics 365 Finance Project management and accounting

is the Project Contracts feature. This capability provides organizations with the structure to formalize agreements, manage funding, and streamline billing processes—all essential components of delivering successful projects.

As professionals in project management, there often challenges like unclear billing rules, mismatched funding allocations, and tracking milestones effectively. Dynamics 365 Project Contracts addresses these issues by offering a robust framework that ensures both operational efficiency and financial accountability.

1. What Are Project Contracts?

A Project Contract in Dynamics 365 is more than just a record of an agreement—it is the backbone of project financial management. It defines:

• The Customer Relationship: Who you're working for and the terms of engagement.
• Funding Sources: Single or multiple funding streams to support the project.
• Billing Rules: How and when the customer will be invoiced.

Whether it’s a Time and Material project or a Milestone-Based Billing structure, project contracts ensure that all parties have clarity and control over the project’s financial processes.

2. Key Features and Benefits

Here are some standout features of project contracts and why they matter:

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1 - Customizable Billing Rules:

Define how customers are invoiced—whether it’s by deliverables, milestones, time spent, or materials used.

• Milestone based billing

• Time and Material billing

• Chargeable category for Time and Material and Progress type billing

The?Chargeable Category?option allows you to specify which transaction categories (such as labor, materials, or expenses) are billable to the customer. This ensures that only the designated categories are included in the billing process, helping to accurately track and charge for the project's costs

2 - Multiple Funding Sources:

• Projects often have diverse funding streams—multiple customers, grants, or organizational budgets. Dynamics 365 allows you to:

- Split costs across multiple funding sources.

- Set funding limits to prevent overbilling.

- Allocate costs dynamically based on specific funding rules.

Example: A construction project might be funded jointly by a municipality and a private donor, with each covering a set percentage of the costs.

3 - Funding Limits:

The funding limits section on a project contract helps control and monitor project finances

• Controlling Expenditures - Prevents spending beyond the allocated budget. Example:?A project with a ￡500,000 limit cannot bill more than this amount, ensuring it stays within budget.
• Ensuring Compliance - Adheres to financial terms in contracts or grants. Example:?A government-funded project with a ￡1 million limit ensures compliance with grant terms.
• Promoting Accountability - Tracks and reports expenditures accurately. Example:?A non-profit tracks donor-specific funding limits, ensuring proper use and reporting.
• Efficient Resource Allocation -Allocates resources efficiently within set limits. Example:?A construction company manages multiple projects with different funding limits, avoiding overspending.
• Preventing Misuse - Ensures funds are used as intended. Example:?Prevents a project manager from allocating funds beyond the approved limit.

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4 - Funding Rules Allocations

Funding rule allocations define how funds are distributed among different funding sources. This ensures that project costs are allocated according to predefined percentages or amounts.

Example:?A project has three funding sources with the following allocations:

Funding Source A: 50%

?Funding Source B: 30%

?Funding Source C: 20%

If a project expense of ￡10,000 is incurred, the system will allocate ￡5,000 to Funding Source A, ￡3,000 to Funding Source B, and ￡2,000 to Funding Source C

These components help ensure that project funds are managed efficiently and in compliance with financial agreements.

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5 - Action Tab: Project Contract

SETUP

• Fixed Rate Agreement:?Sets a fixed exchange rate for project transactions to ensure consistency and meet contractual requirements.

Example:?A project with a fixed exchange rate of 1.35 USD/GBP ensures all transactions use this rate

• Print Management:?Configures print settings for project-related documents, including print destinations and automatic emailing.

Example:?Automatically emails project invoices to clients when posted

COST PRICE

• Hours:?Sets the cost price for labor hours on a project.

Example:?Configures the cost price for consultant hours at ￡50 per hour

• Expense:?Sets the cost price for project-related expenses.

Example:?Configures the cost price for travel expenses at ￡200 per trip

• Transfer Prices:?Defines the internal sales prices for intercompany transactions.

Example:?Sets the transfer price for hours worked by employees in a different legal entity

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SALES PRICE

• Hours:?Sets the sales price for billable labor hours.

Example:?Configures the sales price for consultant hours at ￡100 per hour

• Expenses:?Sets the sales price for billable project expenses.

Example:?Configures the sales price for travel expenses at ￡300 per trip

• Fees:?Sets the sales price for additional fees related to the project.

Example:?Configures a project management fee of ￡500

• Subscriptions:?Sets the sales price for subscription-based services.

Example:?Configures the sales price for a monthly software subscription at ￡50

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6 - Action Tab: Project Contract

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FORECAST

• Hour Forecast:?Predicts the number of labor hours required for a project. Example:?A project manager forecasts 200 hours for a consulting project.

• Expense Forecast:?Estimates the costs associated with project expenses. Example:?Forecasts ￡5,000 for travel and accommodation expenses.

• Item Forecast:?Predicts the quantity and cost of items needed for a project. Example:?Forecasts 100 units of a specific material at ￡50 each.

• Free Forecast:?Allows for flexible forecasting of various project elements. Example:?Forecasts miscellaneous costs not covered by other categories.

• On Account Forecast:?Estimates the amounts to be billed on account for a project. Example:?Forecasts ￡10,000 to be billed on account for ongoing project work.

MAINTAIN FORECAST

• Copy from Forecast:?Copies forecast data from one project to another. Example:?Copies forecasted hours from a similar past project to a new project.

• Copy Forecast to Ledger:?Transfers forecast data to the general ledger for financial tracking. Example:?Transfers forecasted expenses to the ledger for budget tracking.

• Delete Forecasts:?Removes forecast data that is no longer needed. Example:?Deletes outdated forecasts for a completed project.

7- Action Tab: Maintain

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• Invoice Proposal:?Creates a preliminary invoice for project transactions, allowing review before posting. Example:?A project manager creates an invoice proposal to review billable hours and expenses before sending the final invoice to the client
• Adjustment:?Allows modifications to posted project transactions, such as updating billable status or recalculating costs. Example:?Adjusts the cost of a project transaction after a configuration change
• Project:?Manages project-specific settings and details within the contract.

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PROCESS

• Manage Contract Status:?Updates the status of the project contract, such as activating or closing it. Example:?Changes the contract status to "Active" when the project starts

• Accrue Revenue

Time and Material:?Recognizes revenue for time and material projects as work progresses. Example:?Accrues revenue based on hours worked and expenses incurred

Accrue Subscription Revenue:?Recognizes revenue for subscription-based projects periodically. Example:?Accrues monthly revenue for a software subscription service

• Post Cost:?Posts project costs to the general ledger for financial tracking. Example:?Posts labor and material costs to the ledger for accurate financial reporting
• Index Subscription:?Manages subscription indexing for project billing.

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?BILL

• Project Invoice Proposals:?Creates and manages preliminary invoices for project transactions. Example:?Generates an invoice proposal for review before finalizing the project invoice

• Invoice Journals:?Records and tracks all project-related invoices. Example:?Maintains a journal of all invoices sent to clients for project work

• On Account Transactions:?Manages transactions billed on account, such as advance payments. Example:?Records an advance payment received from a client for future project work

• Request Retained Amount:?Manages retention amounts held back from vendor payments until project completion. Example:?Requests the release of retained amounts once the project reaches a specified completion stage

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RELATED INFORMATION

• Item Tasks:?Manages tasks related to project items. Example:?Tracks tasks for procuring and delivering project materials.

• Pending Transactions:?Reviews transactions that are pending approval or posting. Example:?Checks pending expense reports awaiting manager approval.

• Posted Transactions:?Reviews transactions that have been posted to the ledger. Example:?Reviews posted labor costs for a project phase.

• Services:?Manages services related to the project. Example:?Tracks consulting services provided to the client.

• Cases:?Manages cases or issues related to the project. Example:?Logs and tracks client issues or requests during the project lifecycle.

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8 - Action Tab: Control

STATEMENT

• Project Statements:?Provides a snapshot of the project's financial status, including costs, revenues, and progress. Example:?A project manager reviews the project statement to check if the project is on track financially

• Cashflow:?Displays the cash inflows and outflows for the project, helping to manage liquidity. Example:?The finance team reviews the cashflow statement to ensure there are sufficient funds to cover upcoming project expenses

CONTROL

• Invoice Control:?Tracks both invoiced and non-invoiced transactions, ensuring they align with project quotations and contracts. Example:?The project accountant uses invoice control to verify that all billable hours and expenses have been invoiced correctly

• Cost Control:?Monitors project costs against the budget to determine if the project is on track, over budget, or under budget. Example:?The project manager uses cost control to compare actual costs with budgeted costs and identify any variances

Committed Cost:?Tracks costs that have been committed but not yet incurred, providing an early indication of future expenses. Example:?The finance team reviews committed costs to understand upcoming financial obligations for the project

UTILISATION

Hour Utilization

• This button provides a detailed view of how many hours each resource has worked compared to their available hours. It helps in tracking the actual hours logged by team members against their allocated hours, allowing project managers to monitor workload distribution and identify any over- or under-utilization of resources
• Project > Action Pane: Control > Utilization >Hour Utilization

Resource Utilization

• Resource Reservations: It allows you to view and manage the reservations of resources for various tasks and projects. It helps ensure that resources are allocated efficiently and are available when needed

• Resource Reservation Analysis - Resource: This analysis focuses on individual resources, providing insights into how each resource is being utilized. It helps in identifying any underutilization or overutilization of specific resources, allowing for better resource management

• Resource Reservation Analysis - Project: This analysis provides a project-level view of resource utilization. It helps in understanding how resources are allocated across different projects, ensuring that resources are used effectively to meet project goals

• Resource Reservation Analysis - Role: This analysis focuses on the utilization of resources based on their roles. It helps in assessing whether specific roles are being effectively utilized and can assist in planning future resource needs based on role requirements

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RETENSIONS

• Supplier Invoices:?Manages retention amounts held back from supplier payments until certain conditions are met. Example:?The finance team retains 10% of a supplier's invoice until the project reaches a specific milestone

• Customer Retained Payment:?Manages amounts withheld from customer payments until project deliverables are met. Example:?The project manager requests the release of retained payments once the project deliverables are accepted by the customer

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3. Why You Should Leverage Project Contracts

Using Project Contracts in Dynamics 365 provides several advantages:

• Transparency: Clear rules and processes ensure customers know exactly what they’re paying for.
• Control: Funding and billing rules reduce the risk of financial discrepancies.
• Efficiency: Automating processes like invoicing and cost allocation saves time and reduces errors.
• Scalability: Suitable for complex projects with multiple stakeholders, ensuring it grows with your business.

4. Final Thoughts

As organizations embrace digital transformation, tools like Dynamics 365 Finance Project management and Accounting are becoming indispensable for managing complex projects. The Project Contracts feature is a game-changer, enabling organizations to streamline project financials, enhance customer relationships, and drive profitability.

If your organization is looking to optimize its project management and financial processes, consider leveraging Dynamics 365’s powerful features. Let’s turn challenges into opportunities for success.

Engage with Me! Have you used Dynamics 365 Project Contracts? What has been your experience? Share your thoughts in the comments or connect with me to discuss how this tool can revolutionize your project management approach!

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