D365 Project Management and Accounting Management | Part 1

Hello Everyone, In the upcoming blogs we are going to cover the Project Management and Accounting Module in D365. The articles will cover the basic setups as well as the general process of the module

Let's start this.

Introduction

Project management is a tool in Dynamics 365 Project Operations to help you easily run a project. It helps and plans the projects by using a work schedule, Estimating and tracking project costs and revenue, and forecasting resource requirements for projects that are in the pipeline.

The following setups are required before we move towards the process. The setups are explained in detail

1-Project Group

Project groups serve to define the specific categories of accounts to which project-related transactions are recorded. When dealing with transactions related to hours, expenses, items, or on-account entries, you have the flexibility to designate whether these transactions should be recorded in Profit and Loss accounts or Balance accounts. It is essential to allocate a project to a project group specifically designed for its corresponding project type. Should you decide to transfer a project from its current project group to another, it's worth noting that if the new project group was originally established for a different project type, the project's type will automatically be updated to align with the new group.

1.1- General and Ledger Fast Tab

Within the Project group form, there exists a General and Ledger fast tab where you can configure the accounts to which project costs and revenues should be directed. In practical terms, when a project has a brief duration and invoices are issued during the same period in which the costs are incurred, it is possible to directly allocate financial project transactions to profit and loss accounts. In such instances, there is no need for periodic reconciliation of costs and revenue. An illustrative example of this scenario would be a corporate training project billed based on monthly milestones.

In more extended projects, typically involving a multitude of resources and diverse cost types, revenue generation often occurs predominantly in subsequent or later periods. Such complex projects necessitate the periodic alignment of costs with revenue through the utilization of assessment and matching principles. Financial transactions related to these projects are directed towards balance sheet accounts. This is because outstanding expenses, such as employee wages or salaries, unpaid rental expenses, travel expenditures, vendor invoices, and the like, represent liabilities for the company. As such, they should be reflected under current liabilities in the balance sheet. Similarly, outstanding income or accrued income from these projects constitutes part of the company's current assets, and therefore, is included in the balance sheet as such.

1.2- Project Type

There are six distinct project types designed to help companies optimize their operations. Each project type serves a specific purpose, allowing businesses to efficiently manage various aspects of their projects. Here, we'll provide an overview of each project type and illustrate its application with examples:

1. Time and Material: This is the most common project type, suitable for projects where customers are billed for hours, fees, items, and expenses incurred during the project's lifecycle.Example: Construction of a new building, where charges include worker timesheets, administrative fees, raw material costs, and customer expenses. Revenue is accrued after invoicing for these transactions.
2. Fixed Price: In this project type, customers are invoiced based on a predefined billing schedule set in the project contract, using either the completed contract method or the completed percentage method.
3. Example: A project with a $100,000 contract can invoice based on the completed contract (once the project is complete) or the completed percentage (e.g., 25% complete, invoicing $25,000). WIP accounts track costs, allowing margin calculations at the project's end.
4. Cost: Cost projects can be internal (non-billable) or external (billable). They track expenses, and item costs, and can include hour transactions configured as costs.Example: An external cost project involves items already in inventory or those triggering item production for sale to a customer. An internal cost project, on the other hand, tracks costs and items for internal projects that do not generate immediate revenue, such as developing a video game.
5. Investment: Investment projects register costs across all transaction types but are used solely for cost-tracking purposes, without billing customers for reimbursement.Example: These projects are valuable for HR and accounting teams to monitor and manage costs associated with various initiatives.
6. Internal: Internal projects are used to track costs for projects within your organization. They are not billed to customers and serve as cost tracking mechanisms.Example: Upgrading the company's IT infrastructure is an internal project. It allows you to book and manage company resources and monitor associated expenses without seeking reimbursement.
7. Time: Time internal projects specifically track hours submitted by your organization's employees or resources. They help monitor non-billable activities while ensuring resource allocation accuracy.Example: Tracking vacation or sick time for employees ensures they are not overbooked on other billable projects, maintaining resource balance.

1.3- Estimate Fast Tab

Revenue recognition is a fundamental accounting principle that involves acknowledging revenue when it is earned or realized, rather than waiting until it is collected. In essence, companies should record revenue when they have legitimately earned it. This concept plays a pivotal role in the accrual basis of accounting since it allows revenue to be recognized even if payment has not been received. An illustrative example of this principle in action can be found in milestone deliveries within an ERP implementation project.

1.3.1-?? Revenue Recognition Accounting Rule:

This configuration pertains to the establishment of the completion principle for aligning costs with revenues in fixed-price projects. Essentially, there are two available assessment principles:

• Completed Contract: This method takes a more conservative approach and is well-suited for short-term fixed-price projects. Under this approach, costs and revenues are matched at the conclusion of the project. As the project progresses, costs and payments received from the customer are accumulated as Work in Progress (WIP) on the balance sheet. The actual matching of costs and revenue recognition occurs when the contract is fully completed.
• Completed Percentage: This method follows a more optimistic approach and is particularly suitable for long-term or complex fixed-price projects. Here, both revenue and costs are gradually added to the profit and loss accounts as the project advances. Revenue recognition takes place periodically, based on the degree of completion stipulated in the contract.

Both of these methods necessitate the execution of an estimation process to facilitate the matching of costs and revenue recognition in the context of fixed-price projects.

1.3.2-?? Matching Principle:

This configuration allows you to determine the methodology for aligning revenue with project costs. You have the flexibility to either match revenue directly with the sales value or divide it into realized costs and a calculated profit. Depending on your choice, specific setup categories for estimation will become available, enabling you to specify the integration with ledger accounts that best suits your needs.

1.3.3-?? Calculation Method:

This configuration establishes the approach for computing the transaction sale amount, which is applicable exclusively to the Sales value matching principle. By default, the calculation method is set to "None."

1.3.4- Cost Template:

This configuration outlines several important aspects related to work in process (WIP) presentation and the calculation of the percentage of completion in a fixed-price project estimate:

• Presentation of WIP: It determines how WIP is displayed within the fixed-price project estimate.
• Percentage of Completion Calculation Method: It defines the method for calculating the percentage of completion. This can be based on the cost amount or quantity/hour consumption.
• Manual Percentage Adjustment: Specifies whether the calculated percentage of completion can be manually adjusted or not.
• Cost Groups/Cost Lines: It specifies which cost groups or cost lines should be included in the percentage of completion calculations.
• Cost to Complete Methods: Defines the methods used to estimate the cost to complete for the specified cost lines.

Each of these settings plays a crucial role in tracking project progress and ensuring accurate financial reporting for fixed-price projects.

1.3.5- Period Code:

This configuration defines the control periods that are employed when calculating project estimates. Typically, when running periodic estimates for the purpose of matching costs and revenue recognition, the system allows you to set the frequency according to project needs. You can choose from options such as Weekly, Monthly, or Quarterly to align with the specific requirements of the project

2-Category Groups

A category group serves as a compulsory field within the project category setup. As the name suggests, category groups are used to classify project categories into distinct groups based on the type of transaction that the category represents. These groups can be established for various transaction types, including hours, expenses, fees, or items. Additionally, category groups can determine the accounts to which costs and revenues associated with these categories will be posted. Alternatively, you have the flexibility to configure account settings individually for specific project categories, allowing for greater customization and control.?

3-Shared Categories

Shared categories are a prerequisite for creating project categories. They enable the sharing of categories across all legal entities and modules within a company. This capability proves invaluable when employees from one legal entity need to engage in projects for another legal entity. In the shared categories setup, you have the option to specify whether a category can be utilized in projects, expenses, production, or any combination of these. Selecting multiple options allows the same category to be applied in various modules, such as production and project management. Importantly, a project category cannot be established within a legal entity unless a shared category with an identical name already exists, ensuring consistency and integration across the organization.

4-Project Categories

Categories serve as representations of various cost or revenue types that are defined for an entire organization. Each category is required to be associated with a category group, and both categories and category groups are organized according to specific types. These types correspond to the transaction types available in Project Management and Accounting.

Before a worker can submit project timesheet hours for a particular category, their worker profile must be linked to that category in the Worker/Category Validation Groups form.

Project category groups serve several purposes:

• Grouping Similar Cost Categories: They allow you to group similar cost categories together, such as worker hours, materials, and travel expenses.
• Default Ledger Posting: You can set up default ledger posting configurations by category group.
• Line Properties: Line properties can be configured by category group.

Category groups are categorized into four types:

1. Fee
2. Hour
3. Expense
4. Item

It's important to note that categories attached to a category group must match the type of the category group.

The advantage of categorizing category groups and their associated categories by types is that when you select a category for a transaction line, the available choices are limited to the category types defined for that transaction. For example, when entering an expense transaction, you can only select from expense-type categories, streamlining the process and ensuring appropriate category selection.

The summary of the category discussion is shown in the below image.

5-Line Properties

Utilize line properties to establish default information for various types of transaction lines, including hours, fees, expenses, and items. Line properties enable you to configure additional cost and sales price percentages specifically for project hour transactions. When you generate transactions for projects, these default line properties are automatically applied to the lines in journals, invoices, and other postings. By setting up these default line properties, you can streamline your workflow and reduce the need for repetitive tasks when dealing with project-related transactions.

The purpose and impact of line properties vary depending on the type of project:

1.?????? Time and Material Projects:

• For time and material projects, line properties control several key aspects:
• Chargeability: Whether transactions are considered chargeable (billable) or nonchargeable (not billable).
• Accrual Status: Whether the sales amount is accruable (can be recognized over time) or nonaccrual (recognized only when invoiced).
• Capitalization: Whether the cost amount is capitalized as a fixed asset.

2.?????? Fixed-Price Projects:

• In the case of fixed-price projects, line properties primarily impact whether the cost amount is capitalized as a fixed asset.

You have the flexibility to set up default line properties at various levels, including projects, project groups, categories, and category groups. If you haven't configured default line properties, you'll need to specify a line property for each line when entering transactions. Importantly, if you specify a default line property for an individual project, it takes precedence over any group-level line property or a line property assigned to all projects, allowing for specific customization at the project level.

5.1-Line Property Setup

You have the option to configure default line properties for both projects and project categories. When you create a new project, you can choose to utilize these default line properties as they are, or you can make specific modifications to tailor them to the individual project's needs.

Default line properties can be established at various levels, including:

1. Project Level: You can set up default line properties specific to an individual project.
2. Project Group Level: Default line properties can be defined at the project group level, and these properties will be applied to all projects within that particular group.
3. Category Level: Default line properties can also be configured at the category level, ensuring consistency for all projects using that category.
4. Category Group Level: Default line properties can be set at the category group level and will be applicable to all categories within that group.

You can use any combination of these types to tailor your line properties to your organization's specific requirements.

Furthermore, the relation you select (Table, Group, or All) determines the priority for the line property when entering a transaction in a journal:

• Table: Line properties are applied exclusively to the specified project.
• Group: Line properties are applied to all projects within the specified project group.
• All: Line properties are applied universally to all projects, regardless of their group or individual designation

When posting journal lines, the system conducts a search to find a line property that corresponds to the specified project number and category. If no line properties have been defined for the particular project or category, it becomes necessary to manually input the appropriate line property for each hour, fee, expense, or item registration line.

You have the option to specify the search priority for a default line property, which can be based on either the project or category, through the "Search priority" field on the Setup Fast Tab within the Project form. By default, when a new project is created, the line property is inherited from the project group, providing a convenient starting point for setting up line properties.

6-Ledger Posting Setup

Postings represent a critical and final aspect of the project setup. Throughout the project's execution, various activities will be carried out, and transactions can be posted based on several criteria:

1. Projects, Project Groups, and Funding Sources: Transactions can be posted according to specific projects, project groups, or funding sources.
2. Categories and Category Groups: Alternatively, transactions can be posted based on project categories and category groups.

You have the flexibility to combine these criteria as needed to align with your project accounting requirements.

When creating project groups, you define the search priority as either "Project-first" or "Category-first." This choice determines which posting rules take precedence when the system searches for posting accounts, providing a structured approach to managing your project-related financial postings.

As previously mentioned, there are five transaction types, and the assignment of cost price accounts is determined by the input from these transaction types, which are available within the Project Management and Accounting system. Properly configuring these posting rules and accounts is essential for accurate and organized financial tracking throughout the project's lifecycle.

Based on the project type, the above-mentioned ledger postings of the cost are setup.

Similarly, there are also ledger posting setup for sales price as well.

Based on the project type, the above-mentioned ledger postings of the Sales are setup.

That's all for the day.

If you have any feedback feel free to share

Regards

Ammad Jawed

D365 Finance Functional Consultant

Contact # +92 3352278881

Email # [email protected]