Project types in D365FO

In D365FO (or AX) you can mange projects with the 'Project management and accounting' module. In this module you can use six different project types. When creating a new project, you always need to select one of the project types to link to this new project:

What are the project types? And what is the difference between them? That's where this article is about.

Project types

A project type is used to manage how the options in the project will work, based on the needed behavior in customer invoicing, managing costs and revenue recognition postings. For example the project types 'Time and material' and 'Fixed Price' are both project types where the customer will be invoiced. Based on the fact that in these project types always a customer is involved, it is required to select a 'Project contract ID' to be able to create the project:

This is different then for example projects from type 'Internal'. They are not related to invoice customers, so here you don't have the option to select the Project contract id:

So when selecting the project type, D365FO will give the correct project functionalities available corresponding to managing that kind of projects. Customer projects or non-customer project is an important but not the only difference, because also inside these headlines you have different project types. Some hints:

Customer project types

By customer related projects you can choose between 'Time and material' and 'Fixed price'. Both are related to customers but have a different way how to invoice the customer:

Time and material:

The customer is billed for all costs incurred on a project (hours, expenses, items, fees), based on a sales price. So there is a direct relation between the cost and the revenue in the project.

Example: I have spent 3 billable hours working on this project and have 1 billable expense for traveling to the customer (project costs), so the customer will get an invoice for this 3 hours and 1 expense.

The revenue is calculated related to these invoiced project costs.

Fixed price:

In this case the customer will be billed according to on-account transactions from project contract (billing schedule). There is no direct link between the cost and revenue in the project, invoicing the customer is done based on an agreement with 'fixed' prices.

Example: I have also spent 3 hours working on this project and have 1 expense for traveling to the customer (project costs). The customer will not get an invoice directly related to these costs, but will only be invoiced based on the billing schedule agreed with the customer.

The revenue by Fixed price projects is calculated based on a completed percentage or by finishing the project. And this is different then by Time and Material projects. You will see this difference for example in the 'Project groups' setup. Here you do setup how postings needs to be done for projects in that group. Each project group can only be related to one project type. Based on the Project type you link to the group, only the corresponding revenue recognition options can be used. In the print screen below on the left side you see the Fixed Price project options and on the right side the Time and Material project options:

Internal project types:

Also for internal purposes organizations can use projects for tracking costs. For example during the construction of a new office building or an ERP-implementation (long term projects). Or for managing the effort made on a marketing campaign (short term projects). Main question to select the correct project type here is mostly to ask yourself how to deal with the outcome value of the project:

Investment:

This project type is used for internal projects. In this case they are long-term internal projects where cost have to be capitalized. Values will be capitalized for all lines with a Line property where the field 'Capitalize cost' is enabled.

For Investment projects it is possible to enter a maximum capitalization amount (also for Fixed Price projects). If the costs on the project are higher than the maximum capitalization amount, that extra costs will be posted as accrued loss:

To be able to use this maximum capitalization option on Investment (or fixed price) projects, you have to do some additional setup which is not already entered in company USMF of the Contoso environment. In one of the next weeks an article is planned with description how to setup and use this option.

Cost:

This project type is used for internal projects. This type is used for short-term internal projects where the costs will not be capitalized but (directly) posted in Profit and Loss. Therefore in the 'Project groups' settings, you will see that cost postings in 'Cost' projects always go to the P&L, you can't change this for this project type into 'Balance' for example:

Internal:

This project type is also used for internal projects. This will be used for internal projects which can be capitalized. So here you don't need to know the exact outcome already at the start of the project.

The differences

What you see here is that all three internal project types are used for internal purposes but that at least the outcome can be different: will the outcome of the project be capitalized or not? This mostly means: must the end value of the project being transferred to a fixed asset, so that the costs will be depreciated over multiple periods? For the examples above related to constructing a building or doing an ERP-implementation the change is big that you will transfer the value into a fixed asset value. But the marketing costs are costs you take in the P&L immediately. Based on that you can choose different project types to manage the project.

By creating projects for the project type Internal, Investment of Cost you cannot select a Project contract ID, but you can select a customer:

This is because for these projects you can create Item requirements:

Item requirements are managed via Sales orders, so therefore you need a customer to be able to manage these Item requirements:

In the projects of project type Internal, Investment and Cost you can't post fees.

Time project:

This is quite the stranger in our midst, because projects from this type are not used as regular projects. Basically the common project behavior isn't used for this project type. You can only post hour transactions and these transactions will not be posted in the general ledger. You can see this in the Project groups settings for this project type:

The purpose is that you can create projects to track time for non-chargeable / non-productive activities, for example to get insights in sick time. Even if by the 'Post cost - expense' and 'Post cost - Item' the option Profit and loss is fixed entered in the Project groups, these postings will not be made based on the fact that you can only use 'Hour' journals in the Time projects:

If you want to create a journal for Expense, Item or Fee, the posting will not been made:

With the default settings you can't finish projects from type 'Time', but you are able to change this behavior when enabling this stage in the project stage settings. Be aware that if you select this stage, you cannot undo this anymore. You can find this behavior including print screens in another article I wrote about the project module. Here you also can read about the different project stages that each project type will get and the options you will have in each project stage:

How to choose the right project type?

At the end, I think you always have to ask yourself two questions:

1. Is this a project where the customer needs to be invoiced or is it internal?
2. What is the needed outcome of the project?

• For example when the answer on question 1 is that the customer needs to be invoiced, you will have Time and Material and Fixed Price project types. If the outcome of the project is a customer invoice based on the made costs you will choose 'Time and Material', if the outcome of the project is a customer invoice based on a fixed billing schedule, you will choose 'Fixed price'.
• For example when the answer on question 1 is that it is an internal project, you will have Investment, Cost, Internal or Time. When the outcome is that the costs must be capitalized at the end of the project, you will choose 'Investment'. If you don't know already if it will be capitalized, you choose 'Internal'. If you don't want to capitalize, you choose 'Cost'. If you only want to use it for time registration without postings in the General Ledger, you choose 'Time'.

I am aware that this article doesn't fit all options regarding project types, but at least I hope it can give you a good beginning how to deal with them.