AX 2012 Project Budgeting and Enhancements

Before we begin, let us understand few things about project budgeting in general.

Project budgeting is one of the most important parts of the project planning process. It helps companies monitor and control project revenue and expenditures. By comparing budget and actuals, organizations can have more visibility of how effectively their resources are being utilized, how they can further reallocate money and resources to meet their budgetary goals and finally to track project profitability in financial perspective.

Project budgeting is vital for both public and private sector organizations. While public sector industries are more concerned on minimizing their project expenditures by effective resource utilization, on the other hand private industries (being focus on services) have emphasis on maximizing the revenues and maintaining high profitable margins by optimizing their project costs.

AX2012 project budgeting functionality caters to these various industry specific requirements with its simple yet powerful features as below:

1. Unified Project budget form to enter budget details across project hierarchy like project, subproject & activity etc…
2. Maintain budget details per amounts, categories, activities and further extend it for workers anditems in project budget line details.
3. Budget allocations across the project or fiscal period. If allocated over a period, we can choose to carry forward unused amounts to the next fiscal period.
4. Centralized view of budget transactions in Project budget balances form for the complete project hierarchy in one simple go.
5. Powerful workflow management to handle approval requirements within organization and capabilities of change management to keep a history of the budget revisions.
6. Budget details based on amounts and split between costs and revenues.
7. Project budgeting limits the forecast models that are used for budgeting. Fewer forecast models can help increase consistency in projections.
8. Project budgeting provides additional control options for users. Warnings and Overruns may be allowed along with the default option being Disallow of overruns.
9. In project budget control, actual amounts are subtracted from amounts in the remaining budget. This allows for a clearer audit trail.

Example scenario:

Fun times Club a US based customer wants to construct a boundary wall for one of its play ground and approaches Contoso Consulting USA (USSI) for the project contract. The project manager Kevin Cook estimates the total effort required for this construction and negotiates with Fun times club for the fixed contract value of $250,000 to be paid on project’s completion. Kevin further defines the project budget to control the project costs and assigns his key resources to work on the project. Contoso Consulting USA (USSI) has tie up with one of the sub-contractor in the country Industrial Supplies who supplies the construction items. As the project progresses, kevin tracks the project expenditures and project budget balances and takes the necessary actions.

Let us now set up this scenario in AX2012 by following the below steps:

• Navigate to Project management and accounting=> Setup=> Project management and accounting parameters.
• Click on the Cost control link and enable the Use budget control check-box. This is the default setting which will be carried over to new projects created there after and can be over-ridden from project level. Also setup default forecast models for Original and Remaining cost control types.

• In PMA=> Common=> Project contracts form, create a new project contract with customer Fun times club and create a new fixed-price project with milestone value of $250,000.

• Expand Budget and forecast fast tab, observe that budget control is enabled as per default setup in PMA parameters form.
• Now change the Transaction types controlled to Costs only since we want to control only project costs in this example and leave the Budget overrun default to Disallow overruns only.

• On the project details form, switch to Plan tab and click on Project budget button to define the budget details for this project. Create the budget lines with mandatory category and budget amount details. We can also import budget lines from existing forecast models, project transactions, WBS templates etc…

• Submit the original budget and process it further for workflow approval. (I have enabled auto-approval for testing purpose)
• Once the budget is approved budget funds will get committed against the category. To view this click on Project budget balances button. Here we can view the project budget balances grouped by Transaction type, Category, Category group and cost template roll ups.

• Back on project details change the Project status to In progress as the project execution begins.
• Now the resources start working on the project assignment and Kelly (project accountant) books 150 hours spent on the Design of boundary wall on behalf of these workers. The cost rate of these workers are $180/Hour. Kelly further posts this journal to account for the project cost.

• Now view the project budget balances to see the budget consumption details. To do this, simply from project details form click on Project budget balances button on the Control tab.
• We can observe that the cost amount $27000 ($180*150Hours) is consumed from the total budgeted amount $54000 for Design category and Remaining budget is shown in the project budget balances form.

• For the next month, kelly tries to record more 160 hours being spent (Cost rate: $180/Hour) on the project by workers on boundary wall design and as the cost amount exceeds the budgeted amount, an error being thrown restricting kelly to proceed further. Kelly escalates this to proejct manager Kevin to do the needful as budget amount is exceeding by $1800.

• Now kevin reviews this request and increases budget for Design by $1800. To do this, click onNew revision button from project budget balances form. Specify Revision amount= $1800.
• Kevin submits the budget revision to process for further workflow approval. I have configured auto-approval for budget revision in this company for testing purpose. You may configure this to the concerned person responsible for approval in the organization.

• Click on Project budget balances button and observe that Remaining budget amount is increased as per approved revision amount. That is $27,000 Original + $1800 Revised= $28,800.

• Now kevin alerts kelly about design budget amount being revised and asks her to proceed with recording worker hours. Kelly posts the hour journal successfully now.

• Kevin reviews the budget balances and observes that budget fund amount for Design has been totally consumed.

• In the meantime, to start the construction work on the project Kevin; the project manager raises a PR for procuring construction items. He specifies the quantities which are required to start the initial construction.

• Kevin views the project budget status to check the availability for budget funds against this procurement. To do this, click on Financials=> Project budget status.

Note: This is new in AX2012 R3. We can now display the status of a project budget in purchase requisition forms, purchase order forms, and vendor invoice forms. Therefore, we can easily monitor the remaining available budget for projects. This change also supports budget control and the evaluation of proposed purchases during management review or workflow approval.

• Kevin submits the PR to purchase department for review and approval. Alex, the purchase manager increases the quantities on PR to have more inventory stock and sees the effect on Project budget status.

• Alex approves the PR and converts it into purchase order with its sub-contractor Industrial Supplies.
• The project budget status can be viewed from purchase order using Financials=> Project budget status button on purchase order lines.

• Once the items are received, procurement team registers the product reciept and route it for project’s consumption. Alex enters the invoice details into AX2012 sent by the sub-contractor and even from the vendor invoice form he can view the project budget status using Financials=> Project budget status.

• Once the invoice is posted, we can see the effect on project budget balances as below.

• Also for the future purchases raised by procurement department against the project, the budget funds will be committed automatically and budget balances will get effected.

AX 2012 Project with Indirect Costs

In today’s post I would like to cover another interesting topic Indirect Costs on Projects and take you guys through complete end-to-end process in AX2012.

Indirect costs are costs that are not directly accountable to a cost object such as particular project, facility, function or product. Indirect costs may be fixed or variable depending on the type and include administration, personnel and security costs. These are the costs which are not directly related to project or production. Some indirect costs may be overhead expenses like rent, gas, electricity and labor burden which are necessary to the continued functioning of  business but cannot be immediately associated with the product or services being offered, while some of them can be attributed to project as direct costs.

In Service Industries; to evaluate a project, costs such as rent, office supplies, Information Technology (IT) support, telephone charges and similar costs must be taken into consideration. These costs contribute to keeping the business running. They can be shared among various projects or among different functions or departments and are called indirect costs. Identifying an indirect cost is a prerequisite in calculating the cost of projects and for preparing accurate budget forecasts.

To determine project profitability accurately, some companies include indirect costs associated with the project they work on, in addition to the direct costs that are calculated from employee timesheets. Indirect costs are related to the direct costs from timesheets and are not created or processed on their own. Indirect costs consist of individual elements or components and are typically calculated as a percentage of the direct labor or as an hourly rate. The percentages and rates used for computing indirect cost can be different as compared to the percentages and rates used for computing indirect accrued revenue and billing.

Let me give you an example scenario:

Contoso Consulting USA (USSI) gets into a contract with it’s customer Adventure services to conduct market research on their new video game recently launched into the market, with focus to improve its sales. Both parties agrees to go with the billing based on number of consulting hours spent by the resources on this project assignment and hourly billing rate is $300. The project manager Alex wants to record the indirect cost (Electricity & Office supplies charges) on the project along with direct cost of the resources to measure the project profitability margins accurately.

Now let us set up this in AX2012 by following below steps:

Pre-requisite:

• We need to create an indirect project category to map with indirect cost components as they can’t be directly expensed on the project. To do this, navigate to Project management and accounting=> Setup=> Categories=> Shared categories
• Create a new shared category and enable Can be used in Project check-box, to be able to use in project categories form.

• Navigate to PMA=> Setup=> Categories=> Project categories, create new project category and select Category group of transaction type Hour.
• Mark the Indirect cost component check-box to setup this project category for indirect costs and hence it can’t be selected in project timesheet directly to expense.

Scenario steps:

• Navigate to Project management and accounting=> Setup=> Indirect cost component=> Indirect cost component
• Create indirect cost components Electricity & Office supplies as per our requirement and associate them with our project category created earlier.

• Navigate to PMA=> Setup=> Indirect cost component=> Indirect cost component group
• Create an indirect cost component group to specify these indirect cost components and define the model rates. In our case we have taken electricity as 2$/hour unit rate and office supplies consumption as 2% of the consulting cost.

Note: These rates varies from company to company and depend on the type to which organization wants to calculate indirect cost. As in our example Alex wants to calculate additional cost on project but he can’t invoice the customer for this cost; therefore, the accrued revenue and invoice rates would be zero. But we can also associate these rates and bill to customer if applicable.

• When defining the percent calculation method we need to specify the base for calculation. To do this click on Compounding rules=> Cost for the Office supplies indirect cost component line and include the Base amount component into Selected indirect cost components list.
• Now click on Model rates button to view the indirect cost calculations. Specify the consulting cost which is $180/hour in our case and click on Calculate button to see what would be the hourly indirect cost amount for these cost components.

• Now create a time and material project against the contract with Adventure services and specify the project details.
• To associate indirect costs with this project, navigate to PMA=> Setup=> Indirect cost component=> Indirect cost component group assignment rules.
• Specify the criteria like Effective date, Category on which indirect cost needs to be computed, Project to be considered and finally indirect cost component group as shown below.

• Once the project starts, Kelly (the project accountant) changes project status to In progress and starts recording efforts on the project. She records 10 hours being spent on the consultation by one of the worker.
• To do this through hour journal, click on Hour button from project details form and click on Create new button or New=> Lines button. In the opened journal lines, set details like Project date, Project ID, Category, Worker and No.of hours spent by the worker. Define cost price $180/hourand sales price $300/hour as per the contract terms.

• Post the journal entry and check the Posted project transactions from Manage tab of the project details form.
• Observe that indirect cost component group is triggered on the transaction as it matched with the assignment rules that we had defined. Click on View transaction to check calculated indirect cost amount on the transaction.

• We can see that indirect cost amount is calculated as per the model rate setup and included in the total cost amount of the transaction.

Calculation:

Indirect Cost Component	Calculation Method	Cost Price/Hour	Indirect Cost Amount/Hour	Total Hours	Total Indirect Cost
Electricity	Unit rate: $2	$180.00	$2.00	10	$20.00
Office supplies	Percentage: 2%	$180.00	$3.6 (2% of cost price $180.00)	10	$36.00

Total indirect cost= Electricity $20.00 + Office supplies $36.00= $56.00

Total cost amount=$180.00 (cost price)*10 (Total hours)+$56.00 (total indirect cost)= $1856.00

• Now Alex wants to bill this to customer. He can review the indirect cost amounts on the Create invoice proposal form before he could raise a customer invoice. The indirect cost amounts are displayed perfectly!!! :-)

• For the next week, consultant Kevin cook works at the customer site and records the effort spent on the project consulting through timesheet using enterprise portal. He further submits the timesheet for his manager Alex’s approval.
• Alex opens the timesheet and checks the details. He finds that Kevin has worked for 40 hourson the project assignment and all other details are entered correctly. He then approves it!

• Kelly finds the approved timesheet from PMA=> Common=>Timesheet=> Unposted timesheetsand posts it.

• View the hour transactions generated from posted timesheet. Observe that indirect cost component group is triggered as the criteria matched with assignment rules that we had defined.

• Also the indirect cost amounts are computed based on the model rate calculations. Awesome!!! Isn’t it? ;-)

• Now while creating invoice proposal for the next week Kevin reviews the indirect cost amounts and finds that they are computed correctly as per defined model rates.

• View the project statements for hourly rate and cost consumption details. They are displayed with indirect cost amounts included. [To do this, click on Project statement button on Control tab of project details form.]

• Alex (the project manager) forecasts resource effort for the whole month and observes that indirect cost is calculated and included in the total cost amount for the hour forecast as criteria matched with indirect cost component group association rules.

• Also while he creates the project budget using this forecast to control the costs on project, he observes that the budget amount includes the indirect cost as well!!

Note: You can see this Import function only in the newer versions of AX2012. In older versions, use Budget source field to select Forecast option and enter appropriate forecast model to import the details from.