In the dynamic landscape of modern business, organizations often find themselves managing projects that span across departments, locations, and even international borders. Efficiently tracking and managing these projects is crucial for success, and this is where Project Accounting plays a pivotal role. Microsoft Dynamics 365 Finance & Operations, Supply Chain Management (D365 F&O SCM) is a robust solution that empowers businesses to achieve project accounting excellence. In this blog, we'll explore the key features and benefits of Project Accounting in Dynamics 365 F&O SCM.
The project management and accounting module was designed to be used in multiple industry verticals to provide a service or produce a product. To understand the benefits of the D365 Project Management and Accounting Module for the service industry, let’s look at all three phases of this module.
Navigating Project Success: The 3 Essential Phases.
1. Initiate Project
This is the first phase of a project wherein Microsoft Dynamics offers features that allow a smooth beginning. This feature which helps with creating project contracts is especially effective in communicating transactions with the customers.
Let’s say, you are working with a customer that you have established a lot of contracts with; then, with the help of this feature, you will be able to easily communicate with your customer on every single invoice that you send in relation to the specific contract that both of you parties are in knowledge of. This means, now each of the parties can readily track activity against this contract, as it relates to the budget as well as the timeline.
2. Execute Project
Now comes the phase wherein the ability of a user to procure various products and services, as well as to process the project invoices to the customers comes to use. This is the ability that allows the user to essentially track every expense and revenue against any given project contract with a customer. These are the features that allow the user to track both external and internal customer budgets for the services that were performed for them.
As an example, users can readily track purchases from the vendors against the given. contract and then pass along the expense through the invoice to the customer. Moreover, the ability to track all the invoices to the customers can allow one to do better internal tracking of the amounts that were spent on the contracts. Furthermore, this allows for better visibility or transparency of the budgets vs. Actuals.
3. Analyze Project
In the final analysis phase, this Dynamics 365 tool makes it easy to track all the activity against a given contract. This, in return, ensures that the analysis of cash flows is more organized and more accurate.
If every purchase and every customer invoice is tracked against each individual project contract, then the users would have an easy and accessible way to see as well as report on all sales and costs. It then becomes simpler to analyze the whole project’s profitability. In case the sales end up being less than the costs for a project, then it becomes easy to make certain decisions regarding how to proceed to ensure the current or future projects are more profitable.
Understanding Different Types of Projects
- Time and material Project
In these projects, the customer is billed for all the costs, which include the cost of items, hours fees, and other expenses that were incurred on the project. - Fixed-price Project
These projects are billed according to an invoicing schedule which is based upon the project contract. Using the completed percentage method, or by using the completed contract method, when the project is finished, the total revenue of such a project is calculated as well as posted. - Investment Project
Investment projects are typically used for long-term internal projects wherein the costs need to be capitalized. These projects have just the cost of hours, items, and other expenses recorded. These costs are then tracked as well as controlled using the feature – Project Management and Accounting Estimate. - Cost Project
Cost projects are generally used to track the internal projects, wherein only the hours, expenses, as well as items can be recorded. - Internal Project
Through Internal projects, an organization can track costs on a project that is internal to it. This project type can offer a planning tool to help the business manage its resource consumption. - Time Project
In order to track time which is associated with activities that are neither productive nor chargeable, tracking sick time for workers, organizations have Time projects. Instead of posting the transactions in these projects to the ledger, they are included in the worker utilization reports.
There are two distinct ways in which we can manage as well as control our projects.
One is project forecast, and the other is project budget.
1. Project Forecasting
Project Forecasting can be used if your company has an operational perspective. This way also suits a business if it focuses on costs and revenues that are derived from certain particular transactions.When one uses project forecasting, they can enter forecast transactions in the forecast forms for every type of transaction. Each attribute which is available for any actual transaction can be utilized for a forecast transaction. It can also be projected how long after one has incurred a cost, would they invoice a customer.
2. Project Budgeting
Project budgeting is a much simpler method than forecasting, even though it integrates well with forecast models. In project budgeting, every original budget, as well as revision, must be sent for approval to a project workflow.Similar to general ledger budgeting, project budgeting is surely faster and definitely easier to set up. A lot of the options that we usually have in general ledger budgeting, like number sequences or currency, don’t have to be set up separately in case of these projects.
A project budget is used to track, analyze, or regulate costs and revenue, the audit trail of budget changes, and so on. It makes use of a single-entry form for original budget details and revisions, allowing for projections which are based only on the amount, activity, or category.
Project Costing
Cost accounting in Microsoft Dynamics 365 Finance equips you to collect data from multiple sources, like the budgets, general ledger, sub-ledgers, as well as statistical information. You are then able to analyze, summarize, and further evaluate cost data to help the management make better decisions for cost control, price updates, budgets, and so on.
In cost accounting, the source data used for cost analysis is treated independently. Hence, updates in cost accounting do not have any effect on the source data. But, when you collect cost information from multiple sources, there’s data redundancy, especially if you decide to import the main accounts from the General ledger as cost elements. This is because the same information exists in General ledger as well as Cost accounting, both. Data redundancy is needed; after all, you use Cost accounting for internal reporting, just as for external reporting, you require financial management.
Project Contract
Deciding which type of project, one wants to create for a project contract is what determines the method that they would be using to invoice their project customers. A project contract as well as the related project can be changed, but not the project type.
By making use of a project contract, one can invoice one or even multiple projects, simultaneously. The project contract also helps in guaranteeing a consistent procedure for invoicing for each and every subproject that one has in a project structure.
Project Invoicing
Time and material and Fixed-price are the only external project types that can be invoiced. Which invoicing procedure should be used, depends on which project type one goes for.
These are the three ways that one can attach the Fixed-price as well as Time and material projects to the invoice projects:
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On-account Invoicing
To be invoiced on account, there are two types of on-account setups that are needed, one for each Time and material and Fixed-price project type. -
Invoicing in the Periodic Section
Transactions can be invoiced across projects through the periodic functions that provide an overview of those transactions which must be invoiced. -
Using Credit Notes in Invoicing
For both Time and material projects as well as Fixed-price projects, a credit note can be created.
Project Control
The Cost control form helps you monitor all the costs that your company must have incurred during a project. Comparing a project’s original budgeted costs with its current actual costs and the committed costs, you should be able to determine if the project is over budget, under budget, or on track. When it comes to the parameters of Project management and accounting, you can configure some of the options, while default the values which appear in the Cost control form.
DynaTech Project Accounting Experience:
Case 1
A Leading Manufacturer of Sensing Solutions For Automatic Doors Systems.
Project Type Internal is used by organization to track costs by product/activity.
Work breakdown structure is where scope of project is defined, and estimation of cost are made.
WBS estimates are used to create project budgets.
Once above estimate are made, project delivery start wherein different transactions are posted:
- Hour: Records time consumed on project by resources.
- Expense: Logs project-related costs.
- Item: Records item consumption costs.
Timesheets used for hour transactions:
- Weekly or biweekly time entries are posted by resources.
- Where we have different control options so as to get the effective output.
- Microsoft also provides app Mobile app to post timesheet.
At regular intervals, responsible person monitor and analyze project performance with different use of reports and statements. If required, management decide to Adjust plans and budgets if cost estimates change.
Case 2
A Leading Global Laboratory Automation Company
Clients manage customer contracts through projects.
For Each new contract creates a "Fixed-price" project wherein we define milestones, funding source and funding rules.
For project planning, Work breakdown structure is used where we plan project schedule and estimates.
Then with WBS estimates project budget and forecast is created.
Once estimation is done, Project delivery involves various transactions:
Item Requirements: Item required in project for which Production or purchase orders are created.
- Hour Transactions: Time entries by resources.
- Expense Transactions: Cost records.
- On-account Transactions: Milestone invoicing.
At every fixed interval, project estimates are run which helps to recognize the accrued revenue in proportion to cost incurred for that period.
Whenever and wherever required as per change order adjustments to the plans and budget with approval of management can be incorporated to the existing project. Top management tracks progress with reports and cost control. Monitor and analyze project performance. Evaluate project profitability with reports upon completing transactions.
Case 3
NGO Servicing Meals for Various Schools Nationwide
Integration of Project Orders and Project Contract from CRM for Project type Time & Material and Fixed Price.
Order Lines moves from CRM to F&O in BOQ lines.
BOQ lines transfer from BOQ form to WBS and further the Project Budget is created and submitted for approval.
After Project Budget Approval Item forecast and Item requirement is created in system.
Back-to-back PO is created based on Item Requirement, and after that Item is delivered.
Expense journal is posted for the expenses related to Projects.
Project Invoices are Posted for both the Project types.
For Fixed Price Projects we run the Revenue Recognition to recognize the revenue.
Let’s Save Time and Strive for Success!
If you’re interested in understanding more about the brilliant Project Management and Accounting feature for MS Dynamics 365 or wish to connect with us regarding a project, contact us at sales@dynatechconsultancy.com.
