Creating Project Structures

• Profitability

• Cost control

• Cash flow analysis

• Risk management

Your company wants to use the Project System to manage the implementation of a new software system and to model an engineer-to-order process for forklift manufacturing. You will use the Project System to manage this project. The forklift project is a customer prototype project utilizing a work breakdown structure and network activities. Several other companies may be linked to this project.

The implementation of the new software system is managed as an investment project utilizing a WBS element structure. You need to create these project structures using the Project Builder.

The investment project also requires cost planning to determine the costs. You want to further control the costs through the implementation process by defining the approved budget for the project.

The prototype forklift manufactured by your organization is unique to the customer and will be the blueprint for further forklifts to be built on make-to-order basis. Consequently, your company wants to use cost planning for projects to help determine the price for customer sales inquiries, quotations, and orders for the prototype.

Your company wants to measure the profitability of each project independently of other prototype projects for the same customer because forklift projects can be under development for a single customer at any given time. The company decides that the revenue and cost-of-sales recognition needs to occur at the project level. The sales order line item is not a controlling object in this case.

Many of the components used in the production of a forklift prototype are expensive. The company has decided that these materials should not be in inventory because of their expense. The lead time to procure these materials has no adverse effect on the ability to complete the project on time. Based on these factors, the company has decided to purchase materials specifically for each project. However, they want visibility of the material in the plant for each project, and they have decided to use valuated project stock to track the quantities and costs for these materials.

Prototype projects require significant outlays of cash during the initial phases. To offset these cash outlays, your company decides that customers must make a down payment when signing sales contracts. They must then make a progress payment when specific milestones in the project are achieved. Down payment processing and milestone billings are used to ensure that the cash flow remains positive.

The Project System module has no organizational units of its own.

Depending on the project type and configuration, you can use organizational units from a wide range of areas (sales and distribution, purchasing, production, accounting, controlling, personnel, and so on).

You define the company using company codes and business areas (Accounting view) as well as controlling areas, profitability segments, and profit centers (Controlling view).

The operating concern is the organizational unit for which the market is uniformly segmented. The controlling area is the organizational unit within the company used to represent a closed system for cost accounting purposes.

The company code is the balance sheet unit in financial accounting. Company codes can be assigned to the controlling area in an N:1 or 1:1 ratio (company-code-specific cost accounting). In the Customizing settings for the controlling area, you can specify whether company-code-specific cost accounting is possible. Consider this setting carefully when you create the controlling area.

The financial management area is the organizational unit within which you plan, control, and monitor funds and budgets.

In the Project System module, you can assign the company code to one financial management area. In funds management, you must assign the financial management area to the controlling area.

Use the business area to calculate balances internally.

Projects are always unique to a controlling area.

There are two controlling object types used for projects: work breakdown structure (WBS) and network (NW).

Multiple companies are linked to a single controlling area. Project activities can be performed by logistical organizations (plant, sales organization, and purchasing organization) belonging to a company code defined for the controlling area. For example, entities related to company codes 1010 and 1710 perform engineering work in the project.

Plants, purchasing organizations, and sales organizations are logistical organization elements. Plants and sales organizations can be assigned to only one company code. If you use centralized purchasing, a purchasing organization can purchase on behalf of multiple companies. If not, a purchasing organization is assigned to only one company.

The Project System module uses the work breakdown structure and network as operational data for structuring, planning, and executing projects.

Depending on the type of project and how it is configured, master data from other business areas is used in the project.

A WBS is a model of a project; it shows the project activities that need to be fulfilled in hierarchical form. It forms the operative basis for planning costs, revenues, and payments, as well as for scheduling and budgeting.

Activities are used to show the flow of a project or the activities involved in a project. Individual tasks are linked to each other and grouped together to form activities. Activities form the operative basis for planning and controlling dates, costs, and resources (for example, personnel, machinery, production resource/tools [PRTs], materials, and so on).

When activities are assigned to WBS elements, the dates and costs defined in the individual activities are totaled up (aggregated) at the WBS level and can be evaluated. Activity funds that are already assigned are checked against the budgets of the WBS elements.

• MM: Materials Management

  • Material master

  • Vendor master

  • Purchasing info records

• SD: Sales and Distribution

  • Customer master

  • Pricing conditions

• PP: Production Planning

  • Work center

  • Bill of material

• FI: Financial Accounting; CO: Controlling

  • Chart of accounts

  • Cost elements

  • Cost centers

  • Activity types

  • Activity prices

• PS: Project System

  • Standard WBS template

  • Standard network template

Business Example: You want to create a project structure to plan and control costs for the implementation of new hardware and software for a bonus system in your company. You need to create the structure so that you can clearly separate the costs for concept, realization, and preparation for use.

This figure represents the implementation project for new hardware and software in your company. Project I/00## has the following characteristics:

• It is a cost project.

• It is mapped using a WBS without activities. Costs and payments are planned manually in the WBS elements.

• A budget is distributed to the project from investment management.

• Commitments and actual costs are written to the WBS elements (using account assignment).

• The costs in the project that can be capitalized (for example, the hardware) are settled to asset accounting.

• The costs in the project that cannot be capitalized are settled to the cost center.

The WBS forms the basis for all subsequent planning tasks in the project. The emphasis is on planning, analyzing, describing, controlling, and monitoring costs, basic dates, and budget.

Dates, costs, and outgoing payments are often planned using activities, which are assigned to WBS elements.

Because your company is using networks, the WBS shows the aggregated cost and scheduling data determined automatically from the network activities.

The following functions are supported by a WBS:

• Dates:

  • Basic dates

  • Scheduled dates

  • Actual dates

• Budget:

  • Original budget

  • Budget updates

  • Released budgets

  • Availability control

• Commitments:

  • Purchase requisition

  • Purchase order

• Periodic processing:

  • Overheads, process costs

  • Interest calculation

  • Results analysis

  • Settlement

• Payment data:

  • Planning of payments (debit side/credit side)

  • Actual data updates

• Costs/revenues:

  • Planned costs/revenues

  • Actual costs/revenues

Use operative indicators to define the characteristics of a WBS element and specify tasks that will be performed by a WBS element when the project is executed.

Set the statistical indicator if a WBS element is used only for statistical purposes or if it works with real costs.

In the context of this course, you want to perform planning as far as level two in the project hierarchy. Lower-level WBS elements (for example, level three) are pure account assignment elements.