You want to use results analysis to accrue costs and revenues by period for project F-120##. Results analysis calculates reserves and balances. Use settlement to settle profit by period to profitability analysis and post reserves or balances in FI.
Performing Results Analysis
Objectives
After completing this lesson, you will be able to:
- Perform a revenue-proportional results analysis
- Perform a cost-proportional results analysis
- Use resource-related billing for cost of sales
- Perform results analysis
Business Example
Overview of Results Analysis
Results analysis is a periodic process that determines the costs and revenues for a period based on planned costs and revenues and the POC.
By comparing the results from the analysis with an actual posting that was recorded previously in FI, the analysis provides a posting in FI (WIP, reserves). You can also post some results to profitability analysis to ensure that the period results in FI are the same as those recognized in profitability analysis.
The first stage of results analysis involves calculating the following values:
Inventory values
Reserves for unrealized costs
Reserves for imminent loss
Reserves for complaints/warranties and commissions
Cost of sales
You can settle the following to FI and Profit Center Accounting (CO-PCA):
Inventory values
Reserves for unrealized costs
Reserves for imminent loss
Reserves for complaints and commissions
The cost of sales if you are using non-valuated project stock and are balancing in FI with the cost-of-sales accounting method
You can settle the following to profitability analysis (CO-PA):
Cost of sales or calculated revenue
Reserves for imminent loss and complaints
Results Analysis
Results analysis evaluates long-term customer projects.
It determines costs and revenues that belong to earned values for a project in a given period. It can also determine work-in-process (WIP) or reserves for unrealized costs.
Results analysis calculations are based on comparing planned with actual costs and revenues based on a POC.
The POC is determined by the valuation method you chose. You can calculate results analysis using various valuation methods and store the results in various CO versions.
Results are calculated for the following:
Billing elements
Non-billing WBS elements with stocks of their own and assigned orders, which require a separate results analysis calculation
Legend:
C(z): Work in progress
C(r): Reserves for unrealized costs
R(z): Revenue in excess of billings
R(r): Revenue surplus
C(p): Planned costs
R(a): Actual revenues
C(a): Actual costs
R(c): Revenues affecting result
C(c): Costs affecting result
POC Percentage of completion
Results Analysis: Costs and Revenues
Results analysis calculates costs and revenues by period, with balances or reserves. Settlement settles the values it determines to a settlement receiver (usually a profitability segment).
If the costs that affect the result are different from actual costs, the following scenarios may result:
If actual costs are greater than the calculated cost of sales for the result, the difference is posted as work in process.
If actual costs are less than the calculated cost of sales for the result, a reserve for unrealized costs is established.
If revenues that affect the result are different from actual revenues, the following scenarios may result:
If the actual revenues exceed revenues that affect the result, the difference forms a revenue surplus (unearned revenue).
If the actual revenues are less than revenues that affect the result, the result is called inventory, from which revenue can be generated (deferred revenue).
Methods of Valuating Results Analysis
01 - Revenue proportionality with realization of profit.
02 - Revenue proportionality with no realization of profit if actual revenue is less than plan costs.
03 - Cost-proportional POC method.
04 - Quantity-proportional method.
05 - Quantity-proportional POC method.
06 - POC method based on revenue planned by period.
07 - POC method based on project progress analysis.
08 - Derive costs of sales from resource-related billing (no longer used).
09 - Completed contract method.
10 - Determine stock without plan costs without milestone billing.
11 - Determine stock without plan costs with milestone billing.
12 - Determine stock and reserves for follow-up costs without milestone billing.
13 - Determine WIP for actual costs in objects not bearing revenues.
14 - Derive costs of sales from resource-related billing of dynamic line items.
15 - Derive revenues from resource-related billing of dynamic line items.
16 - Cost-based POC method without profit realization if plan revenue > plan costs.
17 - Cost-based POC method without profit/loss realization.
The results analysis method you use depends on the constraints of your business requirements. Your business can use various processes and types of projects, and it may require various results analysis methods. The valuation method contains formulas to calculate results analysis data.
Legal Constraints
There are also legal constraints that determine if unrealized profit may be capitalized. The constraints differ from country to country (for example, the United States and Germany) in the following ways:
If you do not want to capitalize unrealized profits, use a results analysis method that can be used to create capitalized costs.
If you want to capitalize unrealized profits, use a results analysis method to create inventory from which revenue can be generated.
A few methods of creating capitalized costs and inventory from which revenue can be generated also enable automatic creation of reserves for unrealized costs or reserves for imminent losses.
Example of Revenue-Proportional Results Analysis
When you use revenue-based methods, the revenue relevant to profit equals the actual revenue. You can use this method with milestone billing and to report intermediate profits. You must have planned costs and revenues to use this method.
The ratio of actual revenue to planned revenue determines the POC.
If you perform revenue-based results analysis according to the cost of sales method, the cost of sales is formed on the basis of actual revenues earned to date.
If actual costs are greater than the costs relevant to profit, the system creates reserves for unrealized costs.
If actual costs are less than the costs relevant to profit, the system creates reserves for unrealized costs (expenses).
If you use the revenue-based method with profit realization, the calculated cost of sales is zero as long as the actual revenue for the period is zero. Capitalized costs then equal the actual costs of the period.
The example shows the POC calculated using the ratio of actual revenues posted to date to planned revenues (POC = 40%).
You use the POC to determine the cost of sales for actual revenues (COS = 40% x planned costs = 800).
The result is an inventory balance (WIP = 200) because actual costs are greater than the calculated costs of sales. The settlement of the WIP generates the following posting in FI: Inventory (WIP) account against an inventory change account of 200.
The inventory change account is closed against the profit and loss account. The Profit and Loss sheet shows 1200 as the actual revenue on the profit side plus 200 as inventory change. On the loss side, the Profit and Loss sheet shows actual costs as 1000. Based on this posting, FI and CO-PA both show a profit of 400.
How to Perform a Revenue-Proportional Results Analysis
Cost Proportional
When you use the cost-based percentage of completion method in results analysis, the system calculates the revenue based on actual costs incurred up to the current period. You must have planned costs and revenues to use this method.
The percentage of completion method differs from revenue-based results. A profit or loss is reported if actual costs are incurred, but there is no revenue. With revenue-based results analysis, a profit or loss is not shown until actual revenue is received.
The example shows the POC calculated using the ratio of actual costs posted to date to the planned costs (POC = 50%).
The calculated revenues belonging to actual costs are determined using this POC (R(c) = 50% x planned revenues = 1500).
The result is revenue in excess of billings (R(z) = 300) because the actual revenues to date are less than the calculated amount (1200).
The settlement generates a posting in FI, inventory (WIP) against an inventory change account of 300.
The inventory account is closed against the Profit and Loss account. The Profit and Loss account shows 1200 as actual revenues on the profit side, plus revenues that can be capitalized as 300. The Profit and Loss account shows actual costs as 1000 (expenses) on the loss side. The FI and CO-PA show a profit of 500.
Resource-Related Billing Method
Method 14 (cost of sales from resource-related billing) does not determine a POC. It determines the cost of sales as a proportion of the actual costs incurred that were already billed to the customer. The remainder of the actual costs make up the cost balance.
You can only use this results analysis method with resource-related billing of dynamic line items.
You derive the cost of sales from resource-related billing with dynamic items. You can calculate the cost of sales in the amount of the invoiced line items.
You calculate revenues in SD pricing on the basis of billed line items.
You cannot use planned values in this results analysis method. You do not need to establish planned costs for results analysis.
You can calculate inventory values using this method. In this process, there is no reserve for unrealized costs.
Note
See results analysis method 15, Derive Revenue from Resource-Related Billing and Simulation of Dynamic Items. Results analysis method 15 calculates the cost of sales in the amount of the incurred actual costs.
Considerations for Results Analysis
Use the WBS element status to divide the project life cycle into defined stages that lead to various results in results analysis. The standard system distinguishes between three stages (you can leave the second stage blank in the valuation methods).
- Released
As soon as the WBS element has this status, you can assign actual costs and revenues to the WBS element. Results analysis can then value the WBS element based on actual costs, actual revenues, or actual quantities. The standard system draws on the valuation basis of the maximum of planned costs and actual costs, as well as planned revenues.
- Final invoice
As soon as this status is set (manually) for the WBS element, further actual revenues cannot be entered. You can specify that all balances and reserves for unrealized costs need to be canceled (all costs are costs of sales). Follow-up costs (such as warranties or refunds) are still possible. For this reason, reserves remain in place. The actual revenues replace the planned revenues as the basis for results analysis.
- Technically complete
As soon as this status is set for the sales order item, you cannot make further changes to planned values. Further (unplanned) costs have a direct effect on profit. The standard system draws on the actual cost, actual revenues valuation basis in this phase. The planned data is ignored. The result is the actual revenues minus actual costs.
Separate Results Analysis for Billing Elements
Results analysis in the project structure always takes place in billing elements.
The results analysis data in a billing element includes an aggregated plan and actual costs from the WBS elements or orders subordinate to the billing element.
In the case of orders, note that you include only plan costs for appended orders in the assigned WBS elements. You usually plan the costs for other orders manually in the WBS element.
In settlement, you settle only billing elements with results analysis because they already contain the plan and actual data for subordinate WBS elements and orders.
Note
Set the project structure indicator to A in the simplified (non-expert) mode to maintain valuation methods. This setting is possible only for projects with a billing element or projects that have all billing elements in one hierarchy level. In all other cases, you need to use expert mode to set the structure indicator to U, T, or B.
Results Analysis on Loss-Making Projects
A loss-making project is a project whose planned costs exceed its planned revenues. In this case, results analysis leads to the generation of a reserve for imminent loss equivalent to the amount of the difference.
You can specify when this reserve needs to be cleared in Customizing, using the following cases:
When actual costs are incurred.
When actual revenues arise.
In both cases.
Planned Results Analysis
You can perform results analysis as a planning process.
Complete this task with the same transaction or program used for actual results analysis, but set the planned results analysis indicator.
You can use planned results analysis to determine the revenues and costs of sales you expect for future periods by period. You settle the calculated planned values to profitability analysis.
Precise data is particularly important for this process.
Results Analysis Customizing
Steps in Customizing:
Create results analysis cost elements for WIP and reserves, and stipulate cost element grouping (organizational)
Create results analysis version as CO plan version
Maintain results analysis keys
Maintain results analysis methods
Define the update
Define the assignment
Define posting rules
Legend:
P&L: Profit and Loss statement
POC: Percentage of completion (method)
Line ID: Line identification number
WIP: Work in process
COSL: Cost of sales
Simplified Maintenance of Valuation Methods
Choose a results analysis method based on your business requirements. A company usually runs various types of processing and various methods of results analysis simultaneously. Results analysis methods contain the rule to calculate results analysis data. The standard system contains various results analysis methods. Decide which results analysis method you want to use.
A project passes through a number of stages that lead to various results in results analysis. In the standard system, there are three relevant system statuses:
REL (released)
FNBL (final billing)
TECO (technically completed)
In Customizing, you specify the status that permits the following activities:
At which status results analysis can be performed.
At which status the WIP is canceled (optional).
At which status the WIP and reserves are canceled.
Assignment/Update/Posting Rules
Results analysis records the results analysis data in the billing element or WIP element under secondary cost elements. You specify the cost elements that need to be updated in Customizing.
You assign source cost elements (expense and revenue) to a line ID (LID), which represents a type of cost, such as material consumption, direct activities, overheads, or revenues. You can choose to specify that a percentage of each assignment line will not be capitalized and that another percentage has the option to be capitalized. The remaining percentage is considered capitalized.
You assign each LID and type of result (costs, revenues, reserves, and special costs) to a results analysis cost element. These cost elements are used to record the data from the analysis in results analysis reporting.
Define the posting rules that enable you to forward balances and reserves to FI. The type of result, such as costs, WIP, reserves, or revenues, defines the posting rules.