Executing Period-End Closing Procedures

The first month of project work ends, and James, project planner at Hybrid Machinery, discusses with Linda, project controller at the same company, the required steps that have to be carried out during period-end closing.

You perform period-based business transactions as a part of the period-end closing procedure. This enables you to ensure that all the data belonging to a period is determined and made available to enterprise controlling. The preceding figure shows an overview of period-end closing activities for projects.

The various period-end closing activities are as follows:

• Overhead costing:

  Overhead costing is used to allocate the overhead costs (in terms of percentage or quantity-based overheads) for supplied materials, machines, and labor.

• Template allocation:

  Template allocation is another method for allocating overheads. This method does not allocate costs, but determines the quantities used by the receiver object. The costs are then calculated by valuating the quantities with a price that enables costs to be determined according to cause.

• Interest calculation:

  Interest calculation plays an important role in long-running and cost-intensive projects. In the SAP Project System (SAP PS), planned and actual interest calculation can be used to calculate and update interest.

• Cost forecast:

  With cost forecasts, you can adjust cost planning to changing circumstances during the execution phase of a project. In a cost forecast, the system determines and valuates the remaining activities based on the planned, forecast, and actual values in the network.

• Progress analysis:

  You use progress analysis to compare the planned and actual progress of a project based on actual results.

• Results analysis:

  Results analysis carries out a periodic valuation of projects. Data such as stock values, cost of sales, and reserves are calculated.

• Incoming orders:

  Using the project-related incoming orders function, the system determines key figures for incoming orders and open orders from sales orders assigned to projects. This enables you to conclude at an early stage regarding the anticipated result of a customer project.

• Settlement:

  You use project settlement to allocate the costs and revenues in projects or allocate the results analysis data to one or more receivers.

The basic concepts of progress analysis include the following:

• Percentage of Completion (POC):
  • Specifies the project progress as a percentage.
  • Describes the ratio of activity carried out to a specific date as a percentage of total work for the activity or project.
  • Determines POC on the basis of the specified measurement method.
• Earned Value:
  • Describes the value of work done in a project.
  • Describes the costs corresponding with the POC of a project element.

Percentage of Completion (POC) is used to determine how much progress has been made on a project. This type of analysis is common in most construction and engineering environments. By using different techniques, you can use factors other than revenue and cost planning to determine progress. However, planning is still an important factor.

To use POC, you must maintain the POC determination methods for determining your planned and actual POC for a given period. It is possible to use different methods for different objects. The system compares the progress that you should have made against your actual progress to determine your schedule variance. It also compares your actual cost to your budgeted cost of work performed, that is, how much time you should have spent to achieve your actual POC. This comparison determines your cost variance.

The Percentage-of-Completion (POC) and the earned value are important project key figures. You can analyze these at the level of individual project elements or aggregated for the whole project or subproject. Like other project key figures, progress analysis values are available in the following report types:

• Structure-oriented report on progress analysis
• Drill-down hierarchy report
• Report Painter or Report Writer reports

Planned POC: The planned POC is the value of the work planned for up to a certain point in time, expressed as a percentage of all the work required.

Actual POC: The actual POC is the value of the work done up to a certain point in time, expressed as a percentage of all the work required.

Earned Value (EV): The EV arises from the valuation of the POC and the base (for example, the cumulated planned costs or the total budget). The planned EV or Budgeted Cost of Work Scheduled (BCWS) provides the value of the scheduled work. The actual EV or Budgeted Cost of Work Performed (BCWP) provides the value of the work performed.

You can compare the planned earned value with the actual earned value to calculate the scheduling variance (SV). A positive scheduling variance means that the actual POC is lower than the planned POC, so you're lagging behind your original project plan. A negative scheduling variance means that the actual POC is higher than the planned POC so your project progress is faster than originally planned.

You can compare the actual earned value with the actual costs to derive the cost variance (CV). If the actual costs are higher than the actual earned value the costs are higher than they should be according to the project plan.

You can use the structure overview to evaluate the POC and earned value. The system displays the values in line with the project hierarchy. You can use the structure overview to evaluate the POC and the earned value in the following configuration:

• Aggregated
• Not aggregated
• Corrected
• Not corrected

From the hierarchical display, you can navigate to a project object in the period breakdown and the graphical display.

Settlement rules are required to settle the project. These rules determine which portions of the sender’s costs are transferred to which cost receivers. Settlement rules are stored in the sender objects and contain distribution rules and settlement parameters. They are required to settle the project. The following figure shows the typical scenarios for settling the projects.

You can create settlement rules manually in the Project Builder. For WBS elements, you can also use the Create Settlement Rule (CJB1 and CJB2) transaction. Depending on predefined strategies, these transactions create settlement rules for cost centers or profitability segments, or they inherit predefined settlement rules.

When you settle your project, costs and revenues are transferred to financial accounting (G/L account), asset accounting (fixed asset), management accounting, or profitability analysis (order, cost center, and profitability segment), or the SAP PS (WBS elements, networks, and activities).

For investment projects, WBS elements are normally settled to Assets under Construction (AuC). The Assets under Construction (AuC) are created automatically when WBS elements are released (this is controlled by the investment profile). Settlement rules prescribing settlement to Assets under Construction (AuC) can be generated automatically when the WBS elements are settled for the first time. When the project is technically closed, the WBS elements are settled to an asset master record, and the values are transferred from the Assets under Construction (AuC) to the asset. For sales projects, only the billing element is normally settled, because results analysis is carried out at the billing element level. The results analysis data contains costs and revenue not only for the billing elements, but also for all the WBS elements and activities that are subordinate to the billing elements. However, only the billing element has a settlement rule. A settlement profile, Do not settle, is assigned to all other objects.

You calculate actual overheads based on the costing sheet and the overhead key that you entered on the WBS element, network header, or network activity.

Actual overhead calculation allocates cost objects with actual overheads. Overhead is allocated to cost objects using quantity-based or percentage allocation rates.

You can simulate overhead allocation (test run).

The overhead calculation process generates the following postings:

• Overhead expenses are charged to cost objects (network activities, network header, and WBS elements).
• The cost center (or the overhead process) is credited. Costs are updated using the secondary cost elements specified in the credit rows in the costing sheet. The actual overhead calculation uses the costing sheet entered in the cost object.