Welcome back to our course on Project 2016 Advanced.
In this section I’m going to take a look at Cost Accrual.
This may well be something that you’re very familiar with if you’ve been using Project
for a while, but for some people who perhaps aren’t very familiar with accounting practices
Cost Accrual can seem a little bit of a mystery.
So what I’ve done for this section is to create a sort of dummy project.
It’s just got five tasks in it and I’ve also created a few resources as well.
The resources have different accrual methods.
So resources 1 to 3 are prorated, resource 4 accrues at the start, resource 5 accrues
at the end.
Now when a cost accrues that’s basically the point in time at which the accounting
function associated with a project recognizes that the cost has been incurred.
And although generally speaking people recognize how cost accrual works, for example in terms
of labor costs.
So you would normally prorate labor costs over the course of the task in which the labor
is employed.
There are exceptions.
And with some of the less usual costs associated with a project it’s important to recognize
exactly when the accrual will occur, particularly as some of the costs might be quite large
figures.
So it’s not possible for me or indeed anybody else to say costs are always accrued in this
way or that way.
But what it is important to understand is how cost accrual actually works with Project
2016.
So when you enter a task or a resource or you set up a resource assignment it’s important
to understand the consequences of the accrual method that applies in that case.
Now at the moment as you can see I have no costs incurred at all on this project.
In fact there are no costs associated with the project.
I haven’t assigned any fixed costs or resources to it.
So the first thing I’m going to do is to assign a fixed cost for Task A. And the fixed
cost for Task A is going to be $100.
And the accrual method for that is going to be at the start.
Now notice that the actual is still zero.
Now for Task B I’m also going to have a fixed cost.
That’s also going to $100 and that is going to be prorated.
Now what I’m going to do is to go to the Project tab and set the status date on this
project to today.
So that’s Monday, July 4th.
And I’m going to click on Update Project and update the project to say that the work
is complete up to today according to schedule for the entire project and then I’m going
to click on OK.
Now what you’ll see is that Task A is now in effect 20% complete.
So one-fifth of the work is done.
But the actual cost there of course is the full amount of the fixed cost, which is accrued
at the start of Task A. So the actual cost for Task A is currently $100.
The remaining cost is $0.
And basically what happens with a cost that is accrued at the start is that as soon as
the task has an actual start date, so as soon as you record any progress which causes an
actual start date to be recorded then that cost is accrued, all of that cost is accrued.
For Task B, however, where the fixed cost is prorated we’ve done one-tenth of the
task, one-tenth of the duration of the task is complete and so we have incurred one-tenth
of the fixed cost.
So the actual is $10 and the remaining is $90.
So now what I’m going to do is to go through each of the five tasks and assign one of the
resources to each of the tasks.
So Resource 1 to Task A, Resource 2 to Task B and so on.
So just join me again when I’ve done that.
So having made those assignments you can see the effects on the cost.
For Task A, for example, of course we’ve incurred the whole of the fixed cost for Task
A which was accrued at the start.
But now we also have eight hours work at $50 an hour for Resource 1 whose cost is accrued
prorate throughout the project.
For Task B we’ve accrued just one-tenth of the fixed cost.
So that’s $10.
But we’ve had eighty hours work from Resource 2 and Resource 2’s eighty hours at $60 an
hour, that’s $4,800, etcetera.
Task D we have an actual cost of $100.
Bear in mind that the Resource 4 that’s assigned there doesn’t have an hourly rate.
Only has a cost per use and that is accrued at the start, whereas for Task E, Resource
5 also doesn’t have an hourly rate.
It has a cost per use.
But this is accrued at the end.
So there is no actual cost so far.
So it’s important to understand how this accrual works.
I’ll just make one other change.
I have one other point to make here if you like.
If I go back to the Resource Sheet again and change Resource 2 so that the cost is accrued
at the start, to the sheet, and you will see the cost that’s already accrued for Task
B is a pretty large amount.
So we’re talking about 80 hours at $60 an hour.
That’s $4,800.
And then we have $10, which is one-tenth of the fixed task cost.
The fixed task cost of course accrued prorate.
So basically that’s how accrual works.
But let me just finish this section by referring you to Project Options, the Schedule page.
Right at the bottom there there is an option, the Default Fixed Cost Accrual method.
The default Default is prorated.
You can of course change it to one of those others.
And just above that another setting that you may not be familiar with, actual costs are
always calculated by project.
Some people prefer to do all of the work on actual costs themselves.
So they uncheck this box and then they calculate actual costs rather than let Project use the
sort of methods you’ve seen in this section to calculate actual costs as you go along.
So that’s an option.
I cannot ever remember unchecking myself but it may suit you in some situations to do so.
That’s it on accrual.
In the next section we’re going to look at Budget Costs.
So please join me for that.