Chapter 8

Execution
Once a project is released, the execution phase begins. Many of the activities
carried out in an integrated business system like R/3 are initiated from the
project.

They may, however, be executed outside projects. Purchase requisitions

must be submitted to the purchasing department, which then processes
them; sales orders are created and managed by the sales department.

To assign business processes to your project, you must enter an account

assignment to a WBS element or to a network activity. As the project is exe-
cuted, funds assignments arise in the project, in the form of commitments
and actual values.

Actual Values in the Project

As a project is executed, it is likely that more and more variances will arise
between plan and actual values. The reason may vary - the prices of pur-
chased articles may change, a vendor may not deliver on time, resources in
the plant may be overextended.

You must enter this new information in the project and use it as the basis for
subsequent planning work.

Planning updates within project execution are an important tool for identify-
ing trends early.

Confirmations
Confirmations document the state of network activities and activity elements
and can provide information on how you should proceed with the project.

Accurate confirmations are of great importance for realistic and precise pro-
ject planning. Confirmations:

‰update capacity load of the work center

‰record actual costs

‰update data for the network activity (such as remaining duration and
work)

In the confirmation, you enter actual data such as degree of processing, work
center, dates, duration, and forecast values. You can also make confirmations

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in the information system; here you can download confirmation data into
various external systems such as plant data collection systems or MS Project
or Excel.

Collective Confirmations In addition to making individual confirmations, in the Project System you
can also confirm a large number of activities at one time. This process has
been made even easier with a screen each user can define. Now everyone
working on the same project can have a unique layout to confirm the activi-
ties for which he or she is responsible. Each user can determine the column
widths, the sequence of the fields and print out only information he or she
needs. You can define default values, such as a personnel number which are
then automatically written into every activity confirmation.

Figure 8-1: The Collective Confirmation Screen

The confirmed data can be copied into the network. You can cancel any
confirmation.

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Actual Dates
To monitor the progress of your project, you compare your planned dates
with the actual or expected completion dates.

In the WBS, you can either enter actual dates in each WBS element manually Actual Dates in the WBS
or have the system copy them into WBS elements from activity confirma-
tions.

How changes in actual dates are recorded varies, according to how you plan
your dates in the WBS.

‰if you plan top-down or bottom-up, the system copies actual dates from
lower-level WBS elements to higher-level ones

‰otherwise, actual dates are updated in the WBS elements which have a
network assigned to them

Figure 8-2: Overview of Dates in the Gantt Chart

If you have made confirmations and have actual dates for network activities, Actual Dates in Networks
the system uses them and schedules forward to calculate a new finish date. It
then schedules backward using the basic or fixed dates to determine floats.
You can use these floats to see whether your project is on schedule: If the
floats are negative, the project is behind schedule.

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Costs
Actual costs and commitments (funds commitments to meet future needs)
arise because of business transactions in the project and the feeder systems.
The activities for which funds commitments are represented in the Project
System are

‰activity allocations/confirmations

‰material issues

‰deliveries

‰external invoices

‰purchase orders

‰purchase requisitions

‰manual funds reservations

Revenues
Actual revenues are entered in the Project System via the following commer-
cial transactions

‰postings in Financial Accounting

‰invoicing in Sales and Distribution

Payments
Payment transactions with account assignments are recorded in the project.
These include:

‰down payment requests

‰down payments and down payment clearing

‰incoming and outgoing payments

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Orders for the Project

The high degree of integration between the Project System and other R/3
components means that you can create orders for your project. The orders
may be:

‰Internal orders
Internal orders are used at the level of cost accounting and performance
analysis, to allocate costs and activities, for example

‰Maintenance orders
Maintenance orders are used to plan and monitor maintenance tasks

‰Production orders
Production orders are used to manufacture materials

It is often better to create an order for a project than to create a new WBS
element. One advantage of production orders, for example, is that you can
use existing bills of material and routings. Another advantage of orders, in
general, is that you can manage them in the Project System but still include
them in controlling.

The costs planned or posted in orders or networks represent commitments

against the budget of the WBS element to which they are assigned, depend-
ing on the status of the order.

You can settled an order for a project to:

‰the WBS element to which the order is assigned

‰an account assignment object, such as an order or cost center

When you settle an order, the system eliminates internal business volume –
that is, the cost settled become the responsibility of the receiver and are dis-
played there. If you settle an order for a project to, say, a cost center, the
costs settled are displayed in the cost center accounting information system,
not in the Project System.

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Periodic Processing
Periodic valuation of long-term projects is indispensable from both the Con-
trolling and balancing points of view. The Project System supports you in
this. You can use it to carry out the following period-end activities:

‰overhead surcharge calculation

‰interest calculation

‰earned value calculation

‰results analysis

‰settlement

Overhead Surcharges
Overhead surcharges arising from the provision of machines, buildings,
materials, personnel, and so on, can be charged to plan and/or actual costs
using overhead surcharges.

Overhead surcharges can be calculated in the following objects:

‰WBS elements

‰networks

‰network activities

User-Defined Overhead You can use overhead costing sheets, which you define yourself, to calculate
Costing Sheets the applicable overheads. An overhead costing sheet can include the follow-
ing criteria:

‰percentage overhead rates

‰absolute overhead amounts

‰quantity-based surcharge amounts

‰mixed and/or variable portions per surcharge rate

‰single-/multi-level surcharge calculation

‰credit object and cost element

‰allocation cost element

The total, fixed, and variable cost portions of a base cost element can have
different surcharges applied to them.

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You can have the system calculate surcharges without posting them to a Surcharge Simulation
project. This way, you can spot and correct any errors before the surcharges
are actually charged.

You can carry out a surcharge calculation online or in background proc-

essing.

When surcharges are charged to actual costs, costs are credited to the appro- Surcharge Log
priate cost centers or orders. There is no credit in the plan. The system sup-
plies you with statistics and a detailed log on the surcharge charged.

The project interest calculation produces an up-to-the-day balance interest Interest Calculation
calculation. This is based on payment, down payment, and internal activity
documents. The interest is updated in the form or an accounting document.
The interest calculation takes account of value dates in the past, interest rate
changes, and compound interest.

Earned Value Analysis

The earned value calculation supplies the data needed to determine how the
project is progressing and its value at a particular point in time, such as the
period end.

Using a base, such as plan costs, you can use the percentage of completion Values Calculated
(POC) to calculate the earned value. You can either estimate the POC or have
the system calculate it, using a measurement method, such as milestones or
the degree of processing. You can use the calculated values:

‰in results analysis, to calculate balances and reserves

‰in billing

‰in earned value analysis

Results Analysis
Results analysis periodically values the project, in order to determine:

‰the level of work-in-process for financial accounting purposes

‰reserves for missing costs or costs of complaints for financial purposes

‰provisions for impending losses for financial accounting and profitabi-

lity analysis purposes

‰results analysis

‰the cost of sales or a revenue figure for profitability analysis purposes

When you settle, you can pass the data from results analysis on to Financial
Accounting, Profit Center Accounting, and Profitability Analysis.

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Fixed prices between different subprojects within a project can also be taken
into account in a separate version in results analysis. This means that you
can pass on the profitability analysis data for a subproject separately to, for
example, Profit Center Accounting.

Period Comparison of Costs You can use the Project System to transfer the calculated data to the balance
and Revenues sheet. Repeating this periodically leads to balances and reserves being both
formed and cleared. As these are displayed per project, it is possible to con-
duct a concurrent costing and internal valuation of the project as it is exe-
cuted.

You can use results analysis to compare the costs incurred up to a particular
key date with the matching revenues.

Settlement
Settlement Logic On completion of the project, the costs incurred are settled. You can settle
some or all of the actual costs incurred in a project to one or more receivers.
The system automatically generates corresponding credit postings to the
project itself. The debit postings assigned to the project remain in place even
after settlement and are displayed. The costs settled are recorded in the rele-
vant receiver and can be displayed in the information system.

Figure 8-3: Project Settlement

Settlement Receivers In the R/3 System, you can settle project costs to the following receivers:

‰cost center

‰project

‰asset

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‰G/L account

‰business segment

‰order

The settlement rule is the prerequisite for settlement. You enter it in the pro- Settlement Rule
ject or WBS element master data. The settlement rule comprises as many
distribution rules as you want; they define the settlement receiver, distribu-
tion of costs, and settlement type.

Settlement is controlled by the settlement structure; there is a separate set- Settlement Structure and
tlement structure for settlement in Profitability Analysis (PA). You use the PA Settlement Structure
settlement structure or the PA settlement structure to assign settlement cost
elements, or value fields from an operating concern, to cost elements or cost
element groups.

Settlement Support
As in overhead charging, you can carry out a settlement with value update, Settlement Simulation
or merely as a simulation. The simulation enables you to check that the set-
tlement is complete and correct and to make any necessary changes.

You can carry out settlement online or in background processing. The latter
is recommended where you want to settle a large number of senders.

You can generate settlement statistics and a settlement log, showing the Settlement Log
dataflow, the receivers debited, the amounts settled, and an error list.

The following settlement functions are being developed:

‰settlement by amount

‰settlement of line items

‰settlement in the plan

‰settlement by cost element

Billing
Billing is the process by which the goods and services rendered as the result
of sales orders are charged. You can assign a sales order or sales order item
to a project or WBS element. The amounts billed are then recorded as actual
revenues in the relevant WBS element.

Billing is carried out per sales order item as of a single billing date and at a Billing at Fixed Prices
fixed price.

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Partial Billing The total amount to be billed is split between the individual dates in the bill-
ing schedule. You can choose whether to split the dates based on

‰dates entered manually in the billing schedule

‰automatically, from the milestones in the networks, as part of assembly

processing

‰from the network milestones from the project or from the subhierarchy
of the WBS element assigned to the sales order.

When a milestone or date is reached, you invoice the customer with a per-
centage of the total project costs, or with a predefined amount.

The billing schedule can include both the actual billing items and items for
down payment. At the dates so marked in the billing schedule, the system
creates down payment requests which are then recorded in Financial
Accounting

Resource-Related Billing The prices for customer-specific services are frequently not stored as fixed
prices in the sales order, but are billed according to the expenditure actually
incurred. In resource-related billing, the system used the cost information in
a project as the basis for creating items in a billing request. This is in turn
used as the basis for producing billing documents at the appropriate times.

When producing the billing request, the system checks:

‰Pricing
Pricing in the billing request is based on the cost information in the pro-
ject. You can base the quantity structure and pricing on different condi-
tions. Billing at internal prices is one example.

‰Resource items against contract and warranties

You can reduce individual resource items or exclude them from
resource-related billing altogether.

‰Dialog functionality
You can manually change billing request creation at resource item level
– for example, you can delete resource items or reduce the quantity to be
billed.

When a billing request is created or changed, the system writes a document

history:

‰to ensure that no item is billed twice

‰to enable verification of how individual items arose

The cost information from the billing documents is recorded and is later
available for results analysis purposes during project evaluation.

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Subprojects with Fixed Prices

If you want manage projects at the local level, you can achieve this by Subprojects
dividing your project or WBS into various subprojects, each of which has
responsibility for its own budget. Subprojects consist of WBS elements which
are related in the hierarchy.

Fixed prices can be agreed between subprojects for services to be rendered to Fixed Prices in Projects
one by the other. At the planning stage, fixed prices are managed in “fixed
price agreements” and at the execution stage in “fixed price allocations”.

‰Fixed price agreement

You enter the fixed price agreement between two subprojects in the
form of a document. It appears as a plan revenue in the “supplying”
WBS element and as planned costs and a commitment in the “ordering”
WBS element.

‰Fixed price allocation

The fixed price allocation is based on the fixed price agreement. Partial
allocations are possible. The allocation appears as an actual revenue in
the “supplying” WBS element and as actual costs in the “ordering” WBS
element. The commitment is reduced accordingly.

The information system distinguishes between the overall project view and Project Views
the subproject view. The overall view does not recognize the organizational
unit “subproject” and therefore doesn’t recognize the fixed price agreement
either. Fixed price agreements are only evaluated in the subproject view. You
access the subproject view by entering the subproject ID. The subproject
view is supported in:

‰budgeting/availability control

‰profitability analysis

‰commercial project structures

‰cost element reports

How does the Project System support you during the execution phase?

❏ Actual values are entered as they arise and updated directly to the
project.
❏ The system brings together all the project-relevant data you need for
results and earned value analysis purposes
❏ Subprojects with fixed prices allow you to have decentralized budget
responsibilities.
❏ You can perform periodic settlement of your project.

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