Results Analysis Method 7, POC Method Based On Project Progress Value Determination

Introduction

This blog is the last in the trilogy of the more advanced Results Analysis Techniques, where the POC (percentage of completion) is based on project progress.

In my previous blogs I had detailed, RA Valuation Method 14, how Cost Of Sales is determined based on the cost mapping from GL accounts to the Sales Order line item using the DIP (Dynamic Insertion Profile) and RA Valuation Method 15, Derive Revenue from Resource-Related Billing and Simulation of Dynamic Items

You can refer to the detail around RA Valuation Method 14 “derive cost of sales from resource related billing of dynamic items” here

https://blogs.sap.com/2020/10/27/results-analysis-using-method-14-derive-cost-of-sales-from-resource-related-billing-of-dynamic-items/

To recap RA Valuation Method 15 “derive revenue from resource-related billing and simulation of dynamic items” you can look at the link below

https://blogs.sap.com/2020/11/13/how-to-configure-and-setup-results-analysis-valuation-method-15-derive-revenue-from-resource-related-billing-and-simulation-of-dynamic-items/

In Results Analysis Method 7, Cost of Sales is calculated and Revenue is adjusted – revenue in excess of billing are calculated as a % (of actual/plan progress version) of planned costs and revenues. This method is used in tandem with PS where the progress calculation is setup in PS and recorded on individual WBS elements.

Details

For SAP customers in the E&P business or where a significant portion of the business comes from executing contracts, large volumes and where accounting policy dictates that cost and revenue need to be matched results analysis method 7 can be used.

When the RA key for this method is setup some additional elements need to be included in the setup, e.g. progress version.

Progress version is controlling area specific and defines the control data for POC and earned values. For progress to be recorded and checked against planned progress. It is mandatory to maintain progress version along with method of calculation. The system records progress analysis data in the progress version.

Statistical Key Figures (SKF) for POC results analysis needs to be created if it not created and assigned to the value category ‘030’

Progress version setup typically done by the PS team.

SKF setup

Mapping SKF to Value Categories and GL account determination

A Typical requirement that can be addressed by the RA Valuation Method 7 is detailed below by way of an elementary example.

We have a project for two months with planned revenue of 80,000 Euro and Planned Costs of 44,000 Euro. There are two WBS elements, one for Design which is to be finished in the first month and the other for Build & Finish which is planned to start the first month and is planned to be 35% complete at
the end of the first month and completed by the end of second month .

First month

At the end of the first month planned Vs actual costs

At the end of the first month progress – design activity

At the end of the first month progress – build and finish activity

At the end of the first month – RA calculation display

POC for both design and build & finish is 40.9 %

Cost of sale  = POC % X Planned cost ; 40.9% X 44,000 = 17,999.96

Revenue affecting net income  = POC% X Planned revenue ; 40.9% X 80,000 = 32,727.20

At the end of the first month RA FI posting

Net cost recognized  = cost of sales from RA  calculation – actual costs incurred for the month ; 17,999.96 – 7,000 = 10,999.96

The  second FI entry captures the profit which is settled to an Internal Order since CO-PA is not active.

Second Month

At the end of the second month planned Vs actual

At the end of the second month progress – build and finish activity

At the end of the second month – RA calculation display

POC for both design and build & finish is 81.82 %

Cost of sale  = POC % X Planned cost ; 81.82 % X 44,000 = 35,999.92

Revenue affecting net income  = POC% X Planned revenue ; 81.2 % X 80,000 = 65,454.40

At the end of the second month RA FI posting

Conclusion

The RA method 7 which is used to calculate revenue based on Project Progress where POC is the Project Progress. There are multiple ways of calculating the project progress, I have considered the manual method. In any case, how the project progress is setup is not the focus of the blog. What really is key,is to setup the config to integrate the project progress calculation with the Results Analysis functionality. This requires the FICO consultant to work closely with the PS team.

This blog should get you a jump start and will hopefully help you to quickly setup and test this solution when you need to address the requirement to matching costs and revenues for typical E& P customers.

In  case you do have  questions, I would be more than happy to answer them. Please post them here in Q&A.