Project Accruals vs Earned Value
Just looking for other peoples perspectives on when a project accrual can be raised on a project and who should be the person to authorise the accrual.
My view is this...
the accrual can be raised once the exit criteria has been met, for example
1) if the exit criteria is 'delivery of product X' then as soon as "product X has been received and checked the accrual can be raised and EV claimed.
2) if the exit criteria is "acceptance of product X' then once product X has been received, checked, tested and accepted the accrual can be raised and EV claimed (ie the accrual & EV can not be taken just because it has been delivered).
Then I get into the grey area, where what is the subcontractor is paid by milestones. Let's say they are to deliver product X, and it takes them 6 months to design/build it - so their payment milestone is Contract Start +6months. Would to accrue the costs on a monthly basis based on the assumption they are working on product X OR do you wait until product X has met the exit criteria on the milestone payment.
(my view btw...is that you wait for the exit criteria to be met before accruing and claiming EV).
When it comes to responsibility for raising an accrual IMHO the Control Account Manager is responsible for identifying the accrual (afterall they are the ones that should know the status) and the project manager approves the accrual. My question is...would you accept the Finance Department raising accruals without project input?
Quote from jjf_1975 :
"I love it when a plan comes together." - Colonel John "Hannibal" Smith, A-Team
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I certainly agree with you on points 1 & 2 and claiming EV & raising accruals for subcontractor progress (definitely not accruing on a monthly basis).
Ideally you would hope Finance use project input before raising accruals however the Finance staff in the company I'm currently working for, do raise accruals independent of project status / EV. I've found Finance struggle with EV concepts.
The company is in a unusual contractual arrangement (subsidary company working for its parent company) and it operates on an annual budget. So by the end of the FY many hundreds of thousands of dollars are accrued, based on materials ordered before 30th June to show the allocated budget has been consumed.
At the end of the day I resort to educating Finance about EV principles and communicate to them the progress made for that reporting period with an estimation of the actuals that should have been booked to projects.
Have you ever had to accrue labour costs (e.g. contract staff)?
yes I have heard of contract labour being accrued, but only where there is a large number of contractors.
if you have just 1 contractor working then whether you accrue or not is possibly of little consequence. However if you have say 50 contractors then a weeks work may equate to $140k definately worth accruing (ie 50 contractors X 40hrs x $70)
I do with Rob, logically accruals shall fall in line with the SITE PERFORMANCE, but in reality COMMERCIAL / FINANCE departments would try to MANIPULATE the BILL to achieve budgeted targets. This should not happen. It calls us (planners) to take the lead to clear the haze, to finance department.
Cheers & Regards,
Rahul Shamrao Mulik.
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