capitalizing complex capital projects effortlessly with
TRANSCRIPT
Session ID:
Prepared by:
Remember to complete your evaluation for this session within the app!
11189
Capitalizing Complex Capital Projects Effortlessly with Oracle Project Portfolio Management Cloud
April 10, 2019
Sumit Wasuja
Vijay Dhanapal
Deloitte Consulting LLP
Presenter
Sumit is an Oracle Cloud and JDE functional Consultant with over 11 years of
experiencing designing, implementing and supporting financial processes.
• Industries: Oil & Gas, Healthcare, Consumer, Technology, Healthcare
• Processes: Record to Report, Procure to Pay, Order to Cash, Project Accounting, &
Fixed assets
• Oracle Financials Cloud Certified Implementation Specialist
Photo
Sumit Wasuja
Manager
Deloitte Consulting LLP
San Francisco
Presenter
Vijay is an Oracle Cloud and EBS Financials & PPM Functional Consultant with over
14 years of experience in designing solutions for customer requirements in Account to
Report, Order to Cash, Procure to Pay, Acquire to Retire and Project to Close
processes
• Chartered Accountant from ICAI
• PMP® Certified
• Oracle PPM/Financials/SCM Cloud Certified Implementation Specialist
• Presented Oracle Fusion Financials & PPM Capabilities in Oracle Open Word 2014
• Presented Oracle Financials Consolidated Invoicing solution in Collaborate16
• Presented Oracle Cloud PPM Suite Shared Service Cost Allocation solution in
Collaborate17
Photo
Vijay Dhanapal
Manager
Deloitte Consulting LLP
Houston
Agenda
• Executive summary
• Illustrative case study
• Business challenges
• AFE Best Practices
• Functional Solution
• Solution Limitations
• Conclusion
• Q&A
Executive Summary
• Executing mega capital project with billions of dollars in spend typically requires Authorization for Expenditures (AFEs) to be structured as delivery teams.
• While this approach has some advantages from overall project delivery/execution standpoint, it can cause further complexities such as:– The project structure does not align with the resulting asset to be capitalized such as
buildings, plants etc.
– The resulting assets will be placed in service at different times requiring partial capitalization of the AFEs
– As the projects are structured as functions, all the projects will continue to receive costs and stay open for the duration of the project.
• Session objectives:– Discuss best practices for setting up AFE cost code structure
– Discuss best practices to streamline project close and asset capitalization
– Discuss various project cost allocation strategies and their implications
10
Power Plant
(Asset)
CONSTRUCTION
Cons. Direct
General Services3% of total direct costs AFE budget
ENGINEERINGEngineering Allocation
Area A is 9% of total ENG AFE
Budget
OWNERS COST
OWN Construction
10% of the constructions
16% of Infra AFE Budget
OWN Infra36% of Infra AFE
Budget
OWN Shared7% of total direct costs AFE budget
OWN EngineeringInherits 5% ENG
allocation
An illustrative case study
Business challenges
• Project/AFE structure not aligned to Fixed Assets
• AFEs open for a long period of time
• Use of spreadsheets to track and estimate asset costs
• Accruals/late invoicing require changes to asset cost and depreciation
AFE WBS structure – best practices
Level 1
Task levels
AFE levels
Effective coding structure( Classic triangle)
Approach should be to have an AFE refer discrete scope of fork for a particular period (i.e. Asset class/ Ownership/time)
AFE levels
Task levels
Ineffective coding structure(Diamond shape)
Contracting set of deliverables
AFEs setup by discipline
without defined deliverables
(procurement, engineering)
Issue: AFEs might need to
stay open for a long time,
causing concern for control
and budget
Lower cost code level
references delivery package
Issue: Difficult to manage
reclass of cost to assets
Functional SolutionOracle Cloud PPM – Capitalizing Complex Project Solution Process Flow
Proj
ect
Ma
nage
rPr
ojec
t Acc
ount
ant
Pro
ject
Cre
ato
rP
roje
ct
Ad
min
istr
ato
r
Bus
ines
s
Proc
ess
Ass
et A
ccou
nta
nt
Create Capital Project
Approve
Capital
Project
Capture
Labor Costs
Define Capitalizable Project Type
Define
Expenditure
Types
Define Rate
Schedules
Define
Project
Templates
Define
Transaction
Sources
Define
Costing
Rules
Capture
Material
Costs
Capture
Usage Costs
Capture
Miscellaneou
s Costs
Import and Process
Capitalizable Costs
Manage Project
DefinitionManage Project Costs
Define Assets Assign Assets
Run Create Periodic
Capital Event Program
Event Processing Method?
Periodic
None
Manual
Generate Asset Lines
Create Capital Events manually
by grouping assets and costs
Place Asset in Service
Is asset Already placed
in service?
New Asset
Existing Asset
Transfer Asset Details
to Fixed Assets
Post Assets/Additions in Fixed Assets
Update Asset Details from Fixed Assets
Functional Solution (Setup)
• Start from the project type and define project templates
• Determine the project organization (hierarchy)
• Setup project types
• Configure capitalization options
– Cost Type: Option to capitalize Raw Cost or Burdened
Cost
– Asset Line Grouping Method: Create asset lines by
grouping cost transactions at different levels such as by
Expenditure Type, Expenditure Category, etc.
– Asset Cost Allocation Method: Actual Units, Current
Cost, Estimated Cost, Spread Evenly and Client
Extension
– Event Processing Method: Periodic, Manual and None
Capitalization Options
Project Type
Project
Functional Solution (Transact)
• Create project and inherit setup values from project templates created for the specific project type
• Define assets and assign them either at the project level or task level
• Capture cost and flag them as capitalizable using transaction controls and other setup options
• Capitalize assets when they are ready to be placed in service
• Create capital events as necessary by grouping eligible assets and costs
• Generate asset lines by grouping costs based on asset line grouping method and allocate costs to assets appropriately using asset cost allocation methods
• Transfer asset/asset line details to Oracle Fixed Assets Cloud and post asset/asset lines/additions
Manage Project Budget
Manage Project
Manage Project Costs
Manage Capital assets
Monitor Project Performance
Solution Limitations
• Additional Design and Development efforts to leverage client extension
• PaaS services are required to build custom solution
• IaaS services are required if the custom logic requires a custom table to
maintain data
Conclusion
• Oracle Cloud PPM Suites offers wide range of functionalities to structure
projects, define the level at which the activities and associated costs can be
capitalized.
• The approach to determine the WBS structure and asset capitalization varies
across industries, size of the project and other factors such as local
regulations.
• However, it is important to decide the capitalization strategy at the time
determining the project organizational hierarchy.
Session ID:
Remember to complete your evaluation for this session within the app!
11189