The Expense Statement and the Work Breakdown Structure

From the discussion in Chapter 2, we know that the project expenses on the WBS are typically presented from a "deliverables point of view" since the mission of the project manager is to provide the deliverables for not more than the resources committed to the project. Therefore, at the project level, the expense statement may have to be "mapped" to the project WBS. For example, there may be an expense item for travel and subsistence on the expense statement provided by the controller. The travel and subsistence within each WBS element should roll up to the figures in the expense statement for the same things, in this case travel and subsistence. If expenses within the project WBS are coded and identified according to the expense statement, it can be a simple matter for the project administrator to extract and add together these elements to "balance" or "reconcile" the expense statement with the WBS. Figure 5-1 shows a simple case of relating the expense statement to the WBS.

Expense Statement for Bicycte

□Jrecl Expenses

Direct Labor

$60

fVçt^sed Parts

$$5

Tools

520

Indirect Expansés

Labôr Ovértieâd

$40

Gérerai & Administrative

G4A on Pg refisses

Si 5

Total for Project Bicycle

S200

Oirecl Labor (dl] 4- Labor Ovarheafl = WBS 1.1.1.1 + 1.2.1.1 + 1 .2.2. 1 PurehaBetl Parti * Tools « G1A * WÙ5 1.14-1 + 1.5.1.5

Oirecl Labor (dl] 4- Labor Ovarheafl = WBS 1.1.1.1 + 1.2.1.1 + 1 .2.2. 1 PurehaBetl Parti * Tools « G1A * WÙ5 1.14-1 + 1.5.1.5

Figure 5-1: Expense Statement Mapping to the WBS.

Most large companies run their business accounting on an "accrual basis," rather than on a cash basis. The consequence of the accrual method is that expenses can be reserved or recognized before any cash changes hands. Accrual accounting thus leads us to the fact that not all expenses are actually cash; they may only be an accrual that is being "recognized" in a particular period. For example, taxes are typically accrued each month as a recognized expense on the expense statement, but they are paid each April. The cash flow will be seen on the April cash flow statement even though "expenses" have been seen each period on the expense statement. In April, the cash flow will reconcile or balance with the cumulative expense statement insofar as taxes are concerned. Similarly, benefits, like vacation, are accrued as expenses each period. Sometimes the project manager sets up an accrual for a vendor or subcontractor's expenses so that their expenses are "smoothed" into each period. Then, when the vendor invoice is paid, the cumulative expense statement and the cash flow statements will reconcile and balance. Figure 5-2 shows an example of the process described.

Expenses Sooked on Project P&L

Period 1 Period 2

Period 3

Cash Flow Paid to Vendor

At the End of Period 3, Sum of Cash Paid to Vendor = Sum of Expenses Booked

Figure 5-2: Cash Flow and Expense Reconciliation.

Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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