Results Analysis - Completed Contract

Method (CCM)
Results analysis (RA) was developed for companies with long-term projects/orders. Normally projects/
orders are regarded as long-term if it takes more than one year to complete. For controlling requirements
or for balance sheet purposes (refer to accounting principles), such objects need to be valuated at regular
intervals (normally monthly). With large quantities of objects, for mid-year statements, or for the requirements
of Controlling, however, results analysis for objects with shorter life cycles may be required.
For long-term projects the actual postings recorded in FI may not necessarily reflect the current valuation
and progress of the project. If revenue is billed in advance of actual job progress, the profit can be overstated
for a period. Conversely, if progress has been recorded for a project in advance of billing, the profit can be
understated for the period. The purpose behind RA is to analyze the project and calculate revenues and
costs. Any differences between calculated results and the postings previously reported in FI can be posted
automatically.
Result Analysis can generate FI-GL postings for the object (ex.: project) only when this object is settled.
Therefore the condition to generate FI postings for the object is the object settlement. System also updates
CO/PS with a special value types available in the CO/PS info system that has no precondition (such as
settlement) in order to be calculated.

The RA data is stored in the system by period; therefore it is not possible to have RA postings more than
once in the same month. The RA simulation can be done at any time, but only saved data is the basis for
respective postings.
The Result Analysis is performed at the object (ex.: billing WBS-element) level, and not at the customer
level. This is also reflected by the fact that respective FI postings are not generated at customer account level.
Therefore the multi-customer projects are valuated at totals level, disregarding the revenue flows from different
customers unless this is reflected by the project structure.
There are 3 major types of projects that can be classified from the accounting (and business) perspective:
1. CAPEX (can be also CAPEX/OPEX mix)

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Results Analysis - Completed Contract Method (CCM)

2. OPEX
3. Customer Projects (Services, Make to Order, or whatever that involves revenue postings)
The Completed Contract Method (CCM) is probably one of the most simple (and easy to understand for nonaccounting person) methods for Result Analysis.
This method applies to Customer Projects (or Revenue based projects).
With the Completed Contract Method, the costs and revenues affecting the net income are calculated as
follows:
The object does not have the status X
Costs affecting net income = 0
Revenue affecting net income = 0
and therefore
Capitalized Costs (WIP) = Cumulative Actual Costs
Revenue Surplus (Deferred Revenue) = Cumulative Actual Revenues
The object has the status X
Costs Affecting Net Income = Cumulative Actual Costs
Revenue Affecting Net Income = Cumulative Actual Revenue
and
Capitalized Costs (WIP) = 0
Revenue Surplus (Deferred Revenue) = 0
Other words the revenue is recognized only upon completion of the project (complete contract).
Status X is usually the status Final Billing or Technically Completed. But it can be any other status
also. The quantity-based POC method is represented by results analysis method 09 or results analysis type E
with profit indicator C.

Or in the expert view:

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Results Analysis - Completed Contract Method (CCM)

For the CCM method the planned data is not relevant for the RA calculation, but only object's system status
and actual postings.
Below I present the following posting example to illustrate the logic of this method:

1. January 2014: IT equipment (from stock) and Salary cost is posted to Project Expenses 70,000
2. 31/01/2014: RA calculates WIP as 70,000; Unbilled Revenue is not calculated
3. February 2014: Invoicing the customer for 90,000; no expenses for the period
4. 28/02/2014: RA calculates Deferred Revenue (Billed Revenue in Excess of Recognized Revenue) 90,000
5. March 2014: Change the project status to TECO (interpreted as Contract Completed)
6. 31/03/2014: RA posting: Clear WIP, Clear Deferred revenue.

The example of FI posting keys for Result Analysis corresponding to the above:
RA Category

Description

P&L Account

BS Account

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Results Analysis - Completed Contract Method (CCM)

WIPR

POCS

Work in Process

WIP Change

(Requirement to
capitalize)

Account

WIP from which Revenue

can be generated

Revenue surplus

Deferred Revenue

Deferred Revenue

(Deferred revenue)

Change Account

For simplicity purpose I will not distinguish between different WIP categories such as Requirement to
Capitalize WIPR, Optional to Capitalize WIPO, Not to be capitalized WIPP. The RA can calculate these 3 WIP
categories that also can be used.
Thank you for reading!

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