Lesson 4 of 6
Results analysis and settlement
10 min
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At period-end, a project must answer two questions. For a customer project: how much revenue and margin has been earned so far? That is results analysis (or, in newer designs, event-based revenue recognition). For every project: where do the costs go? That is settlement. Results analysis runs first, because settlement moves its results too.
Results analysis on the customer project
CMC-GLF-240 is a fixed-price contract of USD 600,000 with planned costs of USD 450,000 (illustrative). By the end of period 6, actual costs are USD 180,000 and Great Lakes has been billed USD 150,000 at the first milestone. Results analysis with a cost-based percentage-of-completion method calculates progress as 180,000 ÷ 450,000 = 40%, so earned revenue is 40% × 600,000 = USD 240,000. Revenue billed is only USD 150,000, so results analysis posts USD 90,000 of revenue in excess of billings (accrued revenue) and the project shows a margin of USD 60,000 at 25%, as planned.
| Item (period 6, illustrative) | USD |
|---|---|
| Contract price | 600,000.00 |
| Planned costs | 450,000.00 |
| Actual costs to date | 180,000.00 |
| Percentage of completion (cost-based) | 40% |
| Earned revenue | 240,000.00 |
| Billed revenue | 150,000.00 |
| Revenue in excess of billings (posted by settlement) | 90,000.00 |
| Margin to date | 60,000.00 |
Results analysis for the Great Lakes program at the end of period 6.
Results analysis is configured through a results analysis key on the billing element and a results analysis version, with valuation methods and line IDs that group cost elements. It calculates values in controlling; the postings to the general ledger happen when the project is settled. Run it individually with KKA2 or collectively with KKAJ.
Settlement
Each WBS element that collects costs needs a settlement rule: one or more receivers with percentages or amounts, defaulted from the settlement profile. Toledo's elements settle periodically to their asset under construction; at completion, the AuC is capitalized to final assets. Costs that cannot be capitalized, such as staff training on the new warehouse system, settle to cost center 18101101 Toledo Distribution. The customer project settles its results analysis values to profitability: revenue, cost of sales and the WIP or accrual postings.
- Post all period costsInvoices, confirmations, goods issues posted to the WBS elements
- OverheadOverhead surcharges calculated (CJ45 collective)
- Results analysisCustomer projects only (KKAJ)
- SettlementPeriodic settlement (CJ8G collective, CJ88 individual)
- CheckWBS elements show zero balance after settlement; receivers received the amounts
| Receiver | When | Toledo / Great Lakes example |
|---|---|---|
| Asset under construction | Periodic settlement of capital projects | CMC-TOL-DC.1 and .2, 100% |
| Fixed asset | Final settlement at completion | Building, racking, IT assets |
| Cost center | Non-capitalizable costs | Training share of .3 to 18101101 |
| Profitability segment | Customer projects | Great Lakes revenue, cost of sales, accrual |
Settlement receivers used in this course.
What would you do?
Settlement of the Toledo project in period 6 fails for CMC-TOL-DC.3 with "settlement rule missing". The other elements settled. What should happen?
What goes wrong in testing
| Symptom | Cause | Test |
|---|---|---|
| Customer project shows full revenue, no accrual | Results analysis did not run before settlement | Run the sequence in order and check RA values first |
| RA calculates zero progress | Planned costs missing for the results analysis version | Check the plan version that RA reads before running |
| AuC receives too much | Settlement rule percentages exceed 100% across receivers | Check rules sum to 100% per element and period |
| Settlement posts to wrong account | Settlement cost element or allocation structure wrong | Reconcile settlement documents by G/L account |
Results analysis and settlement defects.
- Settlement period and posting period differ: settling period 6 while the fiscal period is still open for late invoices means late costs stay on the element until period 7.
- Final settlement is run before all invoices for the AuC have arrived, so later invoices land on a completed asset project and need special handling.
- A project type is switched from results analysis to EBRR without a cut-over plan for open projects, so the same contract shows revenue calculated two different ways.
A useful habit: before running any period-end step, write the expected numbers in the test case. For the Great Lakes program, that means 40% progress, USD 240,000 earned revenue, USD 90,000 accrual and USD 60,000 margin. For Toledo, the exact amount each AuC and the cost center should receive. If the system matches the numbers you wrote down beforehand, the test passes for a reason; if you write them afterwards, you are only describing what happened.
- Results analysis calculates earned revenue and WIP; settlement posts them.
- Cost-based POC: progress = actual cost ÷ planned cost; earned revenue = progress × contract price.
- Capital projects settle periodically to AuCs and finally to fixed assets.
- Run overhead, results analysis and settlement in that order.
Check your understanding · not graded
Lesson check
1. Planned costs USD 450,000, actual USD 180,000, price USD 600,000, cost-based POC. What is earned revenue?
2. When do results analysis values reach the general ledger?
3. Where do periodic settlements of a capital WBS element usually go?
4. Which step must run before settlement at period-end?