Project Partners Blog

By Ravi Shankar, PgMP, PMP, PMI-RMP and PMI-SP

Oracle E-Business Suite (EBS) Projects Applications Release 12 provides rich functionality to support multi currency processing capabilities in the areas of accruing revenue and generating invoices.  Revenue is always processed in the project functional currency, as distinct from the project currency and project funding currency.  Revenue amounts derived in the billing transaction currency (invoice processing currency) are converted to project functional, funding and project currency during the revenue generation process.  The Release 12 EBS system tracks and posts the revenue, unbilled receivables and unearned revenue in both the functional and billing transaction currency to the general ledger, thereby giving full visibility, both at the project level and in the general ledger, of the details of revenue in the different currency options. Read the rest of this entry »

Large project based organizations working in a multi-national, multi-currency environment struggle with how best to deal with currency issues when managing projects and reporting project and organization financial performance.

When dealing with currencies in a project environment, the following types of currencies come into play:

1. Functional Currency: The currency in which the financial books are maintained
2. Contract Currency: The currency in which the contract for the project is written
3. Project Currency: The Currency in which the project is managed. This may be different from the functional currency and very often may even be the contract currency.
4. Cost Currency: The currencies in which cost is incurred.
5. Revenue Currency: The currency in which revenue is accrued, this very often is the functional currency in which the project is setup.
6. Invoice Currency: The currency in which the project is to be invoiced.
7. Reporting Currency: This is the one currency in which all financial information across all projects is consolidated for management reporting.

Project based organizations run the gamut on the maturity scale in dealing with currencies. Some organizations are taking the first steps in expanding beyond current national boundaries and the issues involved keep them within their current currency boundary and they tend to execute solely in their primary currency only. On the other end of the scale are experienced multi-nationals that execute projects requiring serious hedging of currencies in order to maintain their margins.

Today we will address organizations from the lower end of the scale to those somewhere in the middle. In order to execute and manage effectively, the following currency setups are suggested for projects:

1. Project Currency = Functional Currency: This removes 1 level of complexity from the project manager’s plate and allows them to manage the project without the additional burden of currency management.
2. The Contract and Invoice Currencies should be as specified by the client. This is something that is typically negotiable with the client to determine who incurs the currency risk, the project organization or the project client.
3. The Budget Currency should be the project/functional currency and all budget v/s actual variances should also be managed in the project currency. This makes the budgeting process easier.
4. Costs may be accrued in any currency and revenue should be incurred in the functional currency to keep things nice and simple.

In light of this setup, let’s tackle reporting at two levels: single project reporting and organizational reporting.

Single Project Reporting
Reporting for a project is primarily for project management purposes and hence all financial reporting for the project manager should be provided in the project/functional currency. As budgets and forecasts are also defined in the project/functional currency, it makes all variance reporting easy.

Organization Reporting
Reporting for project organizations is typically accomplished in the following currencies:

1. Functional Currency: This works well for organizations (and rollups) that are within a currency boundary.

2. Global Reporting Currency: This is a currency in which financial information is consolidated across currency boundaries for management reporting. This currency is typically set to the currency in which the organization maintains it’s primary or management offices.

Setup and Maintenance of Global Reporting Currency
1. As mentioned above, the functional currency of the organizations main office location should be setup as the global reporting currency for ease of management reporting.

2. Exchange rates for converting projects from other currencies to the Global Reporting currency should ideally be setup with

a. Conversion rates to the global reporting conversion should be setup as fixed rates for any given year. This allows management and project managers to measure the performance of the project without including variances due to currency fluctuations.

b. Conversion rates will also be needed for future months/years in order to convert budget and forecast amounts for projects. These future amounts should be refreshed yearly based on the latest rates at the end of a given fiscal year. This may require budget/forecast amounts to be reconverted to use the new rates.

Any variations from the management reporting numbers so derived will differ from the financial numbers from the official books due to exchange rate variances.

Following this simplified approach allows any project organization to expand into international arena while protecting their project managers and leaving the currency issues to experts in the finance organization.

That’s it for now and remember:

There is no better way to manage a business than to Manage by Project.

PS: I welcome all comments / trackbacks / pingbacks / queries to my nascent venture here. I will try and respond to your comments, etc in future entries.