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Forecasting Best Practices: Oracle Project Management
Forecasting Best Practices: Oracle Project Management
OVERVIEW ......................................................................................................................................................... 1
FORECASTING BUSINESS PROCESS ....................................................................................................... 1
FORECASTING METHODOLOGY............................................................................................................ 3
Estimate to Complete (ETC) Methods ........................................................................................................ 3
Remaining Plan ............................................................................................................................................ 3
Plan to Complete ......................................................................................................................................... 3
Earned Value ................................................................................................................................................ 4
Assigning Estimate to Complete (ETC) ...................................................................................................... 4
Resource Class Level Assignment ............................................................................................................ 4
Planning Resource List Level Assignment .............................................................................................. 5
Task Level Resource Assignment ............................................................................................................. 5
Resource Classes .............................................................................................................................................. 5
People ............................................................................................................................................................ 5
Equipment .................................................................................................................................................... 5
Material Items .............................................................................................................................................. 5
Financial Elements ...................................................................................................................................... 5
Progress Methods ............................................................................................................................................ 5
Cost ................................................................................................................................................................ 6
Effort ............................................................................................................................................................. 6
Deliverable .................................................................................................................................................... 6
Work Quantity ............................................................................................................................................. 6
Physical Progress Rollup Options ................................................................................................................. 7
Man-Hours or Effort .................................................................................................................................. 7
Cost ................................................................................................................................................................ 7
Duration ........................................................................................................................................................ 7
Manual ........................................................................................................................................................... 7
Assigning Progress Methods .......................................................................................................................... 7
Revenue Forecasting........................................................................................................................................ 7
RECOMMENDED BUSINESS PRACTICES ............................................................................................. 8
Engineering ..................................................................................................................................................... 10
Deliverables..................................................................................................................................................... 10
Self-Performed Construction without Work Quantity ............................................................................ 11
Construction with Work Quantity .............................................................................................................. 11
Contracted Construction without Work Quantity ................................................................................... 12
Manual Progress ............................................................................................................................................. 12
Revenue Forecasting...................................................................................................................................... 12
Oracle Project Management
OVERVIEW
Oracle Project Management is an effective and comprehensive set of tools used by customers around the
world to manage medium- to large-scale projects. Schedules and budgets can be setup and monitored
during the life of your project, which help you insure your projects are completed on time and on budget.
Forecasting is a key element of the process for tracking and controlling your projects. The forecast
combines actual costs, billings and progress for completed work, plus the budgeted values for the
remaining life of the project to determine if your project will finish as expected. You can configure your
schedules, budgets and forecasts to provide you with the necessary detail to take corrective actions when
necessary.
This paper is intended to help you determine the best way to setup and use Oracle Project Management to
produce an effective project forecast. The recommended setup and practices described here are targeted
for the type of projects managed by engineering and construction management companies, as well as
industries, such as oil and gas, that have a large component of construction and similar forecasting needs.
The practices described are recommendations for using Oracle Project Management, but there are other
methods you may choose. The information in this document was compiled based on available product
features as well as from practical experience of key Oracle customers, consultants and product
development sources.
You will find useful information describing how to setup and use Oracle Project Management in the
standard Oracle User and Implementation Guides.
The forecasting process allows project managers to foresee the financial course (ie, budget and revenue)
of a project with respect to its schedule. After planning a project budget, the project manager must track
actual progress and results against the plan to determine if the project is on track and if costs and
revenues match expected values. When the plan is off-track, the project manager must develop a forecast
that indicates how to get the project budget back on track. It is not uncommon to further analyze the
financial cost forecast into detailed resource unit or cost elements to re-balance the plan. Forecasting is a
critical component of the project management process because it provides guidance to project managers.
Forecasting also provides critical inputs to other key project management processes, such as revenue
accrual accounting.
The purpose of a forecast is to provide some insight into the future of a project for project managers and
project controllers by comparing actual costs and revenues to the expected values. Based on the
difference between planned and actual values, the forecast process allows the managers and controllers to
plan for adjustments to meet the budgeted values. Although forecasting is not an exact science, it can
provide a high degree of empirical evidence.
Table 1.0
Key Forecasting Activities
Remaining Plan
This method determines ETC amounts by calculating the difference between total planned amounts
from the forecast source and to-date actual amounts.
Where,
Budget at Completion is the total of either planned quantities or planned cost amounts
from the ETC source (for example, the total workplan cost), and
Actual Cost is the total of either actual quantities or actual cost amounts up through the
actual amounts through date specified in the forecast generation options (for example,
current, prior, or last closed period).
This method is typically used to calculate ETC amounts for equipment, materials or financial
elements depending upon the type of construction contract or work being managed.
Plan to Complete
This method relies on percent complete and the total planned amounts from the forecast source to
calculate ETC amounts.
Where,
Budget at Completion is the total of either planned quantities or planned cost amounts
from the ETC source (for example, the total workplan cost), and
Where,
Estimate at Completion is an estimate of either the total planned quantity or total
planned cost that is derived from the Actual Cost and Percent Complete, and
By applying this formula to the formula for Earned Value, the formula to calculate ETC
quantity and cost can be restated as follows:
NOTE: If the ETC source is workplan, then Percent Complete is derived from the physical percent complete
for the planning resource per the latest published progress. If the ETC source is financial plan, then the
source of Percent Complete is determined from the financial percent complete for the financial structure.
This method is typically used to calculate ETC amounts for labor and equipment classes of
resources.
Resource Classes
When you setup your project, you select resources to assign to tasks from a resource list. Each resource
on the resource list represents inputs required to complete tasks on a project. When you add resources to
a list, you must associate each resource to a resource class. The resource class determines the nature of the
resource to be used and establishes how the resource is utilized over the task period (ie, the spread curve)
and how the forecast method is applied to the resource assignment.
People
The system tracks assignments belonging to this resource class in hours and cost. You use team
roles to give project-level assignments to people class resources.
Equipment
Resources belonging to this resource class enable you to track cost expenditures and hours related to
the use of equipment.
Material Items
Assignments of this resource class enable you to track usage of materials on tasks.
Financial Elements
Assignments of this resource class enable you to track miscellaneous task expenditures (ie, cost
amounts).
Progress Methods
Since ETC is a re-estimate of costs, hours and quantities of remaining work on the project, it is a function
of the progress on the project and will vary based on the progress for a given period. Physical progress on
a project is an important step in forecasting because it tells us how much work remains on the project by
capturing the physical amount of work accomplished on a project, its tasks or deliverables. Accurate
progress collection is the first step to determine a good estimate to complete.
Progress is collected at the task level through one of the following methods:
Cost
When the physical percent complete derivation method for a task is Cost, Oracle Projects calculates
physical percent complete using planned and actual costs. Oracle uses the following formula to
calculate physical progress
Effort
When the physical percent complete derivation method for a task is Effort, Oracle Projects
calculates physical percent complete using planned and actual hours.
Deliverable
When the physical percent complete derivation method for a task is Deliverable, you manually enter
the physical percent complete for the deliverables associated with the task. Oracle Projects calculates
the physical percent complete for the task based on the relative deliverable weighting. Oracle
Projects first calculates the weighting for each deliverable using the following formula:
Oracle Projects then calculates the physical percent complete for the task using the following
formula:
Physical Percent Complete = Sum (Deliverable Weighting for Each
Deliverable * Physical Percent Complete for Each Deliverable)
Work Quantity
When the physical percent complete derivation method for a task is Work Quantity, Oracle Projects
compares the actual work quantity you enter to the planned work quantity to calculate physical
percent complete. This derivation method only applies to lowest-level tasks.
Oracle Projects calculates physical percent complete for the task using the following formula:
All the above methods may be used simultaneously for a project. Oracle Project Management is flexible to
allow different methods of physical percent completion computation on different tasks and or
deliverables. Progress is entered either collaboratively using the Team Member responsibility or in mass
by using the Mass Update Progress option on the workplan screen.
Man-Hours or Effort
This method uses actual hours on the task or resource assignments to rollup the physical percentage
of completion to the next higher level in the WBS level. You should use this method for labor-
intensive projects.
Cost
This method uses actual cost on the task to rollup the physical percentage of completion to the next
higher level in the WBS level. You use this method to rollup progress on a project that is cost
intensive but not necessarily labor intensive.
Duration
For this method Oracle calculates the weighting of each task based on its schedule duration. Tasks
with greater duration receive a higher weight than tasks with lower duration. The weights
automatically change every time the task duration changes. This rollup method is good for project
managers who use time as a dimension to rollup physical percent completion.
Manual
This method allows the user to independently assign weights to each task. You can default weights
based on duration to make it easier when there are a large number of tasks. This method requires the
sum of all weights to equal 100 percent. This method is also called the “equivalent units” method of
rolling up physical percent completion and is very effective when there is a strong discipline to use
work quantities to calculate progress on a task.
Revenue Forecasting
For most engineering and construction projects, revenue is fixed based on the contract unless there are
contract change orders that alter the total value of the contract. For this reason, revenue forecasting is not
an intensive process and only cost forecasting is covered in the recommended best practices.
The forecasting methods and process you should use depend upon the type of work done in a project, the
scope of work, duration and financial size of the project. Oracle Project Management allows several
different forecasting processes and methods simultaneously in any given project. All of them use some
way to measure physical work completed or Physical Percent Complete (PPC). Oracle Project
Management then calculates the Estimate to Complete (ETC) based on Physical Percent Complete. ETC
calculation depends on the type of resources that are deployed on the project. The forecast is the sum of
Actuals, ETC and any Change Orders.
Figure 1.0 on the next page shows the recommended methods of forecasting in the Engineering and
Construction and the Oil & Gas and Utilities industries based on work type and resource type.
Recommended
method for Work
Effort Deliverable Cost Cost
Physical % Quantity
Complete
Resource Level
Usually Not
ETC Calculation People Earned Value Earned Value Earned Value Earned Value
Applicable
Setups
Hours Hours
Hours Hours
ETC Result Quantities Quantities Cost
Cost Cost
Cost Cost
Hours Hours
Hours Hours
Forecast Quantities Quantities Cost
Cost Cost
Cost Cost
Deliverables
This method is used to measure progress for work that is primarily engineering or professional services
oriented when the work can be tied to completion of specific work deliverables. This method overcomes
the flaws of an effort method because the progress can be tied to the status of the deliverable progress
itself. Deliverables are soft results of a project – like a CAD drawing or an environment report.
Engineering firms usually categorize deliverables into broad categories.
Some deliverables are more resource intensive than others. So it is typical to use weights to roll up the
progress on each of these deliverables to a higher-level task. When you assign more than one deliverable
to a task and use the “Deliverable” option for deriving physical percent complete (PPC), each deliverable
is assigned a weight and the weighted average of the progress of all associated deliverables is used to
derive the PPC for the task.
Some firms collect actual hours and costs at the deliverable level. In such case, the deliverable must be
defined as the lowest task in Oracle Project Management.
Like with engineering work that is not done with measured deliverables, ETC methods for people
resources are usually measured using Earned Value, and equipment and financial elements use Plan to
Complete. However, these should be used only when actuals are collected at the deliverable level.
Manual Progress
When no other progress method is feasible or when the nature of the work cannot reliably be measured,
Manual progress is an option for project managers and controllers. More often the method is used to
create manual overrides when using other methods and not as a primary progress tracking method.
Revenue Forecasting
Cost forecasting is an essential element of revenue recognition for projects that follow the percentage-of-
completion method for revenue calculation and recognition.
Typically, such projects use the following formula to calculate revenue:
Revenue for Current Period = [(Actual Cost * Contract Revenue) / Forecast Cost] – Revenue
as of last period
The approved revenue forecast may often be used to accrue revenue for a period. This includes most
companies in Engineering & Construction, Oil & Gas and Utilities.
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