5301.3 Muli Method of Recognising Profit (Earned Value)

1. The Project Industry is about:

   1. Managing large value contracts over long periods of time.

   2. Managing a contract where the value of unapproved variations is often larger than the gross margin on the project.

   3. Having the value of progress claims determined by contractual conditions that may make the claim value much less (or greater) than the value of work completed.

2. Muli manages this volatile accounting environment by:-

   1. Having both the projected income and expense forecast to completion using the project review process.
   2. Assessing any unapproved variations and assuming a conservative settlement.

   3. Using this to calculate a Forecast Project Gross Contribution (= Forecast Contract income – Final Forecast cost)
      i.e. The predicted gross Contribution at completion.

   4. Then calculating the % Complete = Approved to date / Final Forecast cost
   5. And Contribution Earned = Project Gross margin, % complete
   6. So Value of work completed = Project approved costs (Including contribution Earned)
   7. And finally Project Prepayment = Received – Value of work completed

      Project prepayment is Muli's balance sheet item similar to 'Work in progress' .

      The above process focuses on the contract expected outcome.

      Note: Muli use the word Contribution (not Profit) as a projects make a contribution to overheads and a profit may emerge only after overheads are paid.

Further information on Earned Value is available at:

• Earned Value Project Management
• Earned Value General Ledger