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Lesson 2: Configuring Two-Tier Change Management

If you need to track changes to the project revenue budget, commitments, and budgeted costs, you can use the functionality of change orders. With this functionality, you can control the profitability of every change initiated by a customer. This lesson explains how to set up two-tier change management to group multiple change requests into a single change order.

Two-Tier Change Management: General Information

Acumatica ERP provides a two-tier change management capability for projects, which is used to create change requests in addition to change orders. Change requests are detailed breakdowns of potential changes to the project budget and commitments, such as additions, deletions, or edits to the existing cost or revenue budget. In the first tier, you create change requests. The second tier involves you grouping multiple change requests into a single change order to be approved. With the two-tier change management, you can also set up price markups that can be applied to an individual line of a change request and to the total amount of the document to charge the customer for the changes.

Learning Objectives

In this lesson, you will learn how to do the following:

Configure a change order class that supports the two-tier change management
Configure default markups
Create a change request to update the project budget
Create a change order based on the change request
Process a change request with a cost change order
Process a change request with a revenue change order
Close a change request

Applicable Scenarios

You turn on the change order workflow for a project to be able to track changes to the budgeted and committed values of the project. You create change requests if the workflow of your project supposes a lot of small changes to the budget but you do not want to create a lot of change orders, for example, because of the approval required for each change order. With change requests, you can collect a lot of small changes into a single or several change orders. You can also need to create change requests for a project if you want to charge the customer for the changes made to the project budget.

Configuration of Change Order Classes

A change order class defines which project data—the revenue budget, the cost budget, or commitments—can be adjusted with a change order of this class. The two-tier change management is controlled at the level of a change order class. If the Two-Tier Change Management check box is selected for a particular class on the Change Order Classes (PM203000) form, change orders of the selected class support two-tier change management and can include change requests. Lesson 2: Configuring Two-Tier Change Management | 16

If a change order class has the Revenue Budget check box cleared and the Cost Budget and Commitments check box selected on the Change Order Classes form, change orders of this class are classified as cost change orders for change requests. If a change order class has the Revenue Budget, Cost Budget, and Commitments check box selected on the Change Order Classes form, change orders of this class are treated as revenue change orders.

Creation of Change Requests

To make it possible for users to track changes for a particular project by using change requests along with change orders, you select the Change Order Workflow check box on the Summary tab of the Projects (PM301000) form for the project. Then you can create a change request for the project on the Projects form by clicking Create Change Request on the form toolbar. The system creates a change request with the On Hold status and the project selected and opens it on the Change Requests (PM308500) form.

         In addition to creating a change request from the Projects form for the selected project, you can create
         a new change request directly on the Change Requests form and select the needed project.

In a change request with the On Hold status, on the Estimation tab of the Change Requests form, you add rows with potential changes that will aﬀect the revenue budget and the cost budget of the selected project when the related change orders are released. For each estimation line, you specify the following settings:

The Project Task, Account Group, and Inventory ID that represent the cost budget line to be updated or created if this combination of settings does not exist in the project budget
The Revenue Task and Revenue Account Group that represent the revenue budget line to be updated or created if this combination of settings does not exist in the project budget
The Quantity, Unit Cost, Unit Price, and UOM that estimate the change to the budget
Optionally, the Create Commitment and Vendor if you want to create a commitment line based on this estimation line The amount in the Ext. Cost column estimates the change of the cost and is calculated as follows: Ext. Cost = Quantity * Unit Cost The amount in the Line Amount column estimates the change of the revenue and is calculated as follows: Line Amount = Ext. Price + Ext. Price * Line Markup (%) / 100, where Ext. Price = Quantity * Unit Price Unit Price = Unit Cost + Unit Cost * Price Markup (%) / 100 Once you have saved a change request with the Open status, the Quantity and Ext. Cost values of each estimation line increase the Potential CO Quantity and Potential CO Amount of the corresponding cost budget line of the project on the Projects form. The Quantity and Line Amount values of each estimation line increase the Potential CO Quantity and Potential CO Amount of the corresponding revenue budget line of the project.

Adding of a Change Request to a Change Order

On the Change Requests (PM308500) form, you can create a change order for the selected change request by clicking the Create Change Order button on the form toolbar. On the Change Orders (PM308000) form, you can also add one or several change requests to the selected change order by clicking Add Change Requests on the table toolbar of the Change Requests tab. Based on each estimation line of the change request added to a change order and on the selected change order class, the system creates the following lines for the change order on the Change Orders form:

A cost budget line on the Cost Budget tab with Quantity and Amount values equal to the quantity and extended cost of the estimation line Lesson 2: Configuring Two-Tier Change Management | 17
A revenue budget line on the Revenue Budget tab with Quantity and Amount values equal to the quantity and line amount of the estimation line
A commitment line on the Commitments tab with Quantity and Amount values equal to the quantity and extended cost of the estimation line if the estimation line has Create Commitment check box selected on the Change Requests form
A markup revenue budget line on the Revenue Budget tab with the Amount equal to the markup amount of this markup line. The system creates a separate line for the markup amount if the change request has a markup line with the project task and account group on the Markups tab of the Change Requests form but has no estimation line with the same revenue task and revenue account group on the Estimation tab. Otherwise, the markup amount is added to the existing revenue budget line created based on the estimation line. Most commonly, a change request relates to a change order that contains both cost estimation lines and revenue estimation lines. Once you have added the change request to the change order, the change request is assigned the Closed status. However, in some cases, you may need to process and release the cost change order as early as necessary to create commitments and change the project cost budget accordingly, while the revenue change order may require customer approval and needs to be processed separately. If the project cost budget and commitments aﬀected by a change request need to be updated through a separate change order before the revenue part has been approved, for this change request, you process a cost change order and a revenue change order. A cost change order is a change order that contains only the cost and commitment parts of the change request based on the settings of the selected change order class. This change order created for a change request is shown in the Cost Change Order Nbr. box in the Summary area of the Change Requests form. A revenue change order is a change order that contains the revenue part of the change request as well as all types of estimation lines—that is, revenue budget lines, cost budget lines, and commitment lines. This change order created for a change request is shown in the Change Order Nbr. box in the Summary area of the Change Requests form. When both the cost part and the revenue part of a change request have been linked to change orders, the system assigns the Closed status to the change request. If the customer has not approved the revenue part of the change request, you do not need to create a revenue change order and can manually close the change request for which the cost change order has been created. To do this, you click Close on the form toolbar of the Change Requests form to assign the change request the Closed status.
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       You can also cancel a change request by clicking Cancel on the form toolbar of the Change Requests
       form to indicate that the changes will not be processed further. This will assign the change request
       the Canceled status and decrease the potential CO values in the project budget.
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For information on further processing of change orders, see Single-Tier Change Management: General Information.

Workflow of Processing a Change Request

The following diagram illustrates the workflow of processing a change request. Lesson 2: Configuring Two-Tier Change Management | 18

Two-Tier Change Management: Configuration of Markups

You can configure markups to charge the customer with each created change request. The following types of markup can be applied to a change request on the Change Requests (PM308500) form:

Line-level markups: These markups apply to an individual estimation line on the Estimation tab and aﬀects the Line Amount value. This type includes the Price Markup (%) and Line Markup (%).
Document-level markups: These markups apply to the total line amount of the change request on the Markups tab. You can override all markups and delete document-level markups at the change request level. Lesson 2: Configuring Two-Tier Change Management | 19

Line-Level Markups A price markup is an item-specific markup. When you select an inventory item in an estimation line on the Estimation tab of the Change Requests (PM308500) form, the markup percent specified for the item is retrieved as the Price Markup (%) value. You can specify the price markup for the item on the Price/Cost tab of the Stock Items (IN202500) form or on the Price/Cost tab of the Non-Stock Items (IN202000) form. If no price markup is specified for the item, the system uses the default price markup specified in the Default Price Markup (%) box (Markup section) on the General tab of the Projects Preferences (PM101000) form. If no default price markup is specified in the project accounting preferences, the price markup of the estimation line is zero. A line markup is defined at the account group level. For an account group of the Expense type, you specify the default line markup percentage in the Default Line Markup (%) box on the Change Request Settings tab of the Account Groups (PM201000) form. When you select an account group in an estimation line on the Estimation tab of the Change Requests form, the system specifies the default markup specified for the account group as the Line Markup (%) value in this line. If no default markup is specified in the account group, the line markup of the estimation line is zero. The line amount of an estimation line considers the line-level markups and is calculated as follows: Unit Price = Unit Price + Unit Price * Price Markup (%) / 100 Ext. Price = Quantity * Unit Price Line Amount = Ext. Price + Ext. Price * Line Markup (%) / 100

Document-Level Markups On the Markups tab of the Change Requests (PM308500) form, for a change request, you can define any number of document-level markups of the following types as well as define no markups:

%: A markup whose amount is calculated as follows: Markup Amount = Line Total * % Markup Value / 100 You can define as many markups of this type as necessary.
Cumulative (%): A markup whose amount is calculated as follows: Markup Amount = (all the previously applied % markups) * Cumulative (%) Value / 100 A markup of this type requires at least one markup of the % type.
Flat Fee: A markup whose amount is specified manually to be added to the total markup. You can define as many markups of this type as necessary. For each applicable markup shown on the Markups tab, the Amount Subject to Markup is calculated based on the Line Amount values in the estimation lines of the change request. A document-level markup applies to the total line amount of a change request if all the project budget key attributes in this line—project task, account group, and optionally, inventory item and cost code—are defined for the markup on the Markups tab of the Change Requests form.
A change request inherits the default document-level markup specified for the project on the Defaults tab (Document Markups table) of the Projects (PM301000) form. The project inherits the default document markups from the General tab (Markup section) of the Projects Preferences (PM101000) form. You can override any of the default markups. Lesson 2: Configuring Two-Tier Change Management | 20

Two-Tier Change Management: Implementation Activity

The following implementation activity will walk you through the process of configuring two-tier change management for projects.

Story

Suppose that you, as the system administrator, need to configure two-tier change management so that the change requests to projects can be processed in the system. Also, you need to configure the following price markups to be applied to the new projects:

A default price markup of 25% to be applied to each individual change made with a change request
A markup of 8% of the total costs to be applied to an entire change request
A markup of 4% of overhead to be applied to an entire change request
A markup of 5% of all the previously charged markups to be applied to an entire change request
A flat fee of $100 per change request You also need to configure an additional 10% markup to be automatically applied to the change request lines that relate to labor. Acting as the system administrator, you will perform these tasks.

Configuration Overview

In the U100 dataset, the following tasks have been performed to support this activity:

On the Enable/Disable Features (CS100000) form, the Construction and Change Orders features have been enabled.
On the Account Groups (PM201000) form, the LABOR, SUBCON, and REVENUE account group has been configured.

Process Overview

You will configure the default price markups on the Projects Preferences (PM101000) form and the Account Groups (PM201000) form. You will also create change order classes that support two-tier change management on the Change Order Classes (PM203000) form and specify the change order class to be used by default on the Projects Preferences form.

System Preparation

To sign in to the system and prepare to perform the instructions of the activity, do the following:

Launch the Acumatica ERP website, and sign in to a company with the U100 dataset preloaded. You should sign in as a system administrator by using the gibbs username and the 123 password.
Open the Enable/Disable Features (CS100000) form, and on the form toolbar, click Modify.
In the Projects group of features, select the Change Requests check box.
On the form toolbar, click Enable.

Step 1: Specifying the Default Markups To specify the default markups that the system will assign to change requests, on the Projects Preferences (PM101000) form, do the following: Lesson 2: Configuring Two-Tier Change Management | 21

On the General tab (General Settings section), select the Internal Cost Commitment Tracking check box, and save your changes to the project accounting preferences. This exposes the committed values of the budget.
On the General tab, in the Markups section, enter 25 in the Default Price Markup (%) box.

In the Document Markups table, add rows with the following settings.

    Type                        Description                                            Value
    %                           Profit markup on cost                                  8

    %                           Overhead cost markup                                   4

    Cumulative (%)              Default cumulative %                                   5

    Flat Fee                    Additional charges                                     100

   The system will apply these document-level markups to the total amount of change requests by default.
   Also, these markups will be specified by default in the newly created projects.

Save your changes.

Step 2: Creating a Change Order Class for Cost Change Orders To create a change order class for the change orders that aﬀect only the project cost budget, do the following:

On the Change Order Classes (PM203000) form, add a new record.
In the Summary area, specify the following settings:

Class ID: INTERNAL
Description: Cost change orders
Two-Tier Change Management: Selected Because you have selected the Two-Tier Change Management check box, the Cost Budget and Commitments check boxes are selected by default and cannot be cleared.
Revenue Budget: Cleared

Save the change order class.

Step 3: Creating a Change Order Class for Revenue Change Orders To create a change order class for the change orders that aﬀect the project revenue budget, while you are still viewing the Change Order Classes (PM203000) form, do the following:

Click Add New Record on the form toolbar, and specify the following settings in the Summary area:

Class ID: EXTERNAL
Description: Cost and revenue change orders
Two-Tier Change Management: Selected
Cost Budget: Selected
Revenue Budget: Selected
Commitments: Selected

Save the change order class.
On the General tab of the Projects Preferences (PM101000) form, in the Default Change Order Class box, select EXTERNAL, and then save your changes. Lesson 2: Configuring Two-Tier Change Management | 22
On the Account Groups (PM201000) form, open the LABOR account group.
In the Summary area, specify REVENUE in the Default Revenue Account Group box.
In the Default Line Markup (%) box on the Change Request Settings tab, enter 10.
Save your changes.
Open the SUBCON account group.
In the Summary area, specify REVENUE in the Default Revenue Account Group box. 10.Save your changes.
You have configured two-tier change management for projects and specified default project markups.

Two-Tier Change Management: To Configure Project Markups

The following implementation activity will walk you through the process of configuring project markups in an existing project.

Story

Suppose that you, as the project manager need to configure the following price markups to be applied to change requests created for the ITALIAN project:

A markup of 9% of the total costs to be applied to an entire change request
A markup of 6% of overhead to be applied to an entire change request
A markup of 7% of all the previously charged markups to be applied to an entire change request
A flat fee of $1250 per change request Also, you need to associate these markups with the particular project task, account group, and cost code to track them in the revenue budget of the project. Acting as the project manager, you will perform these tasks.

Configuration Overview

In the U100 dataset, the following tasks have been performed to support this activity:

On the Enable/Disable Features (CS100000) form, the Construction and Change Orders features have been enabled.
On the Account Groups (PM201000) form, the REVENUE account group has been configured.
On the Projects (PM301000) form, the ITALIAN project has been configured; the project tasks have been created, along with the related cost and revenue budget.

Process Overview

You will create document markups of diﬀerent types for the project on the Defaults tab of the Projects (PM301000) form. To each of the created markups, you will assign the project task, account group, and cost code, with which the markup amounts should be associated.

System Preparation

Sign in to the system as a project manager by using the ewatson username and 123 password. Lesson 2: Configuring Two-Tier Change Management | 23

Step: Updating Project-Specific Markups Specify the markups for the ITALIAN project by doing the following:

On the Projects (PM301000) form, open the ITALIAN project.

In the Document Markups table on the Defaults tab, add lines with the following settings.

    Type              Description       Value              Project Task    Account Group       Cost Code

    %                 Profit            9.00               02              REVENUE             02-000
                      markup on
                      cost

    %                 Over-             6.00               02              REVENUE             02-000
                      head cost
                      markup

    Cumulative (%)    Default           7.00               02              REVENUE             02-000
                      Cumulative
                      %

    Flat Fee          Additional        1250               02              REVENUE             02-000
                      charges

Save your changes to the project. Lesson 3: Tracking Cost Changes to Projects | 24