POOL SETUP TIPS - Special Topic PJ-2

Although setting up cost pools and service centers is intimidating to most people, it is reasonably straightforward in Costpoint. You set up a cost pool by defining the following:

• Which account/org combinations form the numerator or COST portion (costs to be allocated)

• Which account/org combination will contain the CREDIT for the costs being allocated from the pool,

• Which account/org combinations form the BASIS or denominator (the costs or hours on which the allocation is based), and

• Which account/org combinations receive the ALLOCATION (debit allocation accounts).

The standard equation used in the allocation of cost pools is provided as follows, specifying the factors involved in the setup process:

Rate or %             =          Account/Orgs containing COSTs to be allocated

                                         Account/Orgs forming the BASIS (that is, Direct Labor)

The pool is CREDITed for the entire amount of the numerator and the debit (or allocation receipt) is made to the account/orgs specified as the DEBIT ALLOCATION account/orgs.

Employee Benefit Pool Example

Rate or %             =          Account/Orgs which contain Employee Benefit costs

                                         Account/Orgs which contain Direct and Indirect Labor

Because you cannot allocate employee benefits to the direct and indirect labor account/ organization combinations directly without distorting the amount of labor dollars in those accounts, you must define a separate set of account/organizations to receive the employee benefit allocation. You can then use these debit allocation accounts in the pool or base of other pools, if it is necessary.

Pool Setup Basics

In order to create a cost pool in Costpoint, certain information is required. Combined, this information defines the pool. The pieces include:

• Allocation Group Number

• Pool Number

• Sequence Number

• Fiscal Year

The allocation group number defines the pool as one that is used in the allocation of amounts to projects or simply as an "informational" pool used only for providing information to management. Allocation Group 1 is the only group whose pools will allocate costs to projects. All other allocation groups (2 and above) are considered informational only - a Statement of Indirect is produced, showing the rate that was calculated, but they are not used to allocate to projects.

Some examples of using allocation groups other than Group 1 include:

• Providing divisional or organizational views of a company-wide pool

• Providing company-wide views of divisional or organizational pools

• Providing a forecasting or "what if" tool for anticipating rate changes that result from changes in the composition of a pool

The pool number defines which number in the "set" or group of pools that a particular pool is. Pool numbers do not have to be sequential. A valid set of pool numbers could be: 1=Fringe Full Time; 2=Overhead; 3=General & Administrative; 4=Fringe Part Time. The pool number does not affect the order in which the pools are processed. 

The sequence number defines the order or sequence in which a pool is allocated within the "set" or Group to which it belongs. It is very important to make sure that your pools are processed in the proper order so that accurate rates are produced.  You can change sequence numbers as often as necessary. You can individually change the sequence number in each pool or use the Set Pool Processing Sequence screen (Projects » Cost and Revenue Processing » Cost Pool Setup). If you change the sequence numbers of your pools, be sure to execute the Build Rate Application Table screen (Projects » Cost and Revenue Processing » Cost Pool Processing & Reporting) before you attempt to recompute the indirect rates. Using the previous example of pool numbers, you could use the sequence numbers to make sense of the allocation scheme:

The fiscal year defines the length of time that a pool is active. If the same pool is active for multiple fiscal years, you must clone it from fiscal year to fiscal year. You can clone pools by using either the Clone feature in the Cost Pools screen (Projects » Cost and Revenue Processing » Cost Pool Setup) or by using the Copy Pools toolkit in the Miscellaneous Toolkits screen (Projects » Cost and Revenue Processing » Utilities).

Once the pool is created, by virtue of the fact that it has an allocation group number, pool number, sequence number, and fiscal year, you can specify other key information about it in the main Cost Pools screen. This information includes the long name of the pool (which will print on various project reports such as the Project Status Reports and the Statement of Indirects), a description of its basis (direct labor, total labor, total cost, labor hours, etc.), a basis type (hours, dollars, or units), and three other pieces of information:

• Service Center - This distinction is made between two types of allocations - allocations that use accounts and orgs as a base and calculate a rate with a Statement of Indirect Expenses generated or allocations that are not based on hours or dollars (they are based on head count or square footage, or some kind of units) and do not calculate a rate or generate a Statement of Indirects. Service Centers are often used to allocate facilities expenses or photocopying expenses. 

• Apply Rates to Projects - This distinction is made for "regular" pools only (not service centers) and describes whether the calculated rate is used to apply costs to projects or whether it is just presented on the Statement of Indirects but not used to apply costs to projects. This feature is specifically designed for intermediate pools that cannot allocate to projects.  Intermediate pools are usually used to reclassify costs for financial statement presentation.

• Unallowable - Select this check box in the Cost Pools screen to designate this pool as unallowable, which means that no revenue calculations will be performed on this pool. Selecting this check box has the same effect as placing a burden cost ceiling of zero on every project and account that is burdened by a particular pool. For example, your company may want to capture entertainment costs in an unallowable pool. This pool would then allocate to the projects in the base to reflect the true cost of the project. However, no revenue would be generated from this burden. Be sure to not enter any burden cost ceilings for pools designated as unallowable because this will only slow some of the processes.

In addition, if you plan on using the Create Cost Transfer Journal Entry screen in Costpoint Cost and Revenue Processing, you should complete the FS Reclass Debit Acct and the FS Reclass Credit Acct fields in the Cost Pools screen (Projects » Cost and Revenue Processing » Cost Pool Setup). When the cost of a project is charged to the performing orgs and the revenue is collected by the owning org, the Cost Transfer Journal entry reallocates the cost from the performing org to the owning org. You can then print income statements by org.  The direct and indirect costs are reallocated during this process, and the program uses the accounts entered in this screen to reallocate by pool.

Once you have provided all of this information for a given pool, you must finish setting up the Cost Account/Orgs, Base Account/Orgs, Allocation Account/Orgs, and Credit Account/Org. Assign these account/org combinations in the subtasks of the Cost Pools screen.  When you finish, you will be ready to proceed with processing your pools. The remaining part of this special topic examines cost accounts, credit accounts, base accounts, and debit allocation accounts.

How To Specify the Pool Cost Accounts

Specify pool cost accounts in the Pool Cost subtask of the Cost Pools screen (Projects » Cost and Revenue Processing » Cost Pool Setup). The system provides a selection list that is composed of all account/org combinations in your Chart of Accounts. If the selection list is greater than 1,000 combinations (rows), you can use Subquery to narrow the range of account/org combinations. Once your selection list is less than 1,000 combinations (rows), it will be displayed in the left-hand table-window. Highlight and select the account/org combinations that will form the cost portion of the pool. As you make selections, those selections will be deleted from the selection list in the left-hand table window. You cannot use an account/org combination as a cost account/org in the same allocation group more than once.  You should consider the cost pool structure when you initialize your chart of accounts, as it will make maintenance of the cost pools more efficient. You can also use the Cost Creation Setup and Create Pool Links screens to set up cost pools. See the screen documentation for more details on how to use these processes.

If the pool that you are creating is a company-wide pool, you must select account combinations that are attached to every lowest level organization number for the company (1.1.1, 1.1.2, 1.1.3, 1.2.1, 1.2.2, and so forth.). You cannot use Organization 1 to denote a company-wide pool, because the system will only use costs POSTED to the account/org combinations that are specified in the Pool Cost subtask to calculate the cost to be allocated. Because cost is not normally posted against Organization 1 but is posted at the lowest level of your organization tree, you should specify that lowest level here. This is also true of accounts. If you are posting cost at Level 3 of your account number, do not specify Level 1 here.

If your company posts costs at both the lowest levels of their organization tree and at summary levels, include all account/org combinations from the levels charges when setting up the pool cost and/or base for a company-wide pool.

If the pool is a divisional pool, the level of the organization selected should correspond with the lowest level of that division (1.1.1).

Remember that, if you want both company-wide and divisional level rates calculated, you can use Allocation Group 1 for the "real" set of rates (the ones you want to apply to jobs and use for billing) and Allocation Group 2 (or whatever number you want) for the "informational" set.

Remember that you can easily set up cost pools using the Cost Creation Setup screen (Projects » Cost and Revenue Processing » Cost Pool Setup) and the Create Pool Links screen (Projects » Cost and Revenue Processing » Cost Pool Setup). You can use wildcards in the Cost Creation Setup screen.  For example, you can set up an indirect labor account (05000-100) in all orgs using a wildcard.  Enter account 05000-100 with an org of 1%, and all 05000-100 l accounts inked to an org beginning with 1 will be set up in the pool.

How To Specify the Pool Base and Allocation Accounts

First, use the Default Accounts subtask of the Cost Pools screen (Projects » Cost and Revenue Processing » Cost Pool Setup) to set up the default accounts for the pool. These include the debit and credit allocation accounts, and the cost and receivable variance accounts. As you select your base accounts, the variance account and allocation columns will automatically be populated with these default accounts. You can change them as needed. You can set up the pool base using the Base Creation Setup screen (Projects » Cost and Revenue Processing » Cost Pool Setup) and Create Pool Links screen (Projects » Cost and Revenue Processing » Cost Pool Setup). In these screens, you can establish wildcards that can be used to set up and maintain your pool bases. See the screen documentation for more information.

Next, go to the Pool Base subtask of the Cost Pools screen. Select the base account/org combinations from the selection list on the left-hand table window and entered in the Account and Organization columns. You can use a base account/org only once in a pool base; however, you can use a base account/org in many different pools as a base account/org.

If you have entered a default Allocation Account, it will be brought in automatically for you for every Base Account selected. You can edit this account. An Allocation Account/Organization combination is required for each Base Account/Organization. You can use the same Allocation Account for more than one Base Account or different Allocation Accounts can be used. An Allocation Account/Organization combination can be an Allocation Account for only one pool and cannot be used as an Allocation Account in more than one pool, although in that one pool, it can and will be used many times.

If you are using hours-based pools, do not put any allocation accounts in the pool base. This will make your rates compute incorrectly.

Example:

In this scenario, you cannot use 0591 as part of the cost portion of the Overhead pool (Fringe on O/H Labor) or the G/A pool (Fringe on G/A Labor) as you should, because it contains the fringe for ALL labor. In order to properly set up the base for the fringe pool, do the following:

This will allow you to use 0592 as part of the cost portion of your Overhead pool and 0593 as part of the cost portion of your G/A pool, which is appropriate. Note that this is only an example; if you use different organization numbers with the same account, you will accomplish the same thing.

Using the same allocation Account for an entire pool may be more appropriate in a G/A pool, which does not get included in any other pool.

The Cost and Receivable Variance Accounts and Orgs are used to post the variance between actual and target rates for the pool. For this posting, you must specify separate accounts for the debit and credit - the Cost Variance and the Receivable Variance. Although Cost and Receivable Variance Account/Org combinations are not required, the account/org combinations specified here should include accounts specifically set up for that purpose if you plan to post variances. As with the Allocation Account, the account specified for a given variance can be the same account for the whole pool, or can be a different account for each Base Account. Variance accounts/org combinations can be used by only one pool, although in that one pool, they can be used many times.

Any accounts that you enter in the Default Accounts subtask of the Cost Pools screen (Projects » Cost and Revenue Processing » Cost Pool Setup) must have the Project Required check box in the Maintain Accounts screen (Accounting » General Ledger » Accounts) cleared. An exception to this occurs with "automatic service centers" when the allocation account is used as a direct cost to the project. In such a case, the allocation account will be a Project Required account. Also remember that the level of organization must be the most detailed level for either the division, if you are setting up a divisional pool, or for the entire company, if you are setting up a company-wide pool.

How to Specify the Credit Account

Specify the credit account in the Default Accounts subtask of the Cost Pools screen (Projects » Cost and Revenue Processing » Cost Pool Setup). This is the credit for the whole pool - there is only one. Each pool must have a unique credit account.  Any other account/org combinations specified here are used only as defaults in the Pool Base screen and are not required.

How to Set Up Target and Provisional Rates

Once you have created each pool and assigned account/org combinations, you should enter target, provisional, and cost of money (if applicable) rates or amount per hour (for hours-based pools) in the Pool Rates subtask of the Cost Pools screen (Projects » Cost and Revenue Processing » Cost Pool Setup). Click the New Line icon on the toolbar and, for each period within the fiscal year shown on the screen, enter the target rates in the Pd Tgt and YTD Tgt columns, provisional rates (used in billing) in the Pd Prov and YTD Prov, and cost-of-money rates in the Pd COM and YTD COM columns. In the Project Settings screen (Projects » Project Setup » Controls), you choose whether to use current period or year-to-date rates when burdening your projects and your billings.   

Target rates are used for estimating the indirect costs on projects at standard rates. Target rates are also used in the calculation of revenue. If you do not have a separate set of rates for estimating purposes, use your provisional rates. Provisional rates are used for billing purposes, and often the target and provisional rates are the same. Cost-of-money rates are used both for revenue calculation and for billing. You can change any of these rates as often as necessary.

How to Set Up Service Centers

You will typically use service centers to allocate costs that have a units-type basis. Examples of typical service centers include:

• Facilities - allocated on square footage

• Copier costs - allocated on a per page basis

• Computer costs - allocated based on where the computers reside, or on who uses them

• Human Resources - allocated on headcount

• Purchasing - allocated on number of POs or PRs

• Telephones - allocated on number of units

Set up a Service Center by creating a pool (with an Allocation Group Number, Pool Number, Sequence Number, and Fiscal Year) and by selecting the Service Center check box on the main Cost Pools screen (Projects » Cost and Revenue Processing » Cost Pool Setup). You must also complete the Pool Cost subtask, just as you would for a "regular" pool, and the Default Accounts subtask must contain a Credit Account/Org combination. Then open the Service Center subtask and make the following choices:

• Is the Calculation of the Base Manual or Automatic?  If you select the Manual option, you must enter the basis for this type of allocation. You must then enter the basis each period in the Maintain Allocation Journal screen (Projects » Cost and Revenue Processing » Cost Pool Processing & Reporting). This also means that you do not have to set up Pool Base Accounts in the Pool Base subtask - they are not used. Additionally, the Base Type of units is available for this type of allocation.

For Manual service centers, you can populate the Maintain Allocation Journal screen using the Import feature. Click the Import button to import allocation rows for a period or a range of periods from the Allocation Basis Journal History table so that you do not have to manually enter them.

If you have a YTD Manual Service Center that is allocated using units as the basis, you should enter information in both the Cur No of Units and YTD No of Units columns in the Maintain Allocation Journal screen (Projects » Cost and Revenue Processing » Cost Pool Processing & Reporting). The Import feature sums the current units quantity from the Allocation Basis Journal History table and inserts this number in both the Cur No of Units and YTD No of Units fields. If you do not enter data in these columns, the number of units imported will be zero.

If you select the Automatic option in the Service Center subtask, Costpoint will derive the base, just as it does for a regular pool, by summarizing the dollars or hours in the account/org combinations specified in the Pool Base subtask. You must set up the Pool Base subtask, and the base type for this allocation can ONLY be Dollars or Hours (rather than Units).

• Is there a standard cost per unit to apply? If you do not select the Apply Standard Cost Per Unit check box, each base account/org combination will receive its proportionate share of the cost to be allocated. This type of allocation ensures that the costs contained in the Service Center are fully allocated.

If you select the Apply Standard Cost Per Unit check box, Costpoint will multiply the Standard Unit Rate that you specify by the amount of base for each base account/org combination to arrive at the allocated amount. In this case, the costs contained in the Service Center cannot be fully allocated. At the end of the fiscal year, the unallocated amount can be journalized to an overhead account or the service center changed be changed to a regular service enter and the unallocated amount can be distributed.

• Which Apply Allocation method should you use? Current Period and Year to Date refer to the adjustment method used for posting the allocated amount. If you select either of these options, Costpoint will calculate the amount to allocate and then subtract from it any amounts previously posted for the Current Period or Year to Date (depending on the selection here) and post the difference. Remember that if you select the Year to Date method, you must always enter a year-to-date base. The year-to-date base is entered in the YTD No of Units column in the Maintain Allocation Journal screen (Projects » Cost and Revenue Processing » Cost Pool Processing & Reporting).  If you are working with a headcount or square footage, this will not be a problem. However, if you are working with units, you must keep track of the year-to-date units used.

If you select the Additive Method option, Costpoint will calculate the amount to post by using the Standard Unit Rate specified and will post that amount with no adjustment for any amounts previously posted. You will generally use this method if you must enter units multiple times during a period.

Once you have completed this subtask, the service center is ready to go. If it is a manual service center, you must enter the base in the Maintain Allocation Journal screen (Projects » Cost and Revenue Processing » Cost Pool Processing & Reporting) before any allocation can be made, but no further setup is required.

As far as processing, "regular" pools and "service center" pools can be easily allocated one after the other within the same Allocation Group in a waterfall pattern.

Troubleshooting Your Pool Setup

To review your pool setup, use the Print Pool Setup screen (Projects » Inquiry and Reporting » Initialization Reports) to print out a report showing your pool information. To test the pool setup, you can complete the burdening process, then print Project Status Reports and review the results.

If your pools are not providing the results you expect, make sure that none of the following rules have been violated:

• Allocation Group Number 1 is the only group whose pools will allocate costs to projects. All other Allocation Groups (2 and above) are considered informational only.

• If the same pool is active for multiple fiscal years, you must clone it from fiscal year to fiscal year.

• You can change a pool sequence number as often as necessary, but you must run the Build Rate Application Table screen (Projects » Cost and Revenue Processing » Cost Pool Processing & Reporting) each time you make a change.

• You must select the Apply Rates to Projects check box in the Cost Pools screen (Projects » Cost and Revenue Processing » Cost Pool Setup) for those pools (not service centers) that apply their calculated rates to projects.

• The same account/org combination cannot appear in both the cost and base of the same pool.

• You cannot use an account/org combination as a cost account/org in the same allocation group more than once.

• When selecting cost accounts, you must select the account/org combinations where the charging occurs to ensure inclusion in the cost pool. 

• You can use a base account/org combination only once in a pool base. However, you can use a base account/org combination in many different pools as a base account/org.

• An allocation account/org combination can only be an allocation account for one pool and cannot be used as an allocation account in more than one pool, although in that one pool, it can be used many times.

• An allocation account/org combination cannot be a cost account or base account in the same pool.

• When allocating from one pool to another (for example, from fringe to overhead), you must include the appropriate Allocation Debit Account/Org combination in the pool cost of the pool receiving the allocation.

• No accounts should exist in the base of an hours-based cost pool unless the account has incurred hours.

• Cost and Receivable Variance Account/Org combinations will be required for all rows containing base accounts if you have a requirement to post variances.

• Only one pool can use a variance account/org combination, although in that one pool, the combination can be used many times.

• Any accounts that you enter in the Defaults Accounts subtask of the Cost Pools screen (Projects » Cost and Revenue Processing » Cost Pool Setup) must have the Project Required check box in the Maintain Accounts screen (Accounting » General Ledger » Accounts) cleared. An exception to this occurs with "automatic service centers" when the allocation account is used as a direct cost to the project. In this case, the allocation account is a Project Required account.

• When setting up a service center, you must select the Service Center check box in the Cost Pools screen (Projects » Cost and Revenue Processing » Cost Pool Setup) and complete the Pool Cost subtask just as you would for a regular pool. You must designate a credit account/org combination in the Default Accounts subtask.

• If the Calculation of Base is Manual in the Service Center subtask, you do not need to complete the Pool Base subtask. You must, however, enter the basis each period in the Maintain Allocation Journal screen (Projects » Cost and Revenue Processing » Cost Pool Processing & Reporting). The basis type can be Dollars, Hours, or Units.

• If the Calculation of Base is Automatic in the Service Centers subtask, you must complete the Pool Base subtask just as you would be for a regular pool. The basis type can be Dollars or Hours.

• To ensure the service center cost is fully allocated, you must not select the Apply Standard Cost Per Unit check box in the Service Center subtask. If you select the check box, the Standard Unit Rate you specify will be used to allocate the costs and the service center may not be fully allocated.