Capital Project Costs

[Yamahauler]

For those of you that work at or have worked at chemical /petrochemical type plants, was capital project oversite (e.g. time spent managing the project)charged to capital projects? I'm talking about capital improvements; such as, new equipment and processes, etc. I currently work at...let's catagorize it as a production facility...and the project engineers/project managers do not charge their time spent on capital projects to the project. Other places I have worked, always captured any time directly related to a capital improvement. Makes sense to me to lower overhead. I was just curious what ohters experiences were...?

 

[lacajun]

in my past, that time was always charged against the project, on the plant side as well as the engineering firm's side. That would be good accounting practice, in my opinion. Otherwise, you don't have an accurate cost of the project, should it be needed. Does SOX Act cover this topic?

 

[IRstuff]

So, what are they charging to? Bear in mind that a capital project typically comes out of the overhead bucket anyway. One reason for charging differently is if the organization structure is costed differently or there's some other reason to alter what's the most obvious way to charge.

Used to be a big controversy between having functional organizations vs. projectized organizations. Each had its pros and cons. Nonetheless, functional managers are often assigned to overhead, instead of to specific projects. It's just a game people play.

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[eyec]

charges to capital projects can be cost recovered in accounting and the tax treatment is different.

overhead/O&M does not have these advantages.

good management practices dictate that if you work on capital projects -charge the capital account.

 

[Yamahauler]

laca...what's SOX Act?

IR...the PEs/PMs charge directly to plant overhead, although they directly support capital improvments. I'm not sure what you mean when you say that this comes form the overhead bucket.

eyec...your description is exactly what I have always been told that capital costs are capitured and depreciated over time for tax purposes.

 

[lacajun]

Sarbanes-Oxley Act 2002. From my perspective, it changed the way we ran projects.

I've never accounted for depreciation of anything but capital equipment. Maybe I'm missing something......

 

[IRstuff]

Upon re-reading the OP; there is a huge difference in how companies manage capital projects and costs. Some companies, particularly older ones, are extremely sensitive to return on investment (ROI). At a previous company, we went several years where management would demand a 30% reduction, year-over-year, in owned assets, because of ROI. Of course, that meant getting rid of old, and new, equipment to the point where we often had to resort to outsourcing, because the equipment had been given away or sold.

If a company is trying to minimize ROI, then they'll try to move expenses into some part of the operating expenses, such as PM costs. It seems plausible that a sufficiently creative accountant could probably construct a scenario whereby the bulk of the labor expenses could be shuffled into, or out of, a capital project, depending how one wanted to tweak the tax/ROI scenario.


TTFN

FAQ731-376
Chinese prisoner wins Nobel Peace Prize