American Public Power Association Continuous Process Improvement in Work Order Closings September 24, 2007 Tom Unke, CPA, Partner Virchow, Krause & Company.

American Public Power Association

Continuous Process Improvement in Work Order Closings

September 24, 2007

Tom Unke, CPA, Partner

Virchow, Krause & Company

Intro & Plan• Utility Partner, 17 years serving utilities.• Built work orders systems, implemented work order

systems, audited work order systems and have instructed work order systems.

• Have exposure to over 100 different utility work order procedures and systems.

The Plan.

Get us on the same page

Share my experiences with you

Discuss common themes and recommendations

Answer your questions

• Work order and Job Costing Accounting is easily the most challenged accounting and reporting area encountered by public utility accounting departments.

• Why do you suppose this is??

Background & Agenda

Answer…

• Work Order accounting is the largest interface with non-accountants and accountants.

• We think differently.

Have you said this….?

• This work order is wrong?

• Where are these poles…they aren’t here?

• There is no way this time is recorded correct?

• How can there be no materials charged to this job?

• Go recount the inventory for wire.

Good Work Order Closings…

……Depend on employees not under our direction who usually happen to be the ones we “bother” with questions.

…….Require a systematic process that everyone can buy into.

What is a Work Order System

• A process of accumulating project costs.

• A process to “close” a work order so that project costs can be properly allocated to plant in service accounts.

• A process to facilitate retirement accounting.

• A process to support sound, defensible depreciation estimates.

What is a Closing?

• Closing means performing the necessary procedures to account for utility construction consistent with FERC guidelines (RUS too).

• When should a job be closed, what entries should be made to the ledger, how can we track specific assets……

The TOP 10

• Feel free to argue

• Comments are welcome

The End Starts with the Beginning

• Crews need to know the basic differences between capital and maintenance projects.

• Project initiation should determine if retirements are needed

• Work order authorization should request an “as designed” inventory of retirements units.

Dealing with Change Assassins

• We haven’t had to do that for the past 30 years, why change now?

• Include the assassins in a process improvement project.

• Give something to get something in return.

Introduce Mass Unit and Non-Mass Unit philosophy

Mass Unit Examples

• Pole

• Pole, cross-arm assembly

• Pole, Cross-arm, anchor/guy assembly

• Pole, Cross-arm, anchor/guy, cross-arm brace

What does Mass Assets Give You?

• Allows you to close many work orders at the same time.

• Facilitates composite pricing in your property record of group-class assets.

Unitization In Many Forms

• Create construction standards to “Unitize” construction costs to assets.

– CWIP = $20,700

– 3 -45 poles @2,500 each = $7,500– 750’ ASCR @ $6/foot = $9,000– 1 Termination = $4,200

Balancing Resources with Enterprise Impact

• Don’t strive for perfection

• The key word is “Reasonableness”

• You need to consider all stakeholders in the decision-making process. Things that save you work will burden others.

Enterprise Wide Training

• Your success is determined by the line crews.

• Line crews hate paperwork and would never want to be an accountant.

• 360° Degree training is critical for process improvement.

Don’t Assume Technology is the Answer

• The best system improvements can be made manually.

• The most problems discovered during process improvement engagements comes in two primary forms:

• Complacency and lack of accountability• Lack of a systematic process understood

by all.

Embrace Standard Costing

• Standard costing is a basis to allocate costs.

• Standards create a standard cost of a particular project of which actual costs are allocated to each respective units.

• Standards can be labor hours or cost.

Look Forward, Not Behind

• Work order closing enhancements must be made in a manner for improvement – Not an excuse on how you should fix previous year shortfalls.

Use Blanket Work Orders

• Like-kind construction such as non-billed service connections, street light construction, etc can be managed using blanket work orders.

• Blankets = don’t need to account for each specific project under a new work order number.

Institutionalize your Close Process

• Accounts payable and Payroll reporting is relatively easy since it is systematic.

– Work order accounting should strive for systematic process of….

• Month end cut-off• Material issuance• Overhead allocations• Close out procedures.

Buy Your Line Crew Donuts

• Find a way to align with your line crews and stores operations.

Use Honey – Not a Hammer

• Successful closings depends on many people.

– Final inspections.

• Without direct GM support, a hammer usually tells non-accountants to dig-in their heals.

Don’t wait until year end

• Work orders should be closed at least monthly.

• Depending on activity, work orders should be closed as completed to focus on optimal CIAC recovery and more accurate accounting.

Understanding the Job Costing Process

• Work order closings are made easy by having the right data at the right time.

• Accountants typically don’t control the data or ensure that it is provided at the right time.

• Top Down emphasis needs to be place on the fiduciary requirements of your utility.

Closing

• Questions.

Thank You.

Tom Unke

Virchow, Krause & Company, LLP

[email protected]

www.virchowkrause.com

608-240-2394