The Expense Statement

The P&L expense statement is one of the three most important financial statements that the controller will provide to the project manager. The other two financial statements that are useful to project managers, as were discussed in Chapter 5, are the cash flow statement and the balance sheet. The project manager has little to say about the expense categories on the P&L; the controller usually defines the expense categories when the chart of accounts is put together. On the other hand, the project manager has nearly full freedom to create the work breakdown structure (WBS) and define the expense categories on the WBS. ^[1]

Although the WBS is traditionally thought of as the document that defines the scope, and all the scope, for the project, in fact it can also serve as an important financial document, connecting as it does to the chart of accounts. To employ the earned value methodology, we must have a complete WBS; to dollar-denominate the earned value reports and also allocate the budget to the WBS, we must understand the chart of accounts, or at least the chart of accounts as it is represented on the P&L statements. Since it is the P&L by which managers govern and are measured for success, the various tools must all correlate and reconcile.

Let us begin this chapter by discussing more thoroughly the nature of the expenses that will be on the P&L. We will look at how these expenses can be traced to the WBS, and then from the WBS back to the P&L.