Costing & Pricing Setup in Dynamics 365 Project Operations

Accurate and transparent costing and pricing is fundamental to the profitability of any project-based business. Dynamics 365 Project Operations (D365 PO) provides a flexible framework to manage internal cost rates, define sales pricing, and configure billing rules that align with different engagement models such as Time & Material or Fixed Price.

In this article, I walk through the key configuration steps and concepts behind setting up costing and pricing models in D365 PO.

1. Understanding Cost & Sales Rates

🔹a. Cost Rate:

The cost rate represents the internal cost to the company for using a resource. This can include:

• -Salary
• -Overheads (e.g., infrastructure, admin)
• -Indirect charges

Cost rate setup helps track project profitability and perform margin analysis.

🔹b. Sales Price:

The sales price is what the customer will be billed for the resource’s effort or service. It can be:

• -Fixed per resource
• -Role-based
• -Time-dependent (seasonal or period-specific)

This helps manage client expectations and enables accurate invoicing.

2. Setting Up Cost and Sales Price Lists

In D365 PO, cost and sales prices are configured through Price Lists.

 Steps:

1. Navigate to Project Service > Settings > Price Lists.
2. Create a new Cost Price List and a Sales Price List.
3. Define:
   • -Role (e.g., Developer, Consultant)
   • -Currency
   • -Cost Price and/or Sales Price
   • -Effective Start/End Dates

 Note:

• One cost price list and one sales price list can be associated with each legal entity or project contract.
• You can assign different price lists per customer if required.

3. Sales Pricing Models

D365 PO supports different pricing models to suit diverse customer contracts:

Sales pricing rules are linked to contract line details to control how billing is triggered and calculated.

 4. Billing Rules Configuration

Billing rules define how and when the system should generate invoices.

Configuration:

1. Go to Project Contract > Contract Lines > Billing Method.
2. Choose between:
   • -Time & Material
   • -Fixed Price
3. Define Invoicing Frequency:
   • -Weekly
   • -Monthly
   • -Milestone
4. Add Billing Rules such as:
   • -Milestone Amounts
   • -Date-based triggers
   • -Percent-completion conditions

Billing rules link directly to project tasks or milestones and automate invoice generation.

Example Scenario

A customer agrees to a Fixed Price project of $50,000, to be billed across 3 milestones:

• -Phase 1 (Requirement) – $15,000
• -Phase 2 (Execution) – $25,000
• -Phase 3 (Closure) – $10,000

In D365 PO:

• -Create Project Contract
• -Add Contract Line with billing type = Fixed Price
• -Define Milestone-based billing rules
• -Link billing milestones to tasks in WBS

When the task is marked complete, an invoice proposal is automatically generated.

 Reporting & Impact

Proper costing and pricing setup enables:

• -Accurate profitability analysis per project
• -Forecast vs. Actual comparisons
• -Financial transparency with clients
• -Integration with D365 Finance for revenue recognition

Cost and sales rates feed into Project Actuals, enabling real-time financial tracking.

To conclude, costing and pricing configuration in Dynamics 365 Project Operations is a cornerstone of financial control and project success. Whether your business operates on T&M, Fixed Price, or milestone-based models, D365 PO offers the flexibility and automation to manage it efficiently.

Through hands-on learning, I now understand how to set up cost rates, sales pricing, and billing rules to support a wide range of project billing scenarios in D365 PO.