In the previous article, we explored the key benefits of Dynamics 365 Project Management for construction industries.

Every organization handles projects differently. Success always depends on how effectively costs, time, and resources are managed. D365 Project Types in Microsoft Dynamics 365 Project Operations give businesses the flexibility to structure projects based on purpose, billing model, and financial reporting needs.

Some projects generate client revenue, while others focus on internal development or long-term investments. Knowing how each type functions helps project managers plan accurately, finance teams track costs properly, and executives gain a clear view of performance.

In this guide, we’ll walk through the six D365 project types available in Dynamics 365 Finance and Operations, with practical examples of how each supports different business goals.

1. Time and Material Project

Purpose: To track actual hours, expenses, and materials used for billing clients in real time.

Best For: Projects with flexible scope and variable costs.

Example Scenario: A consulting firm implementing an ERP system bills its client based on the consultant’s time, travel, and hardware expenses as work progresses.

Among all D365 project types, the Time and Material project offers the most flexibility. It connects timesheets, purchase orders, and cost categories within a single view, helping managers approve work quickly and generate invoices automatically.

In Microsoft Dynamics 365 Project Operations, this project type is ideal for construction, engineering, and professional services, where transparency and time tracking directly influence client trust and profitability.

2. Fixed-Price Project

Purpose: To recognize revenue based on milestones, percentage of completion, or full delivery of the project scope.

Best For: Projects with clearly defined budgets and deliverables.

Example Scenario: A construction firm signs a fixed-price contract to build a new school, committing to a set price for completing the entire structure.

With the Fixed-Price project type in D365, billing and revenue aren’t tied to time or material use but to contractual progress. Microsoft Dynamics 365 automates milestone tracking, invoice creation, and revenue recognition, allowing finance teams to monitor earned value accurately.

This setup is ideal for companies that rely on predictable margins and strict scope management, providing both control and compliance across every project phase.

3. Investment Project

Purpose: To manage costs related to creating or improving long-term company assets.

Best For: Projects that don’t generate revenue immediately but deliver future benefits.

Example Scenario: A manufacturing company constructs a new warehouse or upgrades production facilities to increase capacity.

The Investment Project type in D365 captures every expense related to capital development, materials, subcontractors, labor, and automatically capitalizes eligible costs into assets once complete.

Microsoft Dynamics 365 Project Operations ensures financial compliance with asset accounting standards while keeping visibility on construction progress and cost forecasting. This makes it the go-to choice for businesses focused on infrastructure, plant expansion, or internal product development.

4. Cost Project

Purpose: To record internal project costs that don’t generate external revenue.

Best For: Internal initiatives such as research, audits, or process improvements.

Example Scenario: An R&D department develops a prototype for a new product or conducts an internal workflow audit.

The Cost Project type in Dynamics 365 helps organizations account for non-billable activities that still require structured budgets and reporting. These projects track labor, materials, and overhead, ensuring that all expenses are properly categorized and analyzed.

While these projects don’t bring in revenue, they contribute to long-term operational efficiency, innovation, and strategic improvement.

5. Internal Project

Purpose: To manage company-driven initiatives like training programs or internal system upgrades.

Best For: Projects that aim to enhance operations or employee capabilities.

Example Scenario: Implementing a new HR system or delivering company-wide software training.

The Internal Project type in D365 Project Operations allows companies to plan, schedule, and monitor progress with the same level of rigor as external projects. Teams can assign resources, track progress, and measure the cost impact of internal initiatives all within a unified financial framework.

These projects improve collaboration between HR, IT, and finance departments while ensuring that every internal investment is measurable and aligned with organizational growth.

6. Time Project

Purpose: To log resource time without affecting costs or revenue recognition.

Best For: Analyzing productivity and tracking non-billable hours.

Example Scenario: Monitoring employee hours spent on administrative or maintenance activities.

The Time Project type in Microsoft Dynamics 365 Project Operations provides an easy way to capture time utilization across the workforce. Managers gain insight into how much time is spent on billable versus internal activities, which is a major advantage for optimizing staffing and improving profitability.

For professional services firms and contractors, this helps ensure that every hour worked is either billed appropriately or allocated strategically to internal work that adds long-term value.

 

External vs. Internal D365 Project Types

External Projects

These generate client revenue and include:

• Time and Material Projects
• Fixed-Price Projects
  

Internal Projects

These support company growth and efficiency rather than customer billing.

• Investment Projects
• Cost Projects
• Internal Projects
• Time Projects

This distinction is one of the key advantages of Microsoft Dynamics 365 Project Operations. It gives businesses a single platform for both sides of their project ecosystem, combining operational insight with financial control.

Revenue Recognition in D365 Project Types

Different D365 project types use different revenue recognition models, ensuring accurate reporting that matches the project’s structure and industry standards:

• Milestone-Based Recognition: Revenue is recognized when key project milestones are completed, commonly used in fixed-price projects.
• Percentage of Completion Method: Revenue is recognized progressively as work advances, ideal for long-term or multi-phase projects.

Microsoft Dynamics 365 Project Operations automates these calculations, giving project accountants complete transparency and audit-ready reports.

Final Thoughts

Choosing the right D365 project type is about aligning your project goals, billing model, and financial reporting under one intelligent system. Microsoft Dynamics 365 Project Operations is one of the most efficient ways to plan, track, and analyze every effort.

With real-time visibility and flexible configuration, D365 empowers businesses to manage diverse project portfolios while maintaining accuracy and compliance.

At SysBrilliance, we help organizations design and implement D365 project frameworks tailored to their industries. From client billing to internal asset tracking, our consultants ensure every configuration supports measurable business outcomes.

Ready to stay on track with your operations? Contact SysBrilliance today to learn how to leverage D365 Project Types for more profitable project management.

In the next part, we take a closer look at how project categories work in Dynamics 365 F&O.