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A Case forProject Revenue Management
Peter Varani PMP
©
2
A Balanced PMBOK?
PMBOK GUIDE (4th edition)
Cost
Revenue
Unisys Annual Report (2008)
Cost
Revenue
845
3
174
152
3
The Project Manager’s “Decision”
High Salaries v. Ticket Sales
Cost based approach or balanced approach
4
PRM Defined
• Timely revenue recognition
• Positive project cash flows
• Payments/credits closed out at completion
• Maximize revenue
5
Revenue Processes Require
• Consistency with accounting standards
• Integration with existing knowledge areas
• Assessment of revenue performance
• Project manager responsibility
6
The 10th Knowledge Area
Knowledge Area
Project Management Process Groups
Initiating Process Group
Planning Process Group
Executing Process Group
Monitoring & Controlling
Process Group
Closing Process Group
Project Revenue Management
1 Identify target project revenue
2 Determine or confirm pricing
3 Identify revenue milestones
4 Develop project revenue plan
5 Recognize revenue
6 Submit invoices
7 Process payments
8 Conduct Revenue control
9 Close account
7
Earned Value Limitation
F SV and CV both > 0. Therefore, ahead of schedule and budget
Earned Value
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
Start
Janu
ary
Febru
ary
Mar
chApr
ilM
ayJu
ne July
Augus
t
Septe
mbe
r
Octobe
r
Novem
ber
Decem
ber
Janu
ary
Month
Am
ou
nt
PV
EV
AC
F
Is this a financially sound project? Have we recognized revenue?Have we invoiced client?Have we received any payment?
8
Revenue Value
Revenue Timeline (planning)
$0
$50,000
$100,000
$150,000
$200,000
$250,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
Month
Am
ount
PV
RPV
GM
A
B
C
A
B
C
Project should recognize $75,000 in revenue
Project should recognize another $75,000 in revenue
Project should recognize final $75,000 in revenue
9
Revenue Value
Revenue Timeline (execution)
$0
$50,000
$100,000
$150,000
$200,000
$250,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
Month
Am
ount
PV
RPV
EV
AC
RV
D
D SV and CV are both greater than zero
E RSV = RV – RPV, RSV < 0 (behind revenue plan)RCV = RV – AC, RCV < 0 (negative margin)
E
10
Revenue Value
GM
Revenue Timeline (closeout)
$0
$50,000
$100,000
$150,000
$200,000
$250,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
Month
Am
ount
PV
RPV
EV
AC
RV
F
G
H
F
G
Project recognizes its first $75,000
Project recognizes its second $75,000 (on revenue plan)
H Project recognizes its final $75,000RCV = RV – AC (overall profitability)
GM
11
Total Financial Performance
Earned Value Revenue Value
PV – budget for assigned work RPV – planned revenue for work
EV – value of work performed RV – actual revenue recognized
AC – actual costs are actual costs regardless of EV or RV
SV = EV – PV (> 0 is good) RSV = RV – RPV (> 0 is good)
SPI = EV/PV (> 1 is good) RSPI = RV/RPV (> 1 is good)
CV = EV – AC (> 0 is good) RCV = RV – AC (depends on target GM)
CPI = EV/AC (> 1 is good) RCPI = RV/AC
12
Example
• LOI executed August 15th
• Work starts immediately based on timeline• Contract executed October 4th effective date August 15th
• Can revenue be recognized in the 3rd quarter?
• No• LOI does not equate to a contractual arrangement• Revenue would be recognized on December 31st
13
Example
Revenue Timeline
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
8/15 8/31 9/15 9/30 10/15 10/31 11/15 11/30 12/15 12/31
Date
Am
ou
nt
PV
RPVB
A LOI executed on August 15th
A
B Project plans on recognizing revenue at the quarter end on September 30 th and is profitable
14
Example
Revenue Timeline
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
8/15 8/31 9/15 9/30 10/15 10/31 11/15 11/30 12/15 12/31
Date
Am
ou
nt PV
RPV
RV
D
C Contract is executed on October 4th
C
D Revenue cannot be recognized until quarter ending December 31st
15
Example – Impact
• Incorrectly forecasted revenue timeline• Incorrectly forecasted cash flows
• Financial statements
• Risk planning
• Financing plan
16
Revenue - Not Just for Accountants Anymore
• Enablers of growth
• Expert revenue managers
• Earnings contributors
• Executive career path
17
Summary
• PMBOK must balance cost & revenue
• PRM Defined– Consistent with accounting standards– Integrated with project management processes– Complete assessment of financial performance– Responsibility of Project Manager
• What is our decision?
18
Thank You
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PMI Global CongressMonday October 11, 2010