Project system for Revenue Recognition in Professional Service Organizations by Pramod Patil

Transcription

1 Orange County Convention Center Orlando, Florida June 3-5, 2014 Project system for Revenue Recognition in Professional Service Organizations by Pramod Patil

2 LEARNING POINTS NTTDATA & Global SAP Practice SAP PS Result analysis (RA)& Settlement FMV and Billing Plan WBS revenue planning Enhancements Implementation challenges Business Benefits

3 NTT DATA Global IT Innovation Partner 6th Ranked Global IT Services and Systems Integrator >$13B In annual revenues ~75,000 Professionals operating in 40 countries Balanced global delivery 10,000 strong in India Founded 1967 in Japan as the technology arm of NTT Group 25 years of annual growth NTT DATA Corporate Headquarters, Tokyo Services span applications, infrastructure, cloud, and industry solutions Executing aggressive globalization strategy 2014 NTT DATA, Inc. 3

4 SAP Implementation at a Glance Value Proposition Glocal Integrated Service Delivery approach for SMB, Mid-large and LE Unique signature solutions by industry, technology and product areas Lifecycle tools and accelerators Full-Services Approach Services that cover Plan, Build, Manage and Improve phases of lifecycle. Resources with both industry and product skills Solutions : On promise, hosted and cloud Global capabilities - Local presence Go-to-Market: Portfolio and Sales Approach Strong industry play in 18 out of 24 segments identified by SAP Dedicated local sales per industry for net new and installed base Shared services & prescriptive approach for SMB and Mid-Large Delivery Model Adaptive Shore-wise delivery Globally integrated One Method delivery methodology Dedicated PMO for ERP services Copyright 2014 NTT DATA Corporation 4

5 Business Scenario Professional Service organization Product and Services sales as part of one Project Revenue Recognition is based Fair Market Value (FMV), different than Sales order billing plan Revenue adjustment to occur every month throughout the life of the project Cost adjustment occur every month throughout the life of the project and calculated based on revenue recognized. Revenue to be recognized should never be greater than actual revenue.

6 SAP PS RVENUE RECOGNITION WBS Revenue and Cost Recognition via Results Analysis (RA) and Settlement Revenue planning and cost planning for WBS is required RA compares actual revenue versus planned revenue, no postings happened during result analysis RA determines if billing is exceeding planned revenue or planned revenue is exceeding billing 6

7 SAP PS RVENUE RECOGNITION Revenue to be recognized value is always less than or equal to actual revenue. If revenue to be recognized is less than actual revenue, difference is posted as deferred revenue Based on planned revenue and revenue to be recognized, cost to be recognized value is determined Cost to be recognized is always less or equal to Actual cost. Via settlement revenue adjustment is posted for temporary correction of the posted revenue up or down depending on previous point. 7

8 SAP PS RVENUE RECOGNITION Billing to actual revenue Actual Cost Revenue to be recognized Cost to be recognized Deferred cost adjustment Deferred revenue adjustment 8

9 SAP PS RVENUE RECOGNITION Settlement Adjustments of revenue and cost does not create postings in COPA. Later when actual revenue is recorded, a portion of the billing is recognized by adjusting corresponding deferred revenue and transferred to COPA as the true revenue. In the same proportion cost would be recognized 9

10 BILLING PLAN and FMV Billing Plan Deliverable value based on discount Milestone Billing plan Periodic billing plan FMV Discount based FMV Revenue to be recognized based on FMV Deliverable Billing Value Discount Deliverable FMV Software Licenses % Software Licenses Implementati on services Implementati on services Hardware components % Hardware components Support Maintenance Support Maintenance 38250

11 WBS REVENUE PLANNING Revenue Planning with project through WBS revenue planning and not sales order billing plan WBS Revenue Planning = Revenue recognition planning Planned revenue (FMV) at WBS side supersedes the sales order billing plan Billing with respect to milestone or periodic billing plan Revenue recognition with respect to FMV

12 WBS REVENUE PLANNING Reason for two separate revenue plans: FMV based revenue recognition Revenue recognition plan is different that Billing plan

13 CUSTOM ENHACEMENT 1. WBS revenue planning upload from Excel FMV is calculated outside SAP Period based revenue recognition plan Sometimes planning is spanned across two years. Program creates WBS revenue plan by excel upload

14 CUSTOM ENHACEMENT 2. Result Analysis enhancement Revenue to be recognized always same or less than Actual billing Cost to be recognized always same or less than actual cost

15 PROJECT REPORTS CJI3 FS10N Line items drill down

16 KE24 PROJECT REPORTS This is the single entry in COPA that shows both revenue and cost that have been recognized. One observation here is that the cost element display only shows one of the cost elements used in the transaction (in this case ). For greater split you should refer to report CJI3.

17 IMPLEMENTATION CHALLENGES Business process change in how project needs to be created Cost and revenue planning is essential for each project

18 BUSINESS BENEFITS Improved project control Project managers responsibility and involvement is month end closing financial processes Revenue recognition based on project progress and results Automatic cost recognition with respect to revenue to be recognized Reduced finance effort due to automated period end closing process. Reduced finance efforts due to FMV based revenue recognition

19 FOLLOW US

20 THANK YOU THANK YOU FOR PARTICIPATING Please provide feedback on this session by completing a short survey via the event mobile application. SESSION CODE: 2007 For ongoing education on this area of focus, visit