A Case forProject Revenue Management

Peter Varani PMP

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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

please send comments and feedback to

peter.varani@unisys.com

PMI Global CongressMonday October 11, 2010