Can you… Measure cost and productivity through the full life cycle of enterprise level projects? Accurately bill and automatically do Revenue Recognition according to percent complete?
GAAP accounting dictates the Percentage of Completion (POC) method primarily for Fixed Fee or Lump Sum projects. This means determining the Percentage of Completion to date on a project and using this as the basis for booking Revenue for financial reporting purposes. The POC can be determined based on multiple methods including Cost-to-Cost, Effort, or Units of Delivery. For discussions purposes we will focus on the Cost-to-Cost method because the other two methods can be converted to a Cost-to-Cost method.
Revenue is booked at the end of every fiscal period typically monthly. Percentage of Completion (POC) is computed as Cost to Date / Estimated Cost at Completion. Every projects starts with a Cost Budget also labelled as Original Budget. The Current Budget reflects the Original + Change Orders + overages. The Estimated Cost is the “guesstimate” of the Project Manager who is required to re-estimate the Project based on various factors periodically, which is typically monthly. The Estimated Cost at Completion must be reviewed every period and adjusted as necessary so that financials can be stated accurately.
The out of the box capabilities within Dynamics AX/Dynamics 365 for Operations can be cumbersome for necessary POC calculations. In addition, ensuring the integrity of Revenue Booked is a difficult proposition since the Contract Values (original + approved change orders) are not period sensitive.
The SIS Project Cost Management (PCM) module for Microsoft Dynamics 365 solves all of these issues. The Budgeting functionality in SIS PCM is built with period sensitivity for all Budgets and Change Orders. There is a separate ECAC (Estimated Cost at Completion) functionality that is also built with period sensitivity. In addition, recognising this is a tool for Project Managers, and Project Accounting, it is extremely easy to use with visibility to variances and margin gain/fade at all phases during the project. It is also built with audit trails so that management can review historical performance and variance/margin gain-fade for specific projects or a specific Project Manager. The above functionality combined along with the SIS PCM WIP and Revenue Recognition Preview reports, makes implementation of Percentage of Completion (POC) revenue recognition a breeze.
Estimated Cost At Completion Table
SIS developed the Project Cost Management solution so that Project Managers could quickly respond to these questions from owners and project stakeholders.
- Is the current approved budget sufficient to complete the project?
- Can you view margin fade or gain based on productivity and change orders?
- When should I take corrective performance action to salvage project margin?
- Should the project cost performance impact corporate financial decisions?
SIS (Strategic Industry Solutions) has worked for 20+ years helping Contractors and Professional Service firms manage every stage of the delivery and service life-cycle with complete Project Management, Project Accounting, Job Costing, Business Intelligence, and CRM Software built on Microsoft Dynamics.
To speak with one of our industry experts, please contact sales@sisn.com. The Project Cost Management module is also available on Microsoft AppSource.
Ravi Kannan is the Architect of the SIS Project Cost Management module and heads the Dynamics AX / Dynamics 365 for Operations practise at SIS.
