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Orange County Convention Center

Orlando, Florida | June 3-5, 2014

Project system for Revenue Recognition in Professional


Service Organizations
by Pramod Patil

LEARNING POINTS








NTTDATA & Global SAP Practice


SAP PS Result analysis (RA) & Settlement
FMV and Billing Plan
WBS revenue planning
Enhancements
Implementation challenges
Business Benefits

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
Services span applications,
infrastructure, cloud, and industry
solutions
NTT DATA Corporate Headquarters, Tokyo

Executing aggressive globalization strategy

2014 NTT DATA, Inc.

SAP Implementation at a Glance


Value Proposition

Full-Services Approach

Glocal
Integrated Service Delivery approach
for SMB, Mid-large and LE
Unique signature solutions by
industry, technology and product
areas
Lifecycle tools and accelerators

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

Copyright 2014 NTT DATA Corporation

Delivery Model
Adaptive Shore-wise delivery
Globally integrated One Method
delivery methodology
Dedicated PMO for ERP services

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.

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

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

SAP PS RVENUE RECOGNITION








Billing to actual revenue


Actual Cost
Revenue to be recognized
Cost to be recognized
Deferred cost adjustment
Deferred revenue adjustment

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

BILLING PLAN and FMV


Billing Plan

FMV

Deliverable value based on discount


Milestone Billing plan
Periodic billing plan

Discount based FMV


Revenue to be recognized
based on FMV

Deliverable

Billing Value

Discount

Deliverable

FMV

Software
Licenses

25000

50%

Software
Licenses

50000

Implementati
on services

100000

Implementati
on services

77250

Hardware
components

50000

Hardware
components

50000

Support
Maintenance

50000

Support
Maintenance

38250

30%

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

WBS REVENUE PLANNING


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

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

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

PROJECT REPORTS
CJI3

FS10N Line items drill down

PROJECT REPORTS
KE24

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 7111123). For greater split you should
refer to report CJI3.

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

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

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