©
Peter Varani PMP

PMBOK GUIDE (4 th edition)
Cost
Revenue
Unisys Annual Report (2008)
Cost
Revenue
845
3
174
152
2

High Salaries v. Ticket Sales
Cost based approach or balanced approach
3

• Timely revenue recognition
• Positive project cash flows
• Payments/credits closed out at completion
• Maximize revenue
4

• Consistency with accounting standards
• Integration with existing knowledge areas
• Assessment of revenue performance
• Project manager responsibility
5

th
Project Management Process Groups
Knowledge
Area
Initiating
Process
Group
Planning
Process
Group
Project Revenue
Management
1 Identify target project revenue
2 Determine or confirm pricing
3 Identify revenue milestones
4 Develop project revenue plan
Executing
Process
Group
5 Recognize revenue
Monitoring &
Controlling
Process
Group
6 Submit invoices
Closing
Process
Group
9 Close account
7 Process payments
8 Conduct
Revenue control
6

$600,000
$500,000
$400,000
$300,000
$200,000
$100,000
$0
S ta rt
Ja nu ar y
Fe br ua ry
M ar ch
A pr il
M ay
Earned Value
F
Ju ne
Ju ly
A ug us t
S ep te m be r
O ct ob er
N ov em be r
D ec em be r
Ja nu ar y
Month
F SV and CV both > 0. Therefore, ahead of schedule and budget
Is this a financially sound project?
Have we recognized revenue?
Have we invoiced client?
Have we received any payment?
PV
EV
AC
7

Revenue Timeline (planning)
$250,000
$200,000
$150,000
$100,000
$50,000
$0
A
B
C
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
Month
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
GM
PV
RPV
8

Revenue Timeline (execution)
$250,000
$200,000
$150,000
$100,000
$50,000
$0
Jan Feb Mar Apr May
D
E
Jun Jul
Month
Aug Sep Oct Nov Dec Jan
D
E
SV and CV are both greater than zero
RSV = RV – RPV, RSV < 0 (behind revenue plan)
RCV = RV – AC, RCV < 0 (negative margin)
PV
RPV
EV
AC
RV
9

Revenue Timeline (closeout)
$250,000
$200,000
$150,000
G
$100,000
$50,000 F
$0
Jan Feb Mar Apr May Jun Jul
Month
Aug Sep Oct Nov
F
H
Project recognizes its first $75,000
G Project recognizes its second $75,000 (on revenue plan)
Project recognizes its final $75,000
RCV = RV – AC (overall profitability)
Dec
H
Jan
PV
RPV
EV
AC
RV
10

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)
CV = EV – AC (> 0 is good)
CPI = EV/AC (> 1 is good)
RSPI = RV/RPV (> 1 is good)
RCV = RV – AC (depends on target GM)
RCPI = RV/AC
11

• LOI executed August 15 th
• Work starts immediately based on timeline
• Contract executed October 4 th effective date August 15 th
• Can revenue be recognized in the 3 rd quarter?
• No
• LOI does not equate to a contractual arrangement
• Revenue would be recognized on December 31 st
12

Revenue Timeline
$600,000
$500,000
$400,000
$300,000
$200,000
$100,000
$0
B
A
8/15 8/31 9/15 9/30 10/15 10/31 11/15 11/30 12/15 12/31
Date
PV
RPV
A LOI executed on August 15th
B Project plans on recognizing revenue at the quarter end on September 30 th and is profitable
13

Revenue Timeline
$600,000
$500,000
$400,000
$300,000
$200,000
$100,000
$0
C
D
8/15 8/31 9/15 9/30 10/15 10/31 11/15 11/30 12/15 12/31
Date
C Contract is executed on October 4th
D Revenue cannot be recognized until quarter ending December 31st
PV
RPV
RV
14

• Incorrectly forecasted revenue timeline
• Incorrectly forecasted cash flows
• Financial statements
• Risk planning
• Financing plan
15

Revenue - Not Just for Accountants Anymore
• Enablers of growth
• Expert revenue managers
• Earnings contributors
• Executive career path
16

• 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?
17

please send comments and feedback to peter.varani@unisys.com
PMI Global Congress
Monday October 11, 2010
18