Full Sail Partners Blog (42)

The following account is a true story. It begins with an AE firm recognizing the need for change in order to support its growth. This firm quickly realized that bringing disparate systems to one integrated platform like Deltek Vision was the fix they needed.

Here’s the firm’s story…

Identifying the Need for Change

Initially to manage its business, this firm was using several different systems that communicated poorly. Specifically, each critical function for the firm used a separate system which had its own unique database:

• Accounts Receivable – MS Access database
• Accounts Payable – MS Access and an outdated accounting program
• Project Management – Internally developed and managed databases, spreadsheets, and online systems
• Reporting – Internally developed and supported 

Desiring the ability to make better and faster decisions, the firm opted to move to a single enterprise-wide and industry-proven software platform. The move would allow this firm to streamline operations and reduce overhead time/costs by eliminating duplicate efforts and manual operations. The software of choice for this firm was Deltek Vision. 

Implementing Deltek Vision 

The implementation began with the drafting of processes using the project life cycle as a template. It was built to engage project managers earlier and more often throughout the entire process. Additionally, the firm recognized the need to ensure a budget could be developed using Resource Planning (RP). 

Having a budget became a requirement before a project could be initiated. As a result, the contract compensation was directly tied to the budget making routine maintenance integral to the project’s life. Furthermore, time charging, invoicing, and revenue recognition were not allowed without a project budget. 

The firm also sought to embrace the automation capabilities of Deltek Vision. Automation, of course, enabled the streamlining of processes. As an example, they decided to utilize invoice review automation to allow accounting to work in tandem with operations to deliver financial results. 

Most importantly, the philosophy around reporting changed dramatically. The firm now wanted to standardize reporting practices. Originally, employees had created and used their own desired data and had determined not only individual key performance indicators, but how and what those measurements were based upon.  

The Result of Choosing Deltek Vision 

I began working with this firm three years ago, and there is so much success to share: 

• Reduction of invoicing time
• Faster and more reliable monthly closes
• More and better insight into project performance based on standardized reports 

These are just a few of the identified areas where using Deltek Vision has improved this firm’s performance. In the end, using Deltek Vision, the firm has seen its overall financial performance improve. 

Advice for Implementing Deltek Vision 

Here are some tips to help ensure successful Vision implementations:

• Engage and work closely with a Deltek consulting partner like Full Sail Partners
• Plan, design and configure based on your firm’s unique requirements
• Testing, testing and more testing - both transactional and end to end
• Make necessary changes and continue testing
• Prepare for go live including preparing your staff with training  

It is interesting to note that most document management systems are designed for the Architectural and Engineering (A&E) world where document management is quite the opposite of most other industries. Whereas typical industry documents are standardized and repeatable, with templates that rarely ever change, those required of the A&E environment are not. Here, every drawing is unique, and workflows require systems specifically designed to meet the needs of the A&E space. Here are some examples of the differences for standard businesses and project-based business.

Standard businesses

• Documents are standardized and repeatable
• Minimal revision control with unidirectional workflows
• Basic transmittals
• Simple file naming

Architectural & Engineering Firms

• Every drawing is unique
• Revision control is crucial due to edit-review-rework flows
• Transmittals can include documents, drawings, xref images, specs and more
• Complex naming schemes including: Project & Client Name, Discipline, Floor or Phase of Project, Sheet Category, Drawing # and more

Do You Have More than One Version of the Truth?

Employees can spend hours or days updating a drawing. If an obsolete version is used, then that work must be repeated, costing your firm time and money. Also, using the incorrect version of an engineering document can leave your firm vulnerable to increased corporate risk, failed audits, cost overruns that can extend into the millions of dollars, not to mention significant risks to safety, schedules, and reputation.

Furthermore, manual methods of version control are difficult and prone to error. In most companies, you can find multiple versions of files, one on the server, on a user’s hard drive, in email, and even a paper copy. Using a document management system creates a central point for document access which ensures users across the organization always can obtain the latest version. Document management systems also store previous versions and maintain the historical metadata for auditing the document history.

Are Transmittals Weighing You Down?

Gathering files, ensuring the correct version, attaching xrefs, specs, and any other necessary files are all very time consuming and tedious. Because it is a manual process, there is always a high risk for missing information. Once you include creating, sending, and tracking transmittals, this process becomes a very large, time-intensive process. 

A good A&E document management system provides automatic cover sheet creation and a built-in address book for quickly adding recipients. It also automatically tracks sending, receiving, editing, and routing so you can easily maintain the relationship between the cover sheet and all the files and data you send.

Are Your Naming Conventions Working?

Many companies try to impose naming standards, but without a way to enforce or automate these standards, all it takes is one person choosing to name a document in a way that makes sense to them, and an important file could be irretrievable. When more than one department or branch is involved, or new businesses are acquired, chaos can ensue!

An A&E focused document management system will auto-generate number sequences, include fixed width text place holders for user entered text, predefined data from drop down lists, user entered free texts, and delimiters. In addition, file names would not be the only way to search for files…using metadata either manually tagged to the document or found within it, would be a key part of your file storing and searchability. 

Where Are Your Critical Communication Documents?

Are your firms’ critical communications being housed in email boxes and scattered throughout your organization? What happens when someone is out of the office, or leaves the company? Do you or your staff spend hours trying to locate that critical communication?

A document management system allows you to save emails from Outlook to your projects, contacts and organizations, including version controls, with very few steps. It also saves just one copy of an email and eliminates duplicates to reduce storage and communication that must be sorted through and searched. These emails would then be stored centrally and permanently for audit and legal purposes, essentially preventing them from ever being deleted or lost, especially if a team member leaves the practice.

Why an A&E Document Management System?

A great document management system will provide documentation that is:

• Accurate, current, and trusted
• Easily found, even without knowing specific identifying information
• Under control, using predetermined workflows
• Easily communicated
• Fully audited for changes

If users can bypass procedures to access and change files without proper auditing, you aren’t truly managing your documents. Document management software uses database tables to store both data and files and ensure compliance.

Document management systems cut costs. The time needed to locate a document using easy searches and metadata should drop to seconds. No walking, telephoning or emailing is required - just a connected computer. Errors from using incorrect documentation virtually disappear. Only the latest, approved and published versions are used.

Time spent manually moving files and attaching to emails is eliminated with file sharing. Instead, documents are displayed to the user as soon as they are found. Audit reports can be automatically generated. Knowledge recorded in markup is stored in the system, visible to all who need to know, and your staff are more productive when they know information is reliable.

Calculating the Costs of Disorganized Documentation…Are You Scared to Know the Truth?

Do you know how much time your staff spends naming, organizing, and then trying to find documents? Are you, like many, scared to really find out?

• How much time is spent by users looking for drawings or other documentation?
• How much time your staff spends helping others find what they need?
• How much downtime is also a consequence of these delays?
• How many occasions production has been lost and/or re-working was required due to use of incorrect or outdated documentation?

Multiply these hours by burdened rates and estimate the costs of incidents caused by inaccurate data to extrapolate a typical yearly cost. It appears to be very expensive. Without a good document management system in place, these situations put a true financial strain on your firm.

Are You Ready for a Document Management System?

Using a proper document management system will not only save time, which we know equates to money, but will also prevent the unnecessary headaches of having to constantly forage through numerous files trying to find needed documents. We all know that the A&E industry is a unique and specialized industry which requires organization for project management. It doesn’t need to be so challenging to manage your documents.

In today’s world of technology, computer users are faced with the constant threat of security issues. One wrong click of the mouse and your computer can be instantly crippled. It is not only important that you are aware of the types of threats that are out there, but you should also be familiar with the steps you can take to protect yourself.

Such security threats are collectively known as malware. The term malware is short for malicious software and references a variety of forms of intrusive software. It encompasses ransomware, spyware, viruses, email spoofing and multiple other malicious programs.

What’s Lurking Behind Your Next Click? 

Here’s a look at the different types of threats and the damage they do to your computer:

• Computer Virus – A computer virus is a self-replicating program that can be spread via email or also by inserting copies of itself into other computer programs or documents. Viruses can lead to the inoperability of your computer and spread quickly to the computers of everyone you share files with or correspond with via email.
• Ransomware – Like it sounds, ransomware literally holds a computer ransom by rendering it inoperable and attempts to extort “ransom” money from the unsuspecting victim. Ransomware is typically acquired via email messages and can be spread rapidly throughout the network.
• Spyware – Spyware is an executable program that is extremely difficult to detect and has the ability of secretly gathering personal information about you or your company. Generally, it is not created to cause damage to your computer. However, it is utilized to monitor keystrokes, copy files and gather information about you. Spyware is most often installed on your computer with something you have clicked on, such as a pop-up ad, browser add-ons, or piggybacked on another software installation.
• Email Spoofing – Email spoofing refers to sending emails with a sender address that is forged to make it look like it is sent from someone or somewhere other than where it came from. The sender of the email is hoping that the recipient will believe the forged address is from a legitimate person or company and will open it. Generally, spoof emails are more of a nuisance than anything, but they can contain links which install spyware, ransomware or viruses.

Protect Yourself from Malware Attacks 

The good news is that it is relatively easy to protect yourself from all the above-mentioned security attacks. In most cases, your IT person will have already taken measures to protect the network by installing firewalls, virus protection software and deploying DNS protection. The real question at hand is what can you do to help with the security of your information?

Here some of the measures you can take to be sure that you are doing your part:

• Careful Clicking – Do not click on email attachments or links if you do not know the sender and you are not expecting the document. It is always best to open a browser and manually navigate to the website rather than click on a link which may or may not take you where you intend. Also, take a moment to run a virus scan on any attachments prior to opening them.
• Smart Surfing – Always utilize pop-up blockers within your web browser and never enter personal, financial or any other sensitive information into any web browser that you have not manually navigated to.
• Perform Routine Scans – At times, spyware threats and viruses can slip through the active protective engines due to the sheer number of new threats that are created daily. It is crucial that you update your malware protection and run system scans consistently.

Happy Clicking and Surfing 

Take these simple precautions to protect yourself from a software security breach. While all of this malware fear may seem a bit overwhelming, if you educate yourself, remain alert, and follow the measures listed above, your surfing and clicking will be worry free. Remember, keeping your data safe and secure is easily manageable.

The long-awaited 38^th annual Deltek A/E Clarity report is now available! For those of you who are unaware, each year Deltek performs a detailed Architecture & Engineering Industry study. It is the lengthiest and most thorough study in the industry. Using the A/E Clarity report results, Deltek is able to offer firms unique insights into the AEC industry.

More than 550 firms across the United States and Canada participated in this year’s study. About 25% of participants were from architecture firms, nearly 60% from engineering firms, and the final 15% represented all others. The size of participating firms ranged from small firms with 0-50 employees to large firms with 251 employees or more.

Key Findings in the 38^th Annual Deltek A/E Clarity Report 

The Deltek A/E Clarity report is full of data that allows you to compare your company’s statistics to others in the industry. Information included in the report is comprised of data collected from 2016. Here is a quick preview of some of the statistics you might find interesting:

Financial Management

• Overall, firms’ financial metrics were flat to slightly up
• Operating Profit on Net Revenue at 13%
• Utilization at 60%
• Overhead Rate is down 154%

Business Development

• Firms putting a greater focus on client relationships
• Nearly 6 in 10 firms cite finding time to nurture client relationships among top challenges
• Win Rate dropped 4.8% this year to 40.2%
• Net revenue growth forecast bumped up to 5.3% this year

Project Management

• Firms investing more in project managers
• 73% of projects are currently on or under budget, up from last year
• Firms with very mature project management tripled to 19%, up from just 6% last year
• Top 3 PM KPIs tracked – profitability (95%), average collection period (81%) and multipliers (69%)

Talent Management

• Firms are reevaluating HR technologies to streamline workflows and automate processes
• Staff growth increased to 6.9% this year
• Employee turnover is down 2.3%
• Nearly 8 in 10 firms ranked talent acquisition in top 3 most expensive HR processes

Future Outlook from the 38^th Annual Deltek A/E Clarity Report

Although this year’s report shows that firms continue to remain solid financially, they must continue to focus on project management procedures so that projects are kept on time and on budget while meeting the expectations of their clients. With business development, firms must be constantly looking ahead at where their next projects will come from, what they look like, and how they will be achieved. Additionally, firms must continue to advance their efforts in talent management to find, hire and retain the best of the best.

Benchmark Your Firm with the Deltek A/E Clarity Report 

Using the A/E Clarity Report results, you can now compare your firm’s data, not only to your firm’s previous year, but also to the data of hundreds of other firms in the same field. This report offers significant insights to help you visualize where your firm is today and assist you in developing goals and a plan for the future. For an in-depth view of everything included in the Deltek A/E Clarity report, download your copy today. 

Although it is easy to accept the status quo, there is always room for improvement. Once improvements are made, it is hard to believe that we operated the way we did before. So there it is, the continuous cycle of breaking the status quo to improve our firm processes which ultimately ensures future success. As Deltek Vision users, we should focus on initiatives which enhance our Vision systems and allow us to remain efficient and effective in business.

Opportunities for Improvement with Deltek Vision 

Here are ten initiatives we recommend for your firm:

1. Learn and Train on iAccess, the Future of Vision: This simple to use interface can be used from any device or browser with an internet connection.
2. Incorporate FASB Changes: Firms need to understand how this measure requirement relates to them and how to configure Deltek Vision appropriately to accommodate it. 

3. Identify KPI & Executive Reports: The Deltek Vision Performance Management (VPM) module provides visibility into your firm’s performance and identifies metrics that help ensure success. 
4. Reevaluate the Organizational Breakdown & Work Breakdown Structure: The way firms operate changes over time, especially since their first implementation of the Vision system, resulting in inefficiencies in operations. 

5. Mergers & Acquisition Strategy: Many factors come into play when considering a merger or acquisition and effective data integration is vital to a favorable outcome.  

6. Connect Best of Breed Solutions: With a simple click of a button, firms can securely use Vision to connect other critical business systems. 

7. Focus on Client Retention: Firms can easily manage their client relationships by connecting the Client Feedback Tool with Deltek Vision. 

9. Manage Resources & Plan: Project-based firms benefit from an easy to use solutions that integrate project management data with the accounting solution. 
10. Improve Talent Acquisition & Employee Performance Process: HR professionals need a way to overcome the challenges of acquiring and maintaining talent.

10. Refine Archival & Document Management Process: Deltek Project Information Management (PIM) integrated with Deltek Vision breaks down data barriers for complete project, financial and information management needs. 

Do More with Deltek Vision

Don’t be satisfied with just the status quo. Use these ten initiatives to get more out of Deltek Vision. Putting them into place will make your firm processes better and allow you to be more effective and efficient in business. Break the cycle and start improving your Deltek Vision system now.

So many people have suggested that I write a book about my travel experiences. After all, I average about 125,000 domestic miles each year and truly believe that, if I decorated my home with cheap hotel art and bolted down my television, my “layover” in Bakersfield, CA would be quite comfortable. Not to mention the miles and miles of test driving countless models of white cars you see in most hotel parking lots. Seriously though, I do love my job, and because it does require me to travel a lot, I have learned much and will now pass some tips on to you.

Complaining Gets You Nowhere 

I always try to remember to say “please” and “thank you” while mostly keeping my composure when the inevitable stressful situation arises. Gate agents, flight attendants and front desk clerks are simply messengers often delivering news that no one wants to hear. As a result, I make an effort to: 

• Collect a business card of a manager to let him know how wonderful his team was and how well they handled even the most frustrating of situations
• Send a note to corporate acknowledging the people that delivered great customer service 

These gestures usually ensure even better real-time service. In addition, knowing the management team at the properties you frequent establishes a good rapport and allows for them to proactively prepare for your next arrival being already aware of your preferences. 

Indirect Routes May Be More Direct 

I always consider different airports and frequently know the routes better than the airline representatives. Selecting an alternate airport can often be both cost and time saving provided you don’t mind a road trip. Also, choosing to drive between two clients within 250-300 miles is a good option which gives you the opportunity to stop and see new places. 

If you find yourself with an early flight on your return trip home, staying at an airport hotel is not only convenient but can be a cost savings. You can go ahead and turn in your rental car early and use a complimentary hotel shuttle. Most rental car companies will also drive you to your hotel if you just ask. 

Make Sure to Get Reimbursed for Expenses 

I have used many different expense report tools over the years beginning with the failsafe Excel and remember the days of sending my receipts via FedEx. Fortunately, I now use Concur Expense which is integrated into the Full Sail Partners’ Vision database using the Blackbox Connector. Concur makes filing expenses easy and streamlined. Using only my smart phone, I can take a picture, upload to Concur and complete my line item in seconds. 

Enjoy Your Travels! 

I hope that these tips will make your business travel a pleasure. I do strongly suggest you monitor your rewards programs to ensure you always receive what is due. Got to go, doors are closing, and it’s time for me to fly. 

With built-in approvals and workflows, the Purchasing module in Deltek Vision safeguards against inaccurate or inefficient purchases in a paperless environment. Whether simple or complex, a company’s entire requisition, purchasing and receiving cycle can be run by Deltek Vision Purchasing while maintaining complete integration with the Financial Accounting, Project Management, and Resource Planning Vision modules. Thanks to the built-in workflows and approval processes, all purchases are accurately tracked using the Purchasing module.

See What Deltek Vision Purchasing Can Do for You

Here are some key features of the Deltek Vision Purchasing module:

• Security - Employee access is defined by management controls limiting access to each requisition stage during the purchase cycle and allowing the company to maintain a secure purchasing environment
• Inventory Insight - Cost by location and inventory on hand can be tracked and cost automatically assigned to the projects
• Approvals - Automatic notifications from Vision sent to authorized employees when a purchase request is submitted making the approval process quick and streamlined
• Integration - Inventory information can be shared with other Deltek Vision modules, such as project control, ledger, and financial reporting, resulting in improved data accuracy of projects, accounting, planning and budgeting
• Currency Management - Vision Purchasing can also make use of the Vision Multi-Currency module allowing all purchasing activities to be conducted in multiple global currencies

Gain Control of Your Purchasing Process

Manage the complete purchasing cycle online in a paperless environment offering browser-based requisitions, purchase orders, RFQs and receiving. Highlights include:

• Quickly generated price quotes and requisitions
• Numerous purchasing-related reports
• Support for standard, blanket and service purchase orders and tracking change orders
• Purchase orders created from quotes or requisitions or those previously entered
• Automated requisitioning, including employee-created requisitions and online approvals
• A complete receiving function, including support for partial receipts and backorders

The Advantages of Using Deltek Vision Purchasing

The Purchasing module of Deltek Vision allows project-based firms to manage the purchasing cycle, from RFQs to receiving and voucher entry. This paperless purchasing environment is secure due to the management defined user access and is easily maintained. Full integration with other Vision modules such as Accounting, Project Reporting, Billing, and Project Planning provides data consistency and communication throughout all parts of Vision. Finally, accurate purchasing reports are guaranteed using Deltek Vision Purchasing.

One of the main responsibilities of a project manager is managing the profitability of his projects. It is easy to look at hours charged to a project at billing rates minus the value of those hours at cost to see the gross profit of a project, but gross profit doesn’t give a true picture of profitability. Most firms prefer to look at net profit to measure the financial success of projects with net profit being hours at billing rates minus cost plus overhead.

Luckily, Deltek Vision has a utility to accomplish just that – calculating net profitability on projects.

Overhead at a Glance

What is overhead? Overhead is an accounting term that refers to ongoing general business expenses, not including direct labor or expenses that are reimbursed to firms by clients. For example, business expenses like rent, health insurance and indirect labor are types of overhead expenses.

Overhead allocation must be configured in Vision and the utility must be run on a timely basis – usually at month end. Overhead allocation can give a true understanding of a project’s profitability.

Preparing Deltek Vision for Overhead Allocation

There are several decisions that need to be made during the configuration phase of setting up overhead allocation in Deltek Vision depending on the current configuration. First, the allocation scope needs to be determined. If the firm uses profit centers, additional configuration decisions will have to be considered. For example, if the firm has a “corporate” profit center, overhead may need to be distributed from the corporate profit center to the revenue producing profit centers.

Next, Vision offers two choices for the basis of applying overhead to projects - direct labor or the proration method. The direct labor method applies a multiplier that is used to determine every dollar of direct labor spent on a project. Vision uses the total overhead expense divided by total direct labor to determine the multiplier used when overhead allocation is run.

The multiplier method remains consistent if the same multiplier is in effect. Firms generally prefer the multiplier method because of its consistency. Additionally, project managers always know how much overhead is being applied to their projects. On the other hand, the proration method uses the firm’s actual, year-to-date indirect expenses. Since this method is based on actual indirect expenses, it will change month to month.

The Benefit of Using Overhead Allocation in Deltek Vision

Once overhead allocation has been run, there are several reports, including the project progress, office earnings and project summary, that when run at cost, will display overhead. Running the overhead allocation process will return a report detailing the amount of overhead applied to projects and the actual overhead rate of the firm. Not only does overhead allocation provide a clear understanding of the profitability of the firm’s projects, it also gives an indication of the firm’s overhead costs and the tools needed to increase profits.

There is no shortage of ways for professional services firms to solicit and capture client feedback. Some firms structure their initiative as a once-a-year check-in with repeat clients while others hire outside consultants to conduct third-party client satisfaction interviews. In a previous posting, we reviewed why you might want to start a feedback program. Now let’s discuss specific tools that will help with starting one.

The feedback approach we like to use at Full Sail Partners includes:

• Several “milestone events” throughout the course of complex projects
• Billing thresholds for clients using a la carte services

By identifying this schedule of feedback events in advance, our clients know what to expect of the process and can effectively participate. We manage our program with The Client Feedback Tool from Client Savvy (CFT).

Surely our Existing Data is Worth Something 

When we first started our program, we strategically knew that:

• We would need to scale the volume of feedback without a proportional increase in the program’s administration time
• In Deltek Vision, we already had a system housing key data needed for the program – contact and company names, email addresses, project records, and various other meta data
• Both Deltek Vision and Client Feedback Tool were designed with available API interfaces 

Enter the Blackbox Vision Connector for Client Feedback Tool (VC4CFT) – a pre-built integration between Deltek Vision and CFT. This solution allows us to leverage the existing information in our database, improve consistency across the two platforms and decrease the amount of time needed to manage our routine client feedback program. 

How Does it Work? 

If you’re familiar with how Vision functions, you already know that all operational activity in the system is oriented around projects. Whether you’re completing a schematic design or purchasing paperclips, your work will eventually hit a project in Vision. Managing feedback is setup the same way and all information needed for the process of requesting client feedback is gathered in a project record. While this is typically a “Regular” project, if we’re seeking general feedback from a cross-section of our client base, we just gather those contacts together in an appropriate general project in Vision, either by creating it for that purpose or using one that already exists. 

VC4CFT allows our project managers to send feedback requests in one of two ways:

1. Anytime desired directly from the Project record in Vision
2. As part of the batching function that seeks out eligible projects based on pre-determined rules

For example, during our implementation projects, we first like asking for feedback after we’re about 30% complete. The Connector’s workflows know to look for projects that have recently crossed that milestone based on financial records. Usually about once per month, we have the Connector lookup all the projects that apply under all the rules we’ve put in place. With quick input from the project managers, we’re able to assemble a list of surveys that can all go out at once, driven from a single point of administration. 

Hmm…How Interesting! 

As our clients provide feedback (and we thank you for it!), general information about the feedback history is returned to Vision through the Blackbox Connector. Whether looking at aggregate response rates or figuring out why that one person always opens our requests but doesn’t complete the survey (you know who you are), the most important objective is to enhance the client experience. The combination of Deltek Vision, the Client Feedback Tool and the Blackbox Connector allows us to further leverage our core client information, turn feedback strategies into scalable routine processes, and most importantly, improve the experiences our clients have while working with us.

Revenue Method B is the most widely used revenue method in Deltek Vision. In fairness, this is Vision’s default method for projects whose charge type is Regular. As a result, most firms use it since it’s easy to deploy and seems to work, or so we think.

How Revenue Method B Works

Revenue Method B works well when we have a time & materials project that is billed frequently. In this scenario, we have a perfect match between revenue and costs and can easily measure project performance. On the other hand, when billings and costs don’t align, measuring interim project performance becomes more challenging. Milestone billings or fixed fee projects are billed on cycles that don’t always coincide with a proper revenue accrual or as the associated costs are incurred on the project. Keep in mind that we are not matching revenues and expenses, and this can lead to unreliable financial results during the project life cycle.

For example, a project has a contract provision that calls for $10,000 to be billed at the end of month two. We complete the work in month one at a cost of $3,000 (10,000 billing rate). The financial reconciliation for this project is:

In month one, the project has no income (no billings) and incurs costs of $3,000. With Revenue Method B, the project incurs a $3,000 gross margin loss.

In month two, when the project is billed, we have the reverse situation; $10,000 Revenue and no cost, which results in a $10,000 Gross Margin profit.

So…did we make money or not?

The Results of Using Revenue Method B

From month to month, it is very difficult to assess the true profitability of the project. Therefore, we must wait until a point where billings and costs align or the project is closed. In this simple example, we can look at the end of month 2 and determine our performance. However, what if this project spans over a year or more? With Revenue Method B, we may never have a point where revenue and costs align to make an informed decision on profitability.

To accurately measure performance, a proper matching of revenue and costs is mandatory. Revenue must be earned as work is completed or as the associated costs are incurred. This is the best accounting practice, and with the impending requirement of FASB 606, will now be part of Generally Accepted Accounting Principles (GAAP).

Clearly, Revenue Method B will not work well when the earnings process does not align with the billing process. For those of us using this method, we are reporting inaccurate results to our stakeholders or making manual adjustments to accommodate for Revenue Method B’s shortcomings. Fortunately, Deltek Vision offers alternatives that will help us properly record revenue and comply with FASB 606.

FASB 606 Implications

In May 2014, FASB 606 was released and will be required by December 2018. FASB 606 will render Revenue Method B obsolete for most projects.

FASB 606 has five elements:

• Identify the contract with the client
• Identify the performance obligations in the contract
• Determine the transaction price
• Allocate the transaction price to each performance obligation
• Recognize Revenue as we satisfy the performance obligations

FASB 606 does not reference billings unless billings specifically follow the earnings process described above. Therefore, to be in compliance with this new requirement, we must abandon Revenue Method B for most of our projects.

Revenue Method B Alternatives in Deltek Vision

Stay tuned for the next chapter…User Defined Revenue Methods. We will look at how we can use Deltek Vision to create Revenue Methods that will comply with FASB 606. In the meantime, click here to learn more about FASB 606.