Full Sail Partners Blog | Accounting (6)

When Deltek for Professional Services (DPS) 2.0 is released, it will have a new name - Deltek Vantagepoint. In addition to the name change, there will be several enhancements to improve the user experience for both back office and front office users. Here is a sneak peek of how Deltek plans to take the breadth and depth of the Vantagepoint solution to the next level.

Say Goodbye to the Smart Client

With the release of Vantagepoint 2.0, Deltek will begin to push users away from the smart client and direct them to the web browser version. Using this version, they will be able to access Vantagepoint from any device that is connected to the internet using any browser they desire. Think of it this way - Vision is the smart client and iAccess is the web-based version. Keep in mind that if your firm is still using Vision, you may want to consider using iAccess more to get comfortable with the look and feel of Vantagepoint.

Proposals Engine

The proposals engine is now being introduced to Vantagepoint, and it is a great feature. For marketing, the proposal process can be extremely time consuming. With the proposals engine, a person creating a proposal can go through and check off boxes based on the requirements of the RFP, and Vantagepoint will automatically create the proposal. It can include images and pictures, employee resumes, past work examples, references and more.

Combined Opportunities and Projects

The opportunities hub is going away and is now being combined with projects. This has a huge upside for business development. By tracking an opportunity as a project, time and associated costs can be captured to help determine the price of pursuing new work. Additionally, a timeline with milestones and reminders can be developed to ensure business development is staying on top of winning the opportunity.

Simplified Transactions

Moving forward, transactions will be managed within a single location. Users will go to one place within Vantagepoint to enter, edit, report, post and approve transactions. Additionally, you will have the option to enter transactions without files and to post on entry. The line item detailed view will still be available.

Project Information Management Integration  

Deltek Project Information Management (PIM) will now be integrated with Vantagepoint. It will be easy to find since it will be a tab in the project record. By using PIM, firms can easily share project related documents and information within one platform.

Expanded Dashpart Designer

The new improved dashpart designer allows users to create custom dashboards with information that is important to them. They can select bar and line graphs, pie charts, or other graphics as part of their dashboards. Additionally, users will have enhanced control for grouping, sorting, filtering and totaling data all within the dashpart.

Improved Reporting

The reporting screen will now have a preview menu. When users create a report, the multiple clicks required in the past will be eliminated. The reporting tool will also include charts and graphs.

What Deltek Vantagepoint 2.0 Means to Your Firm

One thing is for sure - 2018 to 2019 will be a transitional time for Deltek Vantagepoint. As Deltek continues to further develop Vantagepoint, more features will be added to further enhance this solution. The most important take away for users is that they need to be aware of the changes coming and they need to be ready to embrace them.

On May 28^th, 2014 the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) jointly issued the Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers. At the end of 2018, the way professional services firms recognize revenue from contracts with customers will be significantly impacted. ASC 606 will require firms to recognize revenue when goods or services are transferred to the customer in an amount that is equivalent to the goods or services delivered at that point. Let’s break this down into layman’s terms.

Basics to Revenue Recognition

The revenue recognition principle is an accounting guideline that requires revenue to be shown on the income statement in the period in which it is earned and not in the period when payment is collected. Furthermore, payment can be received prior to or after the delivery of a good or service, but the income statement must reflect the payment for the period in which it was billed. This is part of the accrual accounting basis as opposed to cash basis of accounting.

Impacts of FASB ASC 606

When FASB ASC 606 rolls out, professional services firms that are subject to audit will be required to apply this new standard. The new guideline establishes a five-step process to govern contract revenue reporting:

1. Identify contract(s) with a customer
2. Identify performance milestones in the contract
3. Determine the transaction price
4. Allocate the transaction price to the performance milestones
5. Recognize revenue when the performance milestone has been met

Additionally, if a professional services firm is still utilizing an outdated accounting system or an internally created system, these systems may not be capable of supporting the ASC 606 guideline.

Using the Right Accounting System for ASC 606

Fortunately, Deltek Vision and Deltek for Professional Services users have the right system to accommodate the changes brought on by ASC 606. Since these are project-based ERPs, revenue generation is easily recognized by using the project management tools that are part of these systems. As a result, firms can recognize revenue when milestones are achieved. This is done by using basic revenue generation factors like:

• Job to date spent
• Percentage of completion
• Milestones or deliverables being met

Get Your Firm Ready for ASC 606

Good news! Your firm still has time to prepare for these changes. In most cases, applying the five steps mentioned above will bring your firm into compliance. However, these steps may not apply to all your contracts or for all professional services firms. If you are unsure if your firm is compliant, reach out to Full Sail Partners for more information.

Financial reports are essential to every organization for providing information about the health of a business to internal stakeholders as well as interested outside parties. For many firms, this is a manual process which requires significant time and resources to collect expense and invoice details, code them to the ledger, and then organize high-level summary information. Your accounting staff shouldn’t be spending their time organizing data, but instead analyzing the data to help your firm make better business decisions.

What’s the Solution?

To get started, SAP Concur has organized the key information into many standard dashboards, tiles and over 180 reports available in the standard report catalog. Many of the standard dashboards include the bulk of information your teams need, but they can also be personalized to meet specific requirements or preferences. These dashboards, tiles, and reports can be used to assist managers in tracking budgets and forecasting for future cashflow management. Tracking elements include spend by expense type, time-period, and project or department.

Why SAP Concur Reporting?

To budget for future spending and forecast future cash needs, you need to understand what you have spent in the past and what spend is still outstanding. Firms often use the processed spend data from within their financial or enterprise resource planning (ERP) system. However, the challenge firms face is real time access to spend and accrual data that hasn’t yet been submitted into their ERP system. Concur Analytics Data is available in real time and is available before the expense report or invoice is submitted for payment.

Get to Know Tiles

Tiles in Concur can be used by themselves or pulled into dashboards for a more comprehensive view of spend.

• Top 5 Spend by Category allows users to easily view where your spend has been incurred. This lets you quickly determine if it is incurred in the expected categories, if spending needs to be reduced, and where might make the greatest impact. Accountants can then utilize the Spend Analysis dashboard or Expense Entry Analysis Details report to drill further into the categories and spend by vendor to help negotiate better pricing with your top vendors.

• Top 5 Entry Exceptions by Category enables users to easily view exceptions. This allows your team to identify the impact of any policy changes and see the policies with the most violations that should be investigated further. For even more visibility, they can then drill down into the Policy Exception Detail or Spend Analysis dashboard as well as the Expense Exception Analysis for both Report Level and Report Entry Level reports.
• Accrual Detail lets you identify the largest opportunity to take action on with outstanding spend, and specifically which individuals carry the largest value of outstanding spend. Your managers can either find training opportunities with these top individuals or focused spending cuts. For your accounting staff, this tile will help you determine the impact to future cashflow during tight budget cycles.

• Credit Card Transaction Report is one of the best features since it enables you to easily regain hours or even days’ worth of your accounting staff’s time. Although it may not be the sexiest feature, it is critical for keeping your data in compliance. This report lists all credit card transaction details imported into Concur. It can be used as a comprehensive listing or as an ad hoc exception report to look at certain subsets of credit card transactions. Organizations with a corporate card program need to reconcile their credit card transactions with the card statement to ensure all expenses are being processed, and this report can assist with that reconciliation. Also, this report can be grouped by Employee, then sorted by Posted Date to mirror the format of the credit card statement for simplified reconciliation. Another version of this report, the Unassigned Credit Card Transaction report, can help you quickly find those expenses which have been accrued are not yet assigned to an expense report.

Take a Deep Dive with Reports

For more in-depth analysis and details, reports can help streamline your workflows and drill down into the data you need. Custom reports can also be created by the Concur team if your requirements fall outside of the standard options.

Quick Access with Dashboards

You can start with one of many pre-built dashboards or create your own from scratch by adding tiles and reports to existing templates. While there are many dashboards available, some of the top ones include the Expense Overview dashboard and Policy Compliance dashboard. 

The Expense Overview dashboard is a perfect starting point for budget, cashflow management, and policy compliance all in one place. This dashboard can be used as a starting point to create a new custom “Spend Management” dashboard. Managers can use this detail for budget and forecasting purposes. Personalization recommendations are to retain the Spend, Accruals, and Top 5 Spend by Category tiles as well as adding additional tiles: Spend Summary Trends, Spend Change by Category, and Accrual Detail.

The Spend Analysis dashboard is an incredibly functional dashboard that offers users an in-depth analysis on total spend for a given period along with a summary breakdown of that spend by Expense Type and associated detail. This dashboard can be easily filtered to show specific Spend Categories, Expense Types, or Employees for total spend analysis or grouped and sorted in ways that are meaningful for specific tasks. It allows leaders to identify what their teams have spent in a given period. They can even track individual spending patterns to identify specific areas for follow-up or track improvements in spending behaviors. This report is versatile in that it can be filtered to show trends in spending patterns or behaviors. If more detailed analysis is required, use the Expense Entry Analysis Detail report.

It is recommended that an organization review their travel policy once a year and adjust as needed. It is important to consider the potential impact of a policy change before one is implemented. If an organization does not have a limit on cell phone reimbursement, but needs to create a policy on this expense, the Spend Analysis dashboard can be reviewed to identify average reimbursement rates to establish a baseline for a new policy. This dashboard can also be used to assess the impact of such a policy change to identify how many individuals would have been out of policy if the value was changed.

SAP Concur is a Complete Spend Management Solution

With over 180 reports available in the standard report catalog, Concur can help you quickly and easily analyze your Travel, Expense, and AP automation program to gain valuable insight into how to proactively manage all aspects of your business’s finances. It’s been said that knowledge is power, but having too much information can be as bad as not having enough. You need to be able to see spend clearly so you have more time to run your business. As your business and reporting needs evolve, let Concur and Full Sail Partners help you capture and monitor the data you need.

In almost every business we walk into, AP is the cause of significant, but often overlooked, strain and costs. From sorting through emailed or paper invoices and tracking checks to manually entering accounting information often requiring corrections, these tasks are huge time consumers. Do you know how many people are managing this in your business, and how many hours they spend each week/month? Think about what else they could be doing with this time and how much money could be saved.

Just the Facts

Did you know that 77% of invoices received by companies are in a manual format – either hard copies, PDFs, emails or faxes? The average cost to manually process just one invoice is $34. Using a manual system, there is limited visibility into who needs to get paid what and when, not to mention the possibility of late fees or the dreaded double payment. To add to this issue, any disruptions or delays in payments can jeopardize critical vendor relationships.

By automating your invoices into and through your system and eliminating errors, the average cost per invoice is 80% less. Multiply that times all your invoices and see how much you can save. It just makes financial sense to go with AP automation.

Using AP Automation

With AP Automation, you can connect every step from purchase requests to processing and payment with one solution eliminating paper and costly mistakes. Invoices of all types get captured electronically and matched against POs and goods received before being automatically routed for approval.

The process is a very simple one. The vendor sends an invoice to an email you provide that automatically routes into Concur. The Concur system uses optical character recognition (OCR) to read the invoice and fills in the:

• Vendor information
• Payment request type
• Request name
• Invoice date
• Net payment terms
• Invoice & PO number with invoice received date
• Currency type and amount
• Shipping and tax
• Line item descriptions, quantities, and unit price 

Your staff simply reviews the invoice, makes any corrections necessary, fills out the Project, Phase & Task information, as well as Expense Type, then submits the invoice to be routed through your process. Your firm can also establish policies to automatically route invoices from specific vendors or projects to the appropriate staff members and to code those invoices and flag exceptions.

Your firm’s approval process can be as simple or complicated as you need. The approver has the ability to approve, approve and forward or send back to the submitter. A comment can also be added that will communicate the reason for not approving. The communication thread is maintained with the invoice as it flows through the system and even after it is paid. You can always see what was discussed during the approval flow.

Gain Visibility into the AP Process

All this is great, you say, but I still need visibility. With Concur, you get all these benefits plus easy to access reports and dashboards that allow you to track many KPIs, including:

• Invoice accruals
• Invoice cycle time
• Top vendors by spend - to help give you visibility into where you can negotiate to lower your costs 

If you’re also using Concur for your expense reports, you can truly capture your entire firm spend with one solution and view reports and data across all areas in one place. Below is a diagram that demonstrates the Concur Invoice process: 

Concur Integrates with Deltek Vision

How does this all get back into Deltek Vision, you ask? With the Blackbox Connector, integrating Vision and Concur is simple. Of course, there are some mandatory fields that must be synced – for example, the Vendor ID and name. However, you can choose what additional data is synced.

Do you need to send the vendor type to Concur? Have you added a custom field you wish to include? The Blackbox Connector mapping will allow you to sync the fields you want with a simple click and drag. This works on any field from Vision into Concur. All you do is ensure that a field is in Vision and is in Concur to hold the data. Within some limits, you can also control what comes back into Vision for the AP transaction file including the images associated to the invoices.

Your accounting team will likely be concerned about everything going to the correct GL Account. Concur uses Expense types for the entry data. The Blackbox Connector for Vision to Concur allows for these Expense Types to be translated into Vision GL Accounts based on the project type used, which allows for your GL coding to be automated and standardized, significantly reducing errors.

What about the periods? How do you control what period this goes in? Simple, the AP transactions go into Vision as an unposted status. This gives you the ability to post the transaction to the correct period.

Stop the Madness

AP Automation is a simple phrase that, as you can see, solves a not so simple challenge facing almost every firm. In addition to lowering your costs, you also get the added benefits of better control over and improved visibility into your spending. Automate AP and free up your team to take on bigger challenges and make a greater impact on your firm!

It is amazing that so many people aren’t even aware of the numerous benefits of using the Deltek Vision Payroll module. For starters, the Payroll module in Vision is a robust application that gives you control over your payroll process that you otherwise wouldn’t have if you used an outside payroll company. It allows you to meet the increasingly complex regulatory requirements by defining taxable wages based on any withholding codes that you create. You can also define how other pay wages impact a withholding calculation. All of this can be done from Payroll Withholding Setup. 

How the Deltek Vision Payroll Module Works

If your firm is using the Payroll module to process your payroll, Deltek Vision will use information from the Employee Info Center, the Project Info Center, the Transaction Center, and Accounting Cost/Pay Rate tables to process payroll.

Some of the main features of the Vision Payroll module are:

• 2 overtime multipliers – There are some firms that are required to pay overtime (OT) to hourly employees. For example, you may have to pay time and a half for some OT hours worked and maybe double time for other OT hours worked. Vision can be configured to accomplish this. For added flexibility, you also have the option to bill these overtime hours at a higher billing rate in billing terms.
• User-defined other pay fields – In addition to an employee’s regular salary, you can also add payments for other items. Some firms will use these fields to record bonus payments, moving allowance payments, allowances for fitness club memberships, public transit passes, etc.
• Contribution codes – If you make payments on behalf of your employees, i.e. state unemployment or 401k matches, you can track those payments using contribution codes. Contribution codes can record those amounts by employee. Vision will also post the entry to the balance sheet liability account.
• Withholding codes – In addition to the standard federal, FICA, and state withholding codes, users can create their own user-defined withholding codes to suite your firm’s needs. You can create withholding codes for medical insurance, cafeteria plans, wage garnishments and Roth IRA plans to name a few.
• Direct deposit – Vision supports the direct deposit of funds directly into an employee’s bank account(s).
• Payroll types – Most payroll runs processed in Vision are for your regular weekly, biweekly or semimonthly or monthly payrolls. You can also process adjustment payrolls to make changes to a payroll that has already been processed. Furthermore, you can use this feature to adjust pay, withholdings, regular, overtime, and secondary overtime pay hours, and accrued benefit hours. A bonus payroll run automates the process of giving your employees bonuses.
• Payroll reporting – Using Vision payroll reporting, you can generate worksheets that help you fill out state unemployment insurance reports, quarterly state income tax reports, and federal Forms 940 and 941.
• W-2 forms - The Payroll module prints a W-2 for each employee who was paid during the calendar year. You can print W-2s on W-2 forms that are specially designed for use on computer printers.

Integrate with Outside Payroll Companies

If, however, you decide that your firm would rather use an outside payroll company to process payroll, despite the benefits of using the Deltek Vision Payroll Module, Vision offers an interface option that can export timesheet data to most large payroll companies including ADP, Paychex and Ceridian. With this integration, a third party will be able to manage the complex areas of payroll processing such as tax withholdings.

Do More with the Deltek Vision Payroll Module

It should now be evident to most people that the Deltek Vision Payroll module is an extremely flexible tool that can be used to help your firm streamline the payroll process. The Payroll module additionally provides a wide-range of detailed reports based on the information stored in your Vision database. So, start realizing the benefits of using the Vision Payroll module and improve your firm’s payroll process today.

With the New Year approaching, it is a fitting time for accountants and project managers to review the previous year and identify areas of improvement. While we usually think of New Year’s resolutions for our personal lives, there can also be professional ones. Let’s take a look at some of them.

New Year's Resolution for Accountants

For accountants, it’s all about preparing for next year and making changes that streamline and automate processes. Here are the top five resolutions for accountants:

1. Examine the current revenue/earning methods and determine if the firm is in compliance with FASB 606
2. Take a hard look at the organizational structure to determine if changes need to be made
3. Clean-up the firm’s chart of accounts and overhead projects
4. Define the differences between a project administrator and a project controls role
5. Try to learn more about challenges the accounting team experiences and create solutions

New Year’s Resolutions for Project Managers

Project managers must consider how to evaluate the success of projects and how to better manage them. Here are the top five resolutions for project managers:

1. Use the tools within the project management system to better budget and plan projects
2. Elevate the level of project review beyond invoicing to earned value
3. Better record and manage change orders
4. Build a work breakdown structure based on fee and scope
5. Encourage the team and peers to be timely in submitting time and expense

Start 2018 Off Right!

The New Year brings fresh opportunity to improve a firm’s operations and efficiency. Accountants and project managers must first take time to determine what areas need adjustment or refinement. Full Sail Partners can help! Let us conduct a Navigational Analysis to pinpoint those areas and start 2018 off right. 

Ready or not, here year-end comes. With some organization and planning, however, it doesn’t have to be stressful. Let’s look at some critical tasks your firm should complete as part of the year-end process.

Preparing to Close 2017

First off, the most important task is to document your year-end procedures. Not only those performed in your Deltek system, but all of them so that you have a comprehensive guide to refer to on a year to year basis. You should also create a calendar and develop a year-end checklist as part of your year-end procedures.

Some of the more common year-end tasks for most companies are:

• Reconcile all cash accounts - Verify all transactions have been posted into Vision/DPS to ensure your general ledger balance matches your bank statements adjusting as required.
• Final invoicing – Process all client invoices for the fiscal year.
• Review outstanding accounts receivable - Follow up with clients who have outstanding accounts receivable beyond 30 days. Send past due statements and give them a call. Enter the results of your collection efforts in the comments section of Deltek Vision or Deltek for Professional Services (DPS) invoice review. Year-end is an excellent time to collect your outstanding receivables. If you determine there is uncollectable accounts receivable, be sure to write those invoices off.
• Review unbilled detail - Time and expense transactions that cannot be invoiced to clients should be written off at this time.
• Fixed assets – Fixed assets are larger purchases that are made throughout the year (i.e. equipment, automobiles, furniture, computers, etc.). Are all fixed assets reported on the balance sheet still owned? If not, record the sale or disposal of these fixed assets. Additionally, verify the depreciation on your fixed assets and make any necessary adjustments.
• Employee expenses and accounts payable - Verify that all accounts payable vouchers have been recorded in Vision or DPS. Make your 401(k), SEP IRA, and simple IRA contributions, if you have not done so. Also, try to pay all your vendors and employee expense reports by year-end.
• Notes payable - Verify notes payable (i.e. loans) amounts on your balance sheet match the statements from your lenders adjusting if necessary.
• W-9s – Order 1099 forms and make sure all W-9s from your vendors and/or contractors that are paid $600 or more throughout the year are on file. Don’t forget, 1099s should be mailed on January 31st. 1099 forms can be purchased from most office supply stores or you can order them for free from the IRS (gov).
• W-2s –If you run payroll in Vision or DPS, you’ll need to order W-2 forms which can be purchased from most office supply stores. W-2s should be mailed by January 31st.
• Budget for next year - Create your general ledger budget for 2018.

As part of the year-end process, a new benefit year will need to be opened to roll over any PTO or vacation time into the next year and to start accruals for the new benefit year. 

Initialization Utilities in Deltek Vision and Deltek for Professional Services

There are numerous initialization utilities that need to be performed in Deltek Vision and DPS. Take note that these utilities need to be completed once per fiscal year. Vision and DPS will generate a posting log for the initialization utilities which is available in the transaction center under the posting review report. If your Vision or DPS database is set up with multi-company functionality, the initialization utilities need to run in each company. Make sure to watch this video for more information.

In Vision and DPS, opening the 1st period of your fiscal year also opens the new fiscal year. Depending on your security rights, you can still process in the prior fiscal year if needed.

Is Your Firm Ready for 2018?

Efficiently complete the tasks required for 2017 year-end, and you will be ready. If your firm is having any difficulties performing year-end tasks in Deltek Vision or DPS, Full Sail Partners can be of assistance! Also, remember to check out the new Deltek Customer Care portal for numerous resources available to you.

At a recent client meeting, it was brought to light how many of my clients don’t use Deltek Vision’s approval engine capabilities. I thought how crazy that notion was because using the approval engine can save clients so much paper and time. Let me share with you what this firm experienced in dealing with approvals, and let’s see how many of you can think outside the box and see the benefits of Deltek Vision’s approval engine.

Packed with Paper 

Here’s where the story begins. A little time back, I was with a client when a principal walked in with a banker’s box full of papers. He was preparing to leave for vacation and had carefully assembled all the paperwork he needed to take care of while he was away. I asked what was in the box, and he explained that he had to approve the consultant invoices and then review the client invoices. He had packed all the project folders and everything was ready so he could speed through them on vacation and bring them back to accounting when he returned. 

In my mind, I was screaming for several reasons. First, who wants to work on your vacation? Next, so many things could happen to those papers like losing some on the plane or spilling wine when reviewing them. Not to mention, accounting is put on hold until he returns, the consultant’s invoices can’t get entered until billing is processed and how will he really know when he is done. By the way, how does he even keep track of action items using his box and paper system? 

Let’s Think Out of the Box 

Not wanting to overwhelm this principal just hours before he was set to go, I calmed the voices in my head and simply said, “You know, one day I am going to take your box away from you and you won’t miss it.” With a perplexed look, he asked me how. I explained that we could process the consultant invoices electronically. Accounting could scan the invoices, and after being scanned into the system, various parties would then do their part to approve or reject the invoice in Deltek Vision based on the business rules. 

The entire process could be done in the Deltek Vision system, and the status and notes would be visible to everyone along the way. As soon as there was final approval, accounting could continue processing the invoice and post it in Vision. The copy would be attached to the next Invoice and no box would be required. 

Coming into the Light 

Despite my description of the approval engine process, the principal remained unconvinced. He instantly presented a list of objections which I confidently addressed one by one: 

“I need to see project details as I am reviewing.” “No problem, use the project review tool in the approval application.” 

“Sometimes I want the project manager to look at it before I approve it.” “The system is designed so you can delegate or reassign approvals.” 

“There are also times that I need accounting to send the invoice back to the consultant.” “That’s why when you reject it, you must notate why in the dialog box. The system sends the message to accounting for you.” 

“We must have paper copies for taxes and legal things.” “Maybe, but IRS has been accepting electronic copies since 1995.” 

After my most excellent retorts to his arguments, the principal finally realized that using Deltek Vision’s approval engine capabilities was a viable option. I further explained that with his current Vision system, he can use electronic approvals to handle vacation requests, departmental budgets, expense reports and more. Before, he just hadn’t seen the value of thinking outside of his box. Now his box could instead be used for vacation souvenirs. 

Use Deltek Vision’s Approval Engine 

This is a true story, but not at all unique. In the past, there was not a fully integrated system. Many firms had given up on going paperless, and the final handshake always required touching that piece of paper one last time. However, with Deltek Vision’s approval engine, firms can now truly eliminate the need to physically transport documents in their boxes. Rather, thinking outside of their boxes, they can reduce processing times and provide unprecedented visibility into status and condition of their invoices.

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.

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.