Orange County Convention CenterOrlando, Florida | June 3-5, 2014

Project system for Revenue Recognition in Professional Service Organizationsby Pramod Patil

� NTTDATA & Global SAP Practice

� SAP PS Result analysis (RA) & Settlement

� FMV and Billing Plan

� WBS revenue planning

� Enhancements

� Implementation challenges

� Business Benefits

LEARNING POINTS

© 2014 NTT DATA, Inc. 3

• 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 strategyExecuting aggressive globalization strategy

NTT DATA – Global IT Innovation Partner

Copyright © 2014 NTT DATA Corporation 4

SAP Implementation at a Glance

Full-Services Approach

• Services that cover Plan, Build,

Manage and Improve phases of

lifecycle.

• Resources with both industry and

product skills

• Solutions : On promise, hosted and

cloud

Full-Services Approach

• Services that cover Plan, Build,

Manage and Improve phases of

lifecycle.

• Resources with both industry and

product skills

• Solutions : On promise, hosted and

cloud

Value Proposition

• Glocal

• Integrated Service Delivery approach

for SMB, Mid-large and LE

• Unique signature solutions by

industry, technology and product

areas

• Lifecycle tools and accelerators

Value Proposition

• Glocal

• Integrated Service Delivery approach

for SMB, Mid-large and LE

• Unique signature solutions by

industry, technology and product

areas

• Lifecycle tools and accelerators

Delivery Model

• Adaptive Shore-wise delivery

• Globally integrated “One Method”

delivery methodology

• Dedicated PMO for ERP services

Delivery Model

• Adaptive Shore-wise delivery

• Globally integrated “One Method”

delivery methodology

• Dedicated PMO for ERP services

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

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

Global capabilities - Local presence

� 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.

Business Scenario

� 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

6

� 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.

SAP PS RVENUE RECOGNITION

7

SAP PS RVENUE RECOGNITION

8

� Billing to actual revenue

� Actual Cost

� Revenue to be recognized

� Cost to be recognized

� Deferred cost adjustment

� Deferred revenue adjustment

SAP PS RVENUE RECOGNITION

9

� 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

Settlement

Deliverable Billing Value Discount

Software

Licenses

25000 50%

Implementati

on services

100000

Hardware

components

50000 30%

Support

Maintenance

50000

BILLING PLAN and FMV

Deliverable FMV

Software

Licenses

50000

Implementati

on services

77250

Hardware

components

50000

Support

Maintenance

38250

Billing Plan• Deliverable value based on discount

• Milestone Billing plan

• Periodic billing plan

FMV• Discount based FMV

• Revenue to be recognized

based on FMV

� 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

WBS REVENUE PLANNING

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

CUSTOM ENHACEMENT

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.

PROJECT REPORTS

� Business process change in how project needs to be created

� Cost and revenue planning is essential for each project

IMPLEMENTATION CHALLENGES

� 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

BUSINESS BENEFITS

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SESSION CODE: 2007

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