deltek insight 2010: revenue formulas complex revenue calculations & how to use them effectively

CP-235 Revenue Formulas: Complex Revenue Calculations and How to Use Them EffectivelyPresented by:

Traci Rowland, Baker Tilly / Beers + Cutler

Jennifer Goode, Baker Tilly / Beers + Cutler

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Agenda

• Review Available Revenue Formulas

• Explain Calculations & Opportunities for Use– Loaded Labor Formulas (T&M)

– Multiplier Formulas

– Estimate to Complete

– Estimate at Completion

• Functions that Refine Revenue Calculations– Direct Cost Ceilings

– Burden Cost Ceilings

– Cost Fee Overrides

– Multiplier Overrides

• Provide examples of how our clients have used these formulas to generate revenue systematically for more challenging contract types

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Review Available Revenue Formulas

• There are 26 revenue formulas in Costpoint 6.1—based on contract type, these formulas include:

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Transaction-Based(Cost Plus/Time & Materials)

Non-Transaction Based(Firm Fixed Price/Award)

– Loaded Labor Rate– Loaded Labor Rate Plus Cost Incurred On Non-Labor (T&M)– Loaded Labor Plus Non-Labor Plus Burden on Non-Labor– Loaded Labor Plus Non-Labor W/Burden W/Fee– Loaded Labor Rate W/Fee Plus Non-Labor W/Burden

W/Fee– Loaded Labor Rate W/Burden W/Fee Plus Non-Labor

W/Burden W/Fee– Rate Schedule Times Multiplier Plus Non-Labor Times

Multiplier– Labor Cost Times Multiplier Plus Non-Labor Times Multiplier

(Costs) – Labor Cost Times Multiplier Plus Non-Labor Times Multiplier

(Hours)– Fee on Hours Plus Cost Incurred– Cost Plus Fee On Cost– Cost Plus Fee On Cost Current Month

– Do Not Compute– Cost Incurred Using Estimate To Complete– Cost Incurred Using Estimate At Completion– Contract Value Times Percent Complete– Contract Value Times Percent Complete Vs.

Rate Schedule– Fixed Amount Month To Date– Fixed Amount Year To Date– Fixed Amount Contract To Date– Equal To Billings Before Retainage– Equal To Billings After Retainage– Contract Value Less Backlog– Equal To Deliveries– Equal To Project Ledger Sales– Unit Revenue Only

Loaded Labor Formulas

• Used when computing revenue using loaded labor rates

• The labor portion of the formula is computed by multiplying the assigned labor rate by the hours incurred by PLC

• Non-labor amounts posted in the general ledger are included in Loaded Labor Plus Non-labor formulas

• Other variations of Loaded Labor Formulas include:– Loaded Labor Plus Cost Incurred on Non-Labor

– Loaded Labor Plus Non-Labor Plus Burden on Non-Labor

– Loaded Labor Plus Non-Labor W/ Burden W/ Fee

– Loaded Labor Rate W/Fee Plus Non-Labor W/ Burden W/ Fee

– Loaded Labor Rate W/ Burden W/ Fee Plus Non-Labor W/ Burden W/ Fee

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Loaded Labor Formulas

• Loaded Labor Rate Plus Cost Incurred on Non-Labor (T&M) =

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Loaded Labor

Non-Labor

Labor Hours x Labor Rate

+

Loaded Labor Formulas

• Loaded Labor Plus Non-Labor Plus Burden on Non-Labor =

*Example only—burden is applied based on company’s indirect cost pool structure

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Burden on Non-Labor

Loaded Labor

Non-Labor ++

G&A* x Non-Labor

Loaded Labor Formulas

• Loaded Labor Plus Non-Labor w/ Burden w/ Fee =

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Loaded Labor

Non-Labor

Burden on Non-Labor++ + Fee

Non-Labor x (1 + Fee Rate)

Loaded Labor Formulas

• Loaded Labor Rate w/Fee Plus Non-Labor w/ Burden w/Fee =

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Loaded Labor

Non-LaborBurden on Non-Labor++ Fee+Fee +

Labor x (1 + Fee Rate)

Loaded Labor Formulas

• Loaded Labor Rate w/Burden w/Fee Plus Non-Labor w/Burden w/Fee =

*Example only—burden is applied based on company’s indirect cost pool structure

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Loaded Labor

Non-Labor

Burden on Non-Labor++ Fee+Fee +Burden

on Labor

(Labor x Fringe) + (Labor x OH) + (Labor x G&A)*

+

Multiplier Formulas

• Revenue calculated by applying a multiplier to labor and non-labor costs that are posted in the general ledger

Note: labor costs should have a Project Labor Category (PLC) assigned to them

• Variations of Multiplier Formulas include:– Rate Schedule times Multiplier Plus Non-labor times Multiplier

• Revenue calculated using labor rates and rate types

– Labor Cost times Multiplier plus Non-Labor times Multiplier (Cost)

– Labor Cost times Multiplier plus Non-Labor times Multiplier (Hours)• Revenue is computed using actual rates for hours

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Multiplier Formulas

• Rate Schedule times Multiplier Plus Non-Labor Times Multiplier =

*Multiplier amount is based on contractual agreement

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Labor Cost

Non-Labor Cost+Multiplier*x Multiplier*x

Cost Incurred Using Estimate to Complete

• Project costs to complete and inception-to-date (ITD) losses must be estimated first

• ITD allowable costs divided by the estimated costs to complete (entered in the Basic Revenue Info screen at the revenue level of the project)

• This percentage is then multiplied by the contract value less any ITD losses to yield ITD revenue for the project

• The sum of the revenue in the Prior Year Cost and Revenue screen is subtracted from the ITD revenue, and the difference is the current period revenue

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Estimate to Complete

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Example: $20,000 Contract Value

Prior Year Allow. Costs

YTD Allow. Costs

ITD Allow. Costs

1,500

+ 2,500

= 4,000

ITD Allow. Costs

ITD Allow. Costs + ETC

ITD Revenue

÷ 14,000

4,000

= 30% Current Period Rev.

ITD Revenue

Previous Period Rev. - 1,000

6,000

= 5,000

ITD Allow. Costs

Estimate to Complete

Total

+ 10,000

4,000

= 14,000

Contract Value

ITD Cost % Complete

ITD Revenue

x 30%

20,000

= 6,000

Cost Incurred Using Estimate at Completion

• Project costs at completion and inception-to-date (ITD) losses must be estimated first

• ITD allowable costs are divided by the estimate at completion entered less any ITD losses

• This percentage is then multiplied by the contract value less any ITD losses—the resulting figure is compared to ITD revenue already recognized

• The difference between the already recognized revenue and the revenue calculated is the current period revenue

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Estimate at Completion

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Example: $10,000 Contract Value

Prior Year Allow. Costs

YTD Allow. Costs

ITD Allow. Costs

2,000

+ 3,500

= 5,500

Contract Value

ITD Cost % Complete

ITD Revenue

x 55%

10,000

= 5,500 Current Period Rev.

ITD Revenue

Prior Period Rev. - 1,000

5,500

= 4,500

ITD Allow. Costs

Estimate at Completion

ITD Cost % Complete

÷ 10,000

5,500

= 55%

Functions that Refine Revenue Calculations

• The following slides demonstrate a sampling of actual contract revenue scenarios as well as functions to refine revenue calculations

• Direct Cost Ceilings

– Used to restrict the calculation of billing and/or revenue on specific direct cost accounts

– The ceiling becomes the not-to-exceed value for direct costs in these calculations

• Burden Cost Ceilings

– Used to impose ceilings for project/account/pool combinations

– The ceiling becomes the not-to-exceed rate for the project

• Cost Fee Overrides

– Used to establish an override fee percent for direct costs on the project

– The override fee percent is used in place of the percent entered in the Basic Revenue Info screen—if using the Cost Incurred Plus Fee on Hours revenue/billing formula, an override fee on hours can be established as well

• Multiplier Overrides

– The multiplier override percent will be used in place of the percentage entered in the Basic Revenue Info screen or Project Billing Info screen when revenue and billings are calculated

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FFRE Client Examples

FFRE Client Example

• Contract Type—Firm Fixed Priced with Reimbursable Expense

• Special Considerations:• Estimate to Complete• Direct Cost Ceilings

FFRE Client Examples

• Contract Type—FFRE– Labor Revenue—Estimate to Complete– Expenses Revenue—Loaded Labor Rate Plus Cost Incurred on Non-Labor– Billing—Loaded Labor Rate Plus Cost Incurred on Non-Labor

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Contract LevelLevel 1

Billing LevelLevel 2

Labor/RevenueLevel 3

Expenses/RevenueLevel 3

Revenue – ETCDirect Cost Ceiling (A)

Billing Level• Billing Formula – LLRNL• Scheduled Bill

Revenue – LLRNL

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T&M Client Examples

T&M Client Example

• Contract Type—Time & Materials• Special Considerations:

• Burden on Non Labor• Master Rate Schedule

T&M Client Examples

• Contract Type—T&M– Revenue and Billing—Loaded Labor Plus Non-Labor Plus Burden on Non-Labor

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Contract LevelTM01

ChargingLabor

ChargingNon-Labor

ChargingNon-Labor

ChargingLabor

Revenue/Billing/Total Ceilings

TM01.02

Revenue/Billing/Total Ceilings

TM01.01

Revenue & Billing - LLRNLBNL

Revenue & Billing - LLRNLBNL

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USAID Client Examples

USAID ContractClient Example

• Contract Type—Time & Materials—USAID • Special Considerations:

• TCN/CCN Labor• Labor Multipliers• Multiplier Override

USAID Client Examples

• Contract Type—CPFF– Revenue and Billing—

Rate Schedule times Multiplier Plus Non-Labor Cost times Multiplier

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REG LaborLevel 4

ExpensesLevel 4

TCN LaborLevel 4

CCN LaborLevel 4

Option YearLevel 2

Contract LevelLevel 1

Billing/RevenueLevel 3

Revenue & Billing – RSMNLM

Labor Multiplier – 2.0700Non-Labor Multiplier – 1.0000

Multiplier Override

Questions

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Speaker Contact Information

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• Traci Rowland, Director, Baker Tilly– Direct Dial: 703-923-8218

– Email: traci.rowland@bakertilly.com

• Jennifer Goode, Manager, Baker Tilly– Direct Dial: 703-923-8695

– Email: jennifer.goode@bakertilly.com