Good day, hope everyone is doing well.
A client has an upcoming go live on a new entity and wishes to recognise revenue based on actual costs vs estimate/forecast costs. (they will also bring in b/f balances on existing projects)
Natural recommendation is fixed price projects but they have advised me that project cost and revenue forecasting will not be in place before go-live.
Are there any alternative methods to achieve the recognising of revenue based on actual costs vs estimate/forecast costs?
Example of an in progress project :
Total project value - 300k USD
Projected costs - 50k USD
Actual costs to date 15k USD
Revenue to date based on POC = 15k/50k x 300k = 90k USD (being 30% POC)
Above, will be the brought forward / beginning balance amounts.
Then going forward we of course incur further costs and recognise revenue in line with this; say further 20k costs this month;
so next recognition at month-end being 20k/50k x 300k = 120k USD (being 40% taking us to 70% POC to date)
Gut feel is it could get messy if they wish to change to Fixed Price later on and best approach is to have FP projects in place from day 1.
Thank you,
Matthew
