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Help Billing, Cost & Revenue Managers

Setting up revenue recognition policies

To use Polaris’ revenue recognition feature, you must assign each billable project a revenue recognition policy. These policies define how revenue is calculated for each project.

You can use different types of revenue recognition policies for different projects; different projects may need different policies, based on their negotiated contract.

Polaris has five policies available out of the box. Refer to the table below for information on the out of the box policies. If these don’t meet your requirements, we can create custom policies for you; talk to your Customer Success Manager for details.

Ideally, you should add a revenue recognition policy to a project before you start executing the project, so revenue is calculated correctly from the outset.

To add a revenue recognition policy:

  1. Go to Projects, and add or open a project, and ensure the Summary tab is selected.
  2. Click the Edit button located in the top, right-hand corner of the page.

  1. Find the Revenue Recognition section, and click the icon.

  1. In the dialog that displays, click the Select a Policy field, and select the policy type to be used with this project.

  1. Complete the fields that appear:
    • Contract Start Date
    • Contract End Date
    • Total Contract Value - this field only appears for certain policy types. Beside it, another field with the same name displays, that shows the contract value in your system’s base currency. Revenue is always recognized using your system’s base currency.
  1. Click Save.

About the policy types

Five types of revenue recognition policies are available by default:

Revenue policy type

Description

Type of bill plan required

As incurred

Billable amounts become recognizable as hours are worked.

For example:

If a resource records 10 hours in their timesheet against a task, and that time is billed at $50/hour, $500 of revenue becomes recognizable.

Whether or not hours worked need to be approved to be included in revenue calculations depends on the setting in the Approval Status field of the project’s bill plan.

Time Billing

Draw Down

Same as As incurred, but the recognizable amount is capped at the total contract value.

Time Billing

Equal Distribution (Straight Line)

The total contract value divided by the number of months in the policy becomes recognizable each month.

That is:

Recognizable revenue each month =

Amount remaining in contract / Months remaining in contract

For example:

If your contract begins on Jan 1 and ends Jun 15 (6 months), with a total value of $60,000, $10,000 becomes recognizable each month.

Partial months are included in the calculation, without any proration.

Any

On Invoice

Each month, the amount invoiced in that month becomes recognizable.

For example:

If you sent invoice amounts of $4,000, $2,000, and $5,000 for a project in May, $11,000 would be recognizable for that project, for May. 

Any

Percent of Completion

Each month, the portion of the total contract amount proportionate to the amount of work completed that month becomes recognizable.

That is:

Recognizable revenue =

(Hours worked / Estimated hours) * Total contract amount

But, because estimated hours is for the whole project and not just one month, this formula is used in practice:

=((Actual hours to date/Estimated hours)*Contract Value)-Revenue previously recognized

For example:

Say you have a $10,000 contract for a project, running from Jan to May, that will take an estimated 200 hours. If in Jan and Feb $3500 were recognizable, and a total of 100 hours were worked by the end of March, $1500 would become recognizable for March:

=((Actual hours to date/Estimated hours)*Contract Value)-Revenue previously recognized

=((100/200)*10,000)-3500

=1500

This method is often used for longer-term projects.

Any, though entry of hours against project is required

FAQs

What happens if you change the policy for a project, or add a policy after the project has begun?

We don’t recommend changing policies or adding a policy once a project is underway. However, if you need to do this, all revenue recognized for months that are closed will not update; changes will be reflected from the open month onwards.

Why is a policy’s total contract value shown twice?

You can choose which currency you used for recording the total contract value; then Polaris automatically converts and displays this value in your system’s base currency, too. This is because revenue recognition is always carried out in your base currency, so values are listed in that currency for ease of reference.

What’s the difference between ‘recognized’ and ‘recognizable’?

Polaris will automatically calculate both recognizable and recognized revenue amounts each month, although revenue managers can override the recognized amount, deferring some revenue for later recognition. Recognizable revenue, on the other hand, is dependent entirely on calculations based on your revenue policy, and cannot be overridden.

Why might we defer recognizing revenue?

If you can’t independently confirm a portion of the recognized amount, you should defer recognizing it.

Can a project continue beyond its contract end date?

Recognizable revenue is not calculated beyond the contract end date. You can, however, change the end date, which will update calculations for revenue that has not been closed.

Can a percentage of completion project take longer than the hours estimate?

Yes. there’s currently nothing preventing a project from continuing to yield recognizable revenue beyond the estimated hours. If this occurs, there’s probably an error in the estimate. However, recognized revenue can never exceed the total contract value.

Why is my recognized revenue a negative percentage?

If you update the hours estimate for a project, the percent of revenue recognized can be negative.

For example, you have a percentage of completion project, and when you close the May books, 50% of the revenue is recognized. Then, in June, you update the hours estimate, so the policy recalculates to 40% complete. Since you’d previously recognized 50%, your recognizable revenue for June would be -10% of the total contract value.

Note that the actual dollar amount recognized cannot be negative.

What is the icon used for?

This icon is primary designed for revenue managers, who are recognizing revenue for individual projects. If they make a change to estimates or contract amounts, they can immediately update the revenue recognition calculations to include those changes, to ensure everything is up to date.