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Transcript of Revenue Recognition Automation - PwC .Revenue Recognition Automation Rony Zucker IT Consulting ,

  • Revenue Recognition Automation

    www.pwc.com

    Rony Zucker IT Consulting , PwC Israel

  • PwC Israel

    Agenda

    Background and Automation Drivers

    Trends

    Challenges

    Goals

    Automation Solutions

    Slide 2

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    Background and Drivers

    Slide 3

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    Changing business models

    Cloud and SaaS offerings

    More solutions/ bundles, essential/ embedded software

    More complex business models

    Global customers and global market

    Digital transformation

    Drivers of revenue recognition complexity

    Slide 4

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    Drivers of revenue recognition complexity

    Slide 5

    Changing regulations

    SOP 97-2, EITF 08-01, EITF 09-03

    New Revenue Recognition Standard

    Increased regulatory scrutiny

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    Drivers of revenue recognition complexity

    Slide 6

    Focus on effectiveness

    Shared services

    Reduction in operational and compliance cost

    Drive to automation

    Shorter close and reporting cycle

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    Revenue Automation Trends

    Slide 7

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    Revenue automation trends and the new revenue standard

    Revenue automation grew out of EITF 08-1 implementationchallenges

    To date boutique software have been dominating

    SAP and Oracle are playing catch up

    Automation is mainly focused on Multiple Element Accounting

    Dual reporting capabilities available

    Automation challenges unique to the new standard (Time value,variable consideration etc.) is currently not covered

    Both boutique software and larger ERP are in the process ofdeveloping Revenue Standard focused tools

    Slide 8

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    Revenue automation trends in the market

    Revenue automation tools in the market

    3rd party tools

    - RevPro

    - RevStream

    - Revenue Edge

    ERP Modules (coming soon)

    - SAP

    - Oracle

    - Netsuite

    ERP customizations and home grown solutions

    Automation implemented using Excel, Access, SQL, etc. combined withmanual processes

    Slide 9

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    Revenue automation based on company size

    Companies up to $300 M use ERP and Manual (Excel), few use 3rdparty tools

    Companies from $300 M to $10B use ERP, 3rd party tools and Manual(Excel), few use custom solutions

    Companies over $10B use ERP, Custom solutions and Manual (Excel), fewuse 3rd party tools

    Company size ERP 3rd party

    tools Custom

    solutions Manual (Excel)

    Up to $300 M

    $300 M $10 B

    $10 B and up

    Slide 10

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    Revenue Automation Challenges

    Slide 11

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    Revenue complexity matrix

    Vo

    lum

    e o

    f M

    EA

    S

    Lo

    w

    Hig

    h

    Standard Unique

    Traditional HW

    Consumer HW/SW

    Social media tailored

    advertising

    Enterprise HW/SW

    Slide 12

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    Revenue automation trends in the market

    Challenges

    Limited standard out-of-the-box functionality available in ERPs

    Maintenance of complex Access and/or Excel models, customizationsof ERPs or manual process

    Complexity and number of systems hosting data relevant for revenuerecognition

    It takes time for functionality to catch up with new requirements (i.e.New Revenue Recognition Standard)

    Slide 13

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    What can be automated

    Automated

    Straight forward single element revenue recognition

    Ratable revenue recognition for service/ maintenance

    Revenue rec. on an automatic pattern (e.g. daily convention)

    Elements breakout with bundled SKUs

    Relative Selling Price calculation and allocation

    VSOE/BESP establishment

    Simple deal/contract defferal (FOB, part. shipment, el. delivery)

    Linking deals/contracts into multiple elements arrangement (MEA)

    Complex deal/contract deferrals

    Deal/contract review

    Manual

    Au

    tom

    ate

    d p

    art

    ially

    au

    tom

    ate

    d

    Slide 14

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    Revenue Automation Goals

    Slide 15

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    Revenue automation implementation success factors

    Success factors

    Separation of revenue recognition from billing

    Upfront cost benefit assessment of what should be automated vs.manually processed through deferrals

    Accuracy, completeness and availability of data at the right levelof details

    Formal process around introduction of product offeringsand promotions

    Upfront review of contracts and promotions, and communicationto Finance

    Forward looking to allow for flexibility of revenue automationsolution to meet requirements of new regulation

    Slide 16

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    Leading Practices Revenue Management systems and processes

    Leading Practice Description

    Standard functionality Leverage core out-of-the-box concepts, structures and functionality as they are intended to be used. Solution against those structures re-evaluating what we do and how we do it to achieve a better fit. Customize only as a last resort

    Global Process Owners Ownership by process across business units enables standardization to support growth while allowing flexibility to operate the business

    Eliminate Complexity Seek to eliminate complexity rather than re-engineer it or move it elsewhere

    Minimize Complexity Seek to eliminate touch points to reduce cycle times and points of failure

    Solve Upstream Seek out issues up stream and fix them at the source

    Future Proof Seek to build flexible solutions so we can more easily meet changing business needs in the future

    Source of Truth The source of truth for all data objects is identified. Downstream changes are best avoided but where made must be fed back to the source of truth in a manner that preserves data integrity

    Error handling Interfaces must provide end user-orientated error reporting and include error-correction capabilities

    Minimize Non-IT boundary disruption

    Where needed we will translate standard objects and messages to native formats to minimize boundary system work

    Slide 17

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    Revenue Automation Solutions

    Slide 18

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    Revenue management system environment

    Sources for Elements Break-out, Arrangements and Revenue Triggers are critical for successful automation of revenue recognition

    Items Master Orders Entitlements

    GL

    Billing

    Revenue Management Tool

    SKU and Elements Details

    Order Information Selling Price Shipping/ fulfillment

    Entitlements Information

    Recognized Revenue Deferred Revenue Revenue Adjustments

    Order Information Selling Price Billing

    Slide 19

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    Revenue automation challenges What can go wrong?

    Vendor selection

    3rd party tools are relatively immature and under staffed

    Insufficient use cases considered or business requirements incompletewhen vetting vendors

    Automation scoping

    Attempting to automate revenue recognition 100%

    Unable to identify all revenue recognition scenarios upfront when definingsystem requirements

    Failure to consider fringe cases non standard revenue scenarios

    Implementation and maintenance

    Rules are too rigid to accommodate change in business model, offerings,and/or regulations

    Varying data sources for the same data element creates added complexity

    Revenue team is not involved in NPI to ensure 3rd party tool is updated tomanage revenue recognition for new products

    Slide 20

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    Revenue automation system implementation risks

    Proper stakeholders are not identified and/or properly involved in theproject

    Business requirements are not clearly defined or incomplete

    Design documentation becomes outdated/incomplete making monitoringimplementation progress and future maintenance difficult

    Project is not properly managed to prevent scope creep and/or overruns

    Inadequate testing prior to go-live as a result of factors above or inadequatetest data to reflect production scenarios

    Proper oversight is not provided during the project

    Data is not converted completely and accurately to the revenue system

    Generally strict observance to a System Development Life Cycle methodology and controls will mitigate the risks above.

    Slide 21

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    Revenue automation general IT risks

    Access control Access to the Revenue Management system should not be granted

    until approved by the application owner Administrative access should be restricted to a limited number of users

    Segregation of Duties Users that can approve changes in the system should not have access

    to make the updates themselves Change control

    Changes should be tested in a non-production environment beforepromoted to production

    Changes to the revenue recognition rules should not be made withoutreview and approval by the revenue manager

    Operational controls Application jobs should be monitored for errors and errors should be

    resolved timely following change control if appropriate. Integration to financial systems

    Data integrity

    Slide 22

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    Summery

    Slide 23

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    Summery

    Slide 24