Profit Margins to be applied for Projects

Question

Hi Dina,
My client is has a business process as follows:
1) Contract is received from customer and BoQ estimates are plotted
2) Based on the estimates, a profit margin at contract level is arrived.
3) Then the work order is issued to the subcontractor (a vendor).
4) At milestone completion subcontractor raises a milestone billing (ap invoice) to my client
5) On the other side the bill to customer is raised based on contract terms (irrespective of subcontractor terms). It is ensured that the profit margin is maintained on every bill raised to the customer. Revenue is recognized when billing is raised. They follow the simple logic of Revenue =Profit %-age * Actual Cost]
So, firstly, where i can mention in project billing as what is my profit margin %-age, so that the margin is calculated automatically on my cost.
secondly, how would i ensure that my profit margin is preserved on every supplier invoice raised by subcontractor
Please help !
Regards,

Answer 1

Hi
I assume the contract billing method is a fix price based on deliverables.
You will bill the customer by entering deliverable based events.
To meet your requirement, I suggest you generate revenue based on automatic events. For that you will need to develop a billing extension.
You could enable a DFF on contract, agreement or project level. The right place for the DFF depend on the mapping of project to agreement. Users will enter the expected margin percentage on that DFF.
Alternatively you can enter the estimated costs as cost budget of the project. So margin could be derived by a formula of agreement value divided by the cost budget amount.
The billing extension will calculate the revenue amount as: Accumulated cost * agreement value / cost budget amount - Prior Accumulated revenue.
If you don't use budgets and maintain the margin on DFF the formula will be: Accumulated cost * Estimated margin - Prior Accumulated revenue.
As project is progressing you may need to validate the margin estimate. If actual costs differ from originally estimated/ budgeted cost, then users will need to update the budget or update the percentage on the DFF.
Dina