The forecast method allows you to choose how you want future revenue to be distributed across the months. There can be separate methods for:
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The figures: Month 1 (December)
Total remaining revenue is $60,000 and there are 5 months remaining on the job - by using the even distribution method, there would be $12,000 forecast for each of the remaining months.
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The figures: Month 2 (January)
Revenue recognised to date = $5,500
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Remaining total net revenue = $54,500 [$60,000 - $5,500]
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Even distribution of total net revenue = $13,625 per month [$54,500/4 (months remaining)]
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By using the billing plan method, the net revenue forecast ensures that 25% of net revenue will be forecast each month (as per the billing plan) which equals $15,000 per month.
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If we then recognised $5,500 revenue on this job in Month 1 (December) and ran the NRF again in Month 2 (January) this is what would see:
Revenue recognised to date = $5,500
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Remaining total net revenue = $54,500 [$60,000-$5,500]
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Forecast of total net revenue = $13,625 per month [25% x $54,500]
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The figures: Month 1 (December)
Remaining net revenue = $60,000 (no revenue has been recognised on this job as yet)
40 hours of effort is scheduled in December equating to 16.5% or $9,900*
60 hours of effort is scheduled in January equating to 23.7% or $14,200*
50 hours of effort is scheduled in February equating to 20% or $12,000*
60 hours of effort is scheduled in March equating to 23.5% or $14,100*
40 hours of effort is scheduled in April equating to 16.3% or $9,800*
Scheduled value total = $60,000
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*Total sales value is based on booked resources within the month, according to their hourly sales rate
Forecast values calculation: Month 1 (December)
Month 1 = ([remaining total revenue (price quote net revenue - total actuals)] / [total remaining scheduled (total scheduled - month 1 scheduled)] * schedule value for month 1)
Month 2 = ([remaining total revenue (price quote net revenue - total actuals)] / [total remaining scheduled (total scheduled - month 1 scheduled)] * schedule value for month 2)
Month 3 = ([remaining total revenue (price quote net revenue - total actuals)] / [total remaining scheduled (total scheduled - month 1 scheduled)] * schedule value for month 3)
Month 4 = ([remaining total revenue (price quote net revenue - total actuals)] / [total remaining scheduled (total scheduled - month 1 scheduled)] * schedule value for month 4)
Month 5 = ([remaining total revenue (price quote net revenue - total actuals)] / [total remaining scheduled (total scheduled - month 1 scheduled)] * schedule value for month 5)
December = $9,900 ([60,000/60,000]*9,900)
January = $14,200 ([60,000/60,000]*14,200)
February = $12,000 ([60,000/60,000]*12,000)
March = $14,100 ([60,000/60,000]*14,100)
April = $9,800 ([60,000/60,000]*9,800)
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If we then recognised $5,500 revenue on this job in Month 1 (December) and ran the NRF again in Month 2 (January) this is what we would see:
The figures: Month 2 (January)
Revenue recognised to date = $5,500
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Remaining total net revenue = $54,500 [$60,000-$5,500]
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60 hours of effort is scheduled in January equating to 23.7% or $14,200
50 hours of effort is scheduled in February equating to 20% or $12,000
60 hours of effort is scheduled in March equating to 23.5% or $14,100
40 hours of effort is scheduled in April equating to 16.3% or $9,800
Scheduled value total = $50,100 [schedule value for remaining months (Jan-April)]
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Forecast values calculation: Month 2 (January)
Month 2 = ([remaining total revenue (price quote net revenue - total actuals)] / [total remaining scheduled (total scheduled - month 1 scheduled)] * schedule value for month 2)
Month 3 = ([remaining total revenue (price quote net revenue - total actuals)] / [total remaining scheduled (total scheduled - month 1 scheduled)] * schedule value for month 3)
Month 4 = ([remaining total revenue (price quote net revenue - total actuals)] / [total remaining scheduled (total scheduled - month 1 scheduled)] * schedule value for month 4)
Month 5 = ([remaining total revenue (price quote net revenue - total actuals)] / [total remaining scheduled (total scheduled - month 1 scheduled)] * schedule value for month 5)
January = $15,447 ([54,500/50,100]*14,200)
February = $13,054 ([54,500/50,100*12,000)
March = $15,338 ([54,500/50,100]*14,100)
April = $10,661 ([54,500/50,100]*9,800)
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| Tip |
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This method of forecasting is for agencies who recognise revenue based on WIP, and want a simple calculation to project their future revenue. |
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The figures: Month 2 (January)
Price quote net revenue = $60,000
Previously recognised revenue to date (total actuals) = $5,500
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Scheduled value month 2 = $16,300
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Total remaining schedule value = $50,100 ($60,000 - $9,900 scheduled in month 1)
Percentage complete of price quote net revenue = 39.2%
Forecast values calculation: Month 2 (January)
Month 2 = ([total actuals + scheduled month 2] / [total actuals+ total remaining schedule] * price quote net revenue) – (total actuals)
Month 2 (January) $18,025 = ([$5,500 + $16,300] / [$5,500+ $50,100] * $60,000) – ($5,500)
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The figures: Month 3 (February)
Price quote net revenue = $60,000
Previously recognised revenue to date (total actuals) = $5,500
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There was no revenue recognised in month 2 on this job
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Scheduled value month 3 = $12,000
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Total remaining schedule = $33,800 ($60,000 - $9,900 - $16,300 scheduled values for months 1 & 2)
Percentage complete of price quote net revenue = 44.5%
Forecast values calculation: Month 3 (February)
Month 3 = ([total actuals + scheduled month 3] / [total actuals+ total remaining schedule] * price quote net revenue) – (total actuals)
Month 3 (February) $21,218 = ([$5,500 + $12,000] / [$5,500+ $33,800] * $60,000) – ($5,500)
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The figures: Month 2 (January)
50 hours of effort is scheduled in January equating to 27.16% or $16,300*
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*Total sales value is based on booked resources within the month, according to their hourly sales rate
Forecast values calculation: Month 2 (January)
Month 2 = (value of scheduled work - month 2)
Month 2 (January) = $16,300
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| Tip |
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This method of forecasting is good for agencies who recognise revenue based upon WIP, and want a simple calculation to project their future revenue on predicted time spent. |
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