It is common in some industries to have statement of work (SOW) or agreements that span multiple deliverables. Projects executed according to this contract have delivery-based funding guidelines such as 25% at agreement signoff, 25% on delivering the first benefit, 25% upon transition, and 25% after 3 months of benefit sustenance covering the warranty period. In other complex client agreements that span a program, there may be multiple smaller components, each having its own benefits as well as a deliverable-based delivery schedule. It is important for the Program Management Office to track such overall funding to individual projects and the various types of fees. In the absence of such clear financial tracking on projects, it becomes difficult to determine how much of the allocated amount has been earned by the performing organization especially when the client cancels one or more components of the program or terminates the entire initiative. This is the case with life sciences and pharmaceutical space where my existing company operates.
Due to the lack of such project based delivery funding allocation mechanism, revenue was lost when clients canceled or when change orders were not properly filed to add funds to the program or project component for operational activities such as additional email sends, direct mail drops, or increased number of changes received from the medical, legal, regulatory (MLR) teams from the client organizations that neither the brand manager at the client company nor project/program managers of the performing company had complete control on. This is when I introduced the concept of "Earned Revenue". It is not the same as earned value management (EVM) but is a financial method.
In this approach, when contracts were received, I worked with the sales and account management team to get a breakdown of the cost. This led to the pricing model through which the overall amount for the various campaigns (each campaign was a project) of a larger program (brand). Each project had its own costs such as management costs (MLR meeting and travel time), development costs, fulfillment costs (sending educationally relevant items (ERI) to the physicians, Recruitment Costs (costs to acquire physicians and send emails and direct mails), incentive costs (supporting fixed price incentive fee schemes), and additional program costs (not shown in the diagram below). When change orders were initiated, they were tracked at the individual projects (as shown below). By breaking down the program costs into these individual areas for every campaign, the actual project work was mapped to the delivery estimate.
Please note that this PMO Portal is something I developed with role-based user access to the project managers and other stakeholders (account and finance team). All references to any project in this diagram are deidentified.
As a result of this approach, there was increased visibility to the granularity of work done in the program and in the individual projects. Say when a program had 4 campaigns with its own breakdown of costs addressed in this way. Then, when campaign 1 is closed, campaign 2 is in transition, campaign 3 is 50% done with the development, and campaign 4 has not started yet, then, when the client canceled the program (due to budget cuts or opportunity no longer relevant), then, we were able to recognize 100% of all the amount for campaign 1, 75% for the revenue for campaign 2, anywhere between 50%-75% for campaign 3 and 0% for campaign 4. It helped with giving back money for which work was done as a performing organization and established guardrails for both the client and the sales teams on how much money can be recovered upon cancelation.
The notion of Earned Revenue is not something that is present in the Project Management Book of Knowledge, but I am thrilled at introducing such a financial allocation method! Yes, the finance was ecstatic about this approach and the sales, account, project, and operational teams didn't feel they were doing free work for some projects.
