Modern performance management for projects with customer
Corporate performance management - complement or contradiction?
Due to major financial transformations, many companies are looking to modernize the way they do business. In order to achieve genuine modernization, heterogeneous ERP systems are harmonized, or replaced by new ERP generation.
The sustainability of the performance management model, the value flows and hence, the future information needs of management, as suggested by the scope and complexity of transformation projects, are of utmost importance for achieving modernization. The ultimate scope of this process is to ensure a state of the art ’’navigation system’’, rather than just a new, faster ’’engine’’.
For the planning and calculating phase, estimates and assumptions are required, while consumer contracts with performance obligations have an inherently high complexity and are generally recognized and accounted for as dedicated projects. Thus, a reliable and timely process is required for an effective performance management, in order to avoid investing money, time and effort in undesirable developments.
One particularly important topic is that of accounting revenue from contracts with customers for performance obligations satisfied over time pursuant to IFRS 15 Para 35ff.
For IFRS, while general requirements are rather clear from a group accounting perspective, there is room for interpretation when it comes to details. Here are just some of the questions that arise:
1. When and in what account are change requests to be reflected correctly?
2. How can performance obligations be reflected correctly?
3. What costs must be taken in account to determine the provision on onerous contracts?
There is, however, a high number of parties involved, such as group finance functions, project teams or subcontractors, which means that the complex data collection process from various preexisting systems is subject to inherit risk that information may become available too late, be incomplete or insufficiently relevant to performance management.
The requirements of IFRS 15, including those from a performance management perspective, define the benchmark for financial accounting to be met through organizational, process and systems measures. From an organizational perspective, when talking about resources and competences, customer interactions, project implementation and organized financial management have to be thought-through.
We can, however, surely state that modernizing the way we do business is mandatory in order to keep up with market requests and technological developments. In order to do so, the implementation needs clear benchmarks and intensive, regular discussions and negotiations between stakeholders, emphasizing, once again, how joint commitment and efforts help achieve business success.