Strategic Intelligence for CFOs, Finance Directors, Controllers and Treasurers in Asia  | 
2012, May 18

Case Study: Profit Funnel Shapes and Performance

Home > Features > Case Study: Profit Funnel Shapes and Performance
Features

Case Study: Profit Funnel Shapes and Performance

by Vincent Liew, Aedas, 23 June 2011
topics:
Corporate Performance Management Management
tags:
accounting revenue billing revenue cash revenue profit funnel work in progress

In Aedas, a leading international consultancy on architecture, interiors and master planning, we strive to use innovation and design to enhance the built environment and contribute to the societies where we work around the globe.

 
We need sustained profit to ensure that we have the necessary fuel to drive our ambitious objectives. However, we find that the traditional performance monitoring mechanism is not sufficient to track our profitability because we have many projects across Asia, the Americas, Europe and the Middle East.
 
How can global companies manage projects profitability? At Aedas, we think that the Profit Funnel is the simple yet precise answer.
 
Revenue Categories
Profit, which is the fuel in our tank, is achieved by three stages of inbounds throughout the life cycle of project revenue.
 
  • Accounting Revenue: This is the traditional accounting revenue recognition whereby revenue is accrued based on the percentage of work done to project value. Any unbilled accrued accounting revenue will be treated as WIP – work in progress.

 

  • Billing Revenue: This is the amount physically raised by an invoice and billed to clients. Any un-billable WIP will be written off as project loss.

 

  • Cash Revenue: This is the amount of cash received from the billing revenue invoiced to clients. Any non-recoverable debts will be written off as bad debts.
 
The three categories of revenue described above occur in sequential order throughout the life cycle of a project, though occasionally there may be exceptions.
 
The Profit Funnel
Throughout the stages of a project revenue life cycle, the size of the pool diminishes before turning into final profit in our fuel tank. Factoring in the operating expenses – OPEX, which are the essence to keep healthy operations running – we can visualize the Profit Funnel as shown below:
 
 
12next ›last »


Related articles

Comment on this article

The content of this field is kept private and will not be shown publicly.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Allowed HTML tags: <a> <em> <strong> <cite> <code> <ul> <ol> <li> <dl> <dt> <dd> <a> <p> <span> <div> <h1> <h2> <h3> <h4> <h5> <h6> <img> <img /> <map> <area> <hr> <br> <br /> <ul> <ol> <li> <dl> <dt> <dd> <table> <tr> <td> <em> <b> <u> <i> <strong> <font> <del> <ins> <sub> <sup> <quote> <blockquote> <pre> <address> <code> <cite> <embed> <object> <strike> <caption>
  • Lines and paragraphs break automatically.
  • Use <!--pagebreak--> to create page breaks.

More information about formatting options

Verification Code
This question is for testing whether you are a human visitor and to prevent automated spam submissions.

Accounting and Regulations

CFO innovation Asia Accounting and Regulation the Asia Pacific resource center for senior finance executives, daily news, analysis, best practice and case studies in Accounting Regulation, IFRS, US GAAP, Tax, investor relations, corporate governance, Corporate Law, Financial Regulators, Internal Audit, Audit, Corporate Law.
Auditing, Investor Relations, Law and Compliance, Tax

Finance and Banking

CFO innovation Asia, Finance and Banking the Asia Pacific resource center for senior finance executives, daily news, analysis, best practice and case studies in Corporate Finance, trade finance, treasury and risk management, capital expenditure, Banking, mergers and acquisitions
Cash and Liquidity Management, Corporate Finance, Insurance, Treasury Management

Management

CFO innovation Asia the Asia Pacific resource center for senior finance executives, daily news, analysis, best practice and case studies in Finance Management, Corporate Governance, Human Resource Management, Compensation and Benefits, Mergers and Acquisitions, Professional Development, Corporate Real Estate, Risk Management, Budgeting and Forecasting, Business Process Management, Business Process Reengineering, Outsourcing.
Budgeting and Planning, Business Expense Management, Human Capital Management, Outsourcing and Shared Services, Risk Management

Metrics

Corporates, Financial Services

Technology

CFO innovation Asia Technology the Asia Pacific resource center for senior finance executives, daily news, analysis, best practice and case studies in Finance Systems, Business Intelligence, EPR, Accounting software, CRM, Cloud Computing, Telecommunications, Business Process Outsourcing, Business Process Management Software.
Business Intelligence, Enterprise Software and Systems, Financial Systems, Security