Profit Sharing

Profit Sharing or Profit Center Sharing is accomplished by assigning Organizational Units (aka Profit Centers) to share in a project’s revenue and expense. The level of the organization that can be assigned as Sharing Profit Centers is established in Global Settings>Project Admin Tab>Profit Centers Section . When Organizational Units are assigned to a WBS, all employees of that organization (or their Children Org Units) can charge time to that portion of the WBS. More on Organizational Units (aka Org Units)

Profit Center Sharing Levels are established for the four PM types (Labor, ODC, OCC, and ICC). These levels not only dictate the part of the WBS to which org members can charge, but also represent where organizations can establish intra-profit center caps and rules for Revenue Recognition.

More specific cross-sharing can be established in Profit Center (Org. Unit) reporting where the department to receive cross-charges can be varied between nodes at the sharing level.

Revenue Recognition rules and upset amounts can be established for the owning Profit Center and Sharing Profit Centers. The level where these rules and caps exist must be established for both the owner and the Sharing Profit Centers. It is then calculated for the Owning Profit Center that receives any under-runs or absorbs any over-runs. The owner level cannot exist below the sharing level. More on Revenue Recognition

Key Concepts

•	The Profit Sharing applet is where the Profit Sharing is managed. More on the Profit Sharing applet

•	This utility credits the effort amount (labor at a billing rate and expense at the marked up value) based on the charging profit center. It then debits the owning profit center of the project for the reverse amount.

o	Time and material projects this will yield a profit-sharing based on each center’s effort amount.

o	Fixed Fee and Not-To-Exceed type projects all over-run and under-run will be attributed to the owning profit center.

•	The second function of revenue recognition is profit sharing within projects. Multiple profit centers can earn revenue on a single project by establishing sharing profit centers on a project. This is done by opening a project and right-clicking on the project name. More on Project Setup

o	The sharing profit centers live at a specified level of the WBS on any given project.

o	Each node at the sharing level can have profit centers assigned for sharing. One of the sharing centers can be designated as the prime sharer.

o	In addition to sharing profit centers, one profit center can be designated as the project owner. This is set at the Bill Terms Node (Project). There are three types of profit centers: owners, primary sharers, and other sharers. More on Profit Centers (aka Org Units)

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All profit centers established at each node can have revenue methods set for the four PM types. In Global Settings>Project Admin Tab>Profit Centers, the level in the organization structure (OBS) project at which sharers live. The owners must then reside at the same level or above. For instance consider the following OBS.

In this scenario, if sharers were designated to live at the 2nd level, shares could be one of four org units: NY-AR, NY-EN, LA-AR and LA-EN. Owners could not only be one of those four, but, in addition, the two offices NY and LA.

When revenue is calculated, it is done in three steps. First, the regular sharers are calculated, then the primary shares, and, finally, the owners. This allows primary sharers and owners can bear the brunt of overruns, or, in the case of owners, gain the benefit of under-runs. For instance, sharers can be set to earned revenue at billable values with no cap while the owner is set with a cap. If the overall project cap is exceeded only the owner would get penalized in this manner.

When the sharer's revenue is calculated, only transactions charged to that profit center are considered. Note that the primary will also be calculated.

The primary sharer for a project node is used only when an overall cap for the node has been established. Revenue calculated for the entire node and its children (after sharing has been calculated) is compared with the overall node cap. If the revenue exceeds the overall node cap then the primary will absorb the over-run.

After revenue has been calculated for sharer’s, primary and other, revenue is again recalculated for the entire project using all transactions. Any variance between what has been calculated by the sharers and what is now calculated by the owner is applied to the owner.