Overview of Revenue Management in Oracle Fusion Applications

What is Revenue Management?

Oracle Revenue Management Cloud is a centralized, automated Revenue Management product. It enables you to address revenue as defined in the ASC 606 and IFRS 15 accounting standards that came in 2018.

Oracle Revenue Management Cloud is an application that enables you to manage customer contracts and performance obligations easily so that you can address the revenue mandates that are in these new accounting guidelines.

There used to be differences between ASC and IFRS as to how revenue was recognized. But now, the two standards have converged. So the rules for recognizing revenue are now very similar between these two standards. More information can be found on a separate article: Overview of the ASC 606 and IFRS 15 Revenue Management Standards.

Features of Revenue Management

1. Revenue Management allocates revenue according to the published guidelines for the ASC 606 IFRS 15 standard.
2. Identifies and creates customer contracts and performance obligations in those contracts based on both seeded and user-defined rules. 
3. Has a rule-based engine called SubLedger Accounting (SLA) that creates journals for Revenue Management and send them over to either Oracle Fusion Cloud GL or externally, to E-Business Suite GL.
4. Books revenue when performance obligations are satisfied. It processes revenue independently of billing. 
5. Simplifies and automates revenue accounting across product bundles
6. The centralized dashboard to be your system of record for revenue data.
7. Has Pre-defined integration with Oracle E-Business Suite
8. Extract, Transform, and Load (ETL) functionality and Spreadsheet integration.
9. Several core-defined Revenue reports using BI Publisher (BIP) and Oracle Transactional Business Intelligence (OTBI), and also allows users to create their own reporting objects

Key Terminologies in Revenue Management

1. Customer Contract in Revenue Management is not in terms of a physical legal contract, but rather an accounting contract.
2. Performance Obligation is the promise to the customer that needs to be fulfilled so revenue can be recognized. 
3. Performance Satisfaction is the fulfillment of a Performance Obligation. Performance Satisfaction is measured in terms of accounting periods in terms of percentage or quantities.
4. Inventory items are products and services associated with price that your organization sells. This is an important data point in Revenue Management because this will be the basis for standalone selling price and the allocation of the transaction price.
5. Standalone Selling Price (SSP) is the price of a component of a contract if you purchase it separately.
6. Allocation determines the transaction price allocated to various performance obligations in the ratio of SSP. This is based on a relative method of allocation.
7. Transaction Price is the amount of consideration that is expected to be received for the transfer of goods or services. This could be fixed or variable. These are the amounts that are recognized as revenue when the performance obligation is satisfied.

Overview of Revenue Management Cloud

Below is a quick overview of Revenue Management Cloud, including the five steps to revenue recognition and also integration. So you can see integration within other Oracle Cloud products and with products outside of the Oracle Cloud as well.

Revenue Management Cloud can integrate with third-party solutions, including Oracle E-Business suite (EBS). A number of EBS applications such as Receivables, Contracts and Order Management have data that's relevant to this new revenue recognition process. You can use the predefined integration with EBS to bring that data over to the Cloud.

In addition to that, you can integrate to third-party non-Oracle applications. We provide File Based Data Import (FBDI) templates to allow you to use the template, populate them, generate a data file that you can then load to the Oracle Cloud. Or you can also even create a custom program from your third-party non-Oracle application.

In the diagram, there is also inbound integration with fusion receivables and project financial management. Also important is the outbound integration here to the Fusion Cloud General Ledger, or externally, to Oracle EBS GL. This means that a subledger journal is going to be generated and transferred over to GL. Once the Journal Entries have been posted, then the The balances cube (called the "Essbase cube") will be updated and you can create financial statements for your organization.

To know more about these Integrations, check out separate articles on Inbound Integration with Revenue Management Cloud and Integrating E-Business Suite with Oracle Revenue Management Cloud.

In the middle of the Diagram, you can see the five steps to revenue recognition. Below provides a summary of the five steps to revenue recognition:

Five Key Steps to Revenue Recognition

1. Identifying customer contracts. The first step in the process is to identify customer contracts from transaction lines. These contracts can be identified based on common attributes in transaction lines (i.e. Customer Name, Extensible Attributes, etc.). Contract Identification Rules are used to identify these common links together and group them in a contract. The Identify Customer Contracts job set creates the accounting for each stage of the Revenue Recognition Process.

2. Identifying Performance Obligations in those contracts. As mentioned in the terminologies, Performance Obligations are the promises you made to the customer. These are goods or services that you promise to deliver in exchange for payment. Performance Obligation Identification Rules are used to Identify these contractual obligations based on common links in the contract.

3. Calculating transaction Prices. Transaction price is price of the contract or deal. Think of the amount of expected consideration that your organization is going to receive for transferring those goods or services. The amount what you expect to receive from the customer after delivering the service or delivering the product.

4. Allocate the transaction price using Standalone Selling Prices. Determines how much revenue is going to be allocated for each service and product based on the Standalone Selling Price.

5. Recognize the revenue when that performance obligation has been satisfied. 

Revenue Management Process Flow

Before you can effectively use Revenue Management, there are a number of items you would have to configure first, such as registration of source systems, set the standalone selling prices, set the default accounts to use, etc. 

The Diagram below shows the steps to configure Revenue Management:

1. Extract Transform and Load. You would need to register data sources and source systems in Revenue Management to be able to import transactions from other applications. You can import these data using FBDI templates and load them into the Universal Content Manager (UCM) Server, before going into the Revenue Management Cloud tables.

2. Manage Standalone Selling Prices. You need to populate prices in the system to allocate the transaction price of a customer contract. That customer contract is going to products and/or services and each of those products and/or services need to have a standalone price. Revenue Management is going to use these standalone selling prices as the basis to allocate revenue. You can run processes in Revenue Management to calculate the prices or you can load them from a spreadsheet template.

3. Five Steps to Revenue Recognition. The Five steps to revenue recognition is where the actual process takes place. As previously mentioned, the five steps is to identify the customer contract, identify performance obligations, calculation of the transaction price, the allocation of that transaction price, and finally, recognize the revenue when you have satisfied the performance obligations.

4. Accounting. With the use of the SubLedger Accounting Engine, we will create accounting journals based on rules we have set. These rules are created Component by component, there are rules that are going to impact how the description of the journal looks like, what the journal lines are going to have, which accounts, which descriptions, etc. Create Accounting is the process that is going to look at these rules and create the journal.  Once the journal is created, it can be sent to GL, either Cloud GL or E-Business Suite GL. Financial statements such as balance sheet reports, and income statement reports can then be generated from the Essbase Cube.

A Working Example of Revenue Management

Below is an example a contract with a telecommunications company:

Item	Standalone Selling Price	Satisfaction Start Date	Satisfaction End Date	Revenue Recognized
Smart Phone	490.68	07/01/2016	07/01/2016	490.68
Voice Plan	588.82	07/01/2016	06/30/2017	50.01 (1st Month)
Data Plan	392.5	07/01/2016	06/30/2017	33.34 (1st Month)

The customer contract is going to include these inventory items: a smartphone, a voice plan service and a data plan service. Each has a defined standalone selling price, which is key to allocate the revenue properly. There is a time frame on when we can recognize revenue.

As for the Smart phone, we will recognize the revenue immediately, as the performance obligation has been fulfilled right away. For the Voice and Data plan, revenue will be spread out in terms of when the performance obligation will be fulfilled. We cannot recognize revenue immediately because we haven't completely fulfilled the service yet.

At contract inception, you are going to be seeing accounting entries, even prior to billing. So prior to billing, there will already be accounting entries generated under the new ASC606/IFRS 15 standard.

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