Revenue recognition in the AEC industries: Not a finance problem - it's an operations wake-up call
By Oussama Kamal, Solution Architect and Product Engineer at Metam
Is Rev Rec a real problem? Absolutely – and It’s bigger than Finance.
In the Architecture, Engineering, and Construction (AEC) industry, revenue recognition (Rev Rec) tops the list of pain points for many of our clients. Companies rolling out new ERPs often demand we “fix Rev Rec first,” while those already live with systems face even tougher conversations – the groundwork is set, and the cracks are visible. But here’s the truth: Rev Rec struggles aren’t born in finance. They’re symptoms of deeper issues in operations, data, and planning that finance inherits at month-end.
This isn’t just an AEC particularity. Any project-driven business – think field services or professional services – faces similar challenges. Projects are your core engine, with long cycles, evolving scopes, and multiple stakeholders. Yet most organizations treat Rev Rec as a finance headache, pouring endless hours into Excel spreadsheets and general ledger (GL) entries to force-fit numbers. Even large enterprises we work with endure month-end marathons, debating estimates with project managers and operations teams amid panic and finger-pointing.
Finance sits at the end of the chain, wrestling with data they didn’t create and processes they can’t fully control. Our favorite example? Rev Rec illustrates why finance transformation in AEC isn’t a siloed finance function – it’s a company-wide imperative.
Why AEC Rev Rec hurts more than most
Project-based revenue under standards like IFRS 15 or ASC 606 ties recognition to performance obligations: percentage complete, milestones, or cost-to-cost methods. In AEC, this means tracking progress across time entries, equipment usage, internal fees, subcontractors, purchase orders (POs), deliverables and the list goes on and on. Simple in theory, chaotic in practice.
Data fragmentation reigns. Field teams log hours in one app, expense report in another, subs invoice via email, POs scatter across systems, and progress reports lag. Without real-time visibility, revenue timing relies on “thumb estimates” from PMs. Throw in scope changes – common in AEC – and budgets drift without replanning, trending or work breakdown structure (WBS) updates.
The repercussions? Inconsistent financials, cash flow surprises, and eroded trust. Finance plugs numbers based on incomplete inputs, while operations pushes back on “unrealistic” accruals. This isn’t just inefficiency; it’s a competitive disadvantage. Competitors who transform operations gain tighter forecasting, better bids, and smoother cash cycles.
Root Causes: Information gaps, tool failures, and planning blind spots
Rev Rec problems are symptoms of “lack of information and operational tools, plus bad planning and budgeting.” Let’s break it down:
- Information deficits: No single source of truth for project reality. Time entry? Spotty. Subcontractor progress? Manual. Deliverables? unreliable. Without granular tracking, revenue estimates are guesses.
- Tooling shortcomings: Legacy ERPs or disjointed apps create silos. Data doesn’t flow from field to finance, forcing reconciliations.
- Planning and budgeting flaws: Weak scoping leaves WBS structures misaligned. Budgets set at kickoff rarely replanned with changes and trends. No disciplined change control means costs overrun silently, distorting Rev Rec.
Organizations ignoring this dig deeper holes. Competition surges ahead, leveraging transformation for operational efficiency, productivity gains, and smart processes. Finance transformation means confronting these hard truths head-on.
The Myth of the “Magic Fix”
Customers often ask: “Can’t ERP or AI agents automate Rev Rec?” We get it, the industry buzzes with promises of magical solutions. But automating garbage data yields garbage revenue. Plug-and-play tools without process fixes? Nonsense.
True transformation starts upstream:
Structure operations around managed projects: Solid scoping, deliverables plan, WBS budgets with replanning.
Embed tracking: Time, POs, subs, equipment, deliverables – all feeding real-time dashboards.
Align teams: Finance guides, operations owns data quality, procurement enforces controls.
ERP provides the backbone, AI enhances pattern detection and forecasting, but processes come first. We’ve seen teams cut month-end close from weeks to days by fixing these foundations.
Why We Love Solving Rev Rec
Rev Rec is our favorite challenge because it’s not just financial. Finance closes the loop, but transformation opens the entire project lifecycle.
Companies that tackle it gain:
- Accurate, timely revenue for better decisions.
- Cross-functional trust, ending blame games.
- Competitive edge through operational excellence.
This applies beyond AEC to any project-centric business.
Join the Conversation: This Series Is for You
In this series of articles, we won’t lecture on “how things should be done.” Instead, we’ll unpack real AEC challenges and solutions using ERP, AI, and, crucially, operational redesign. We’ll share experience, spark intimate discussions, and collaborate on fixes.
Organizations sitting this out?
You’re letting competitors lap you.
Need advice on Rev Rec?
Looking for a soundboard or a second opinion? You’ve come to the right place. Get advice from our experts at Metam – the AEC specialists.
