Imagine a company that spends twelve months delivering a complex project for an important client. The work is progressing steadily, the team is fully engaged, and costs are increasing week by week. However, the final invoice will only be issued once the project is completed.

In such a situation, how can the company realistically assess its financial condition? Does it mean that for an entire year the organization reports no revenue from its most important contract?

This is the everyday reality of many engineering, architectural, IT, and consulting firms. Accounting for long-term contracts is one of the biggest challenges in financial management. Fortunately, there is a method that allows companies to recognize revenue that has not yet physically reached their bank account—the Percentage of Completion (POC) method. And the tool that enables this process to be executed precisely and automatically is a modern ERP system.

Table of contents

• What the POC method is and why it matters for company finances
• How an ERP system calculates project completion percentage
• Pitfalls and mistakes: where companies lose money
• Dedicated ERP systems – why they are worth implementing

What is the POC method in long-term projects and why is it so important?

The Percentage of Completion (POC) method is an accounting approach that allows revenue and costs to be recognized proportionally to the progress of a project. Instead of waiting until the project is finished, companies can report an appropriate portion of revenue and profit in each reporting period—monthly or quarterly.

This approach follows a fundamental accounting principle: the matching principle, which states that revenues and costs should be recognized in the same period.

Why is this important? Because it allows companies to realistically evaluate the profitability of ongoing activities and the overall financial health of the organization.

Without it, executives, investors, and banks would see a distorted financial picture: months of only costs followed by one large spike of revenue when the project is completed. This makes financial performance difficult to analyze over time. Continuous revenue forecasting therefore becomes a foundation of financial stability.

How does an ERP system calculate the percentage of completion?

Calculating POC manually using spreadsheets is not only time-consuming but also highly prone to errors. A modern ERP system designed for project-based organizations becomes the central “nervous system” of this process.

It gathers all necessary data in one place, including:

• Incurred costs – salaries, materials, subcontractors
• Recorded working time – hours spent by specialists on project tasks
• Project schedule and progress – milestones and completed stages

Based on this data, the system automatically calculates the level of completion using one of several commonly applied methods.

Cost-to-Cost method

The percentage of completion is calculated as the ratio between costs incurred to date and the total estimated project cost.

Units of Delivery method

Completion is measured by comparing the number of delivered units with the total number of units expected in the project.

Labor Hours method

Completion is calculated as the ratio between hours worked and the total number of planned labor hours.

Pitfalls and mistakes – where companies lose money

Incorrect revenue recognition in long-term projects can lead to serious financial issues. Mistakes may result in overstated profits, liquidity problems, or even tax complications.

Some of the most common issues include:

Poorly defined scope of work
An imprecise Statement of Work (SOW) is often the first step toward financial problems. Without a clearly defined scope, it becomes difficult to measure progress and control deviations.

Managing projects in spreadsheets
Manual data entry inevitably leads to errors and outdated information. Making decisions under these conditions is like navigating through fog.

Inaccurate estimates and lack of updates
Project environments are dynamic. If cost and time estimates are not regularly updated, companies may discover project losses far too late.

Lack of financial visibility
Without integrated data on costs, budgets, and billing, management loses the ability to assess project profitability.

Dedicated ERP – why it’s worth having one

Revenue recognition using the POC method becomes significantly simpler when supported by the right technology. A dedicated ERP system for project-driven organizations—such as Deltek Maconomy—is an integrated platform that combines finance, project management, and resource management into a single ecosystem.

With such a system, companies can:

• monitor project progress and costs in real time
• automate revenue recognition and financial processes
• generate precise financial reports

This enables proactive profitability management and provides full transparency across projects and business operations.

Accurate revenue recognition in long-term projects is not magic—it is the result of implementing the right processes supported by the right technology.

Magdalena Szyba
Business Development, Todis Consulting

Thank you for reading! I’m glad you made it to the end—feedback is always welcome.

Feel free to contact us!