Originally posted by pjorourke
Doesn't this logically produce a Lake Wobegon effect? (I'm assuming here that the realization rate is the average realization rate.)
Not necessarily. Say the company sells a project for $20k. It expects that at standard rates, the project will take $100k to complete. The realization rate is set at 20%. If the actual billings turn out to be $17k, they still bill $20k, and there is a $3k excess booked after "covering costs".
My company also has a number of projects that they sell so cheap, to "get their foot in the door", that the realization is set to 0%, so any time charged to the project code is valued at zero, and essentially all billings are in effect pure profit.
Of course, management is judged based on our ability to keep realization high, although it is also expected that for "signature" clients, we have to bite the bullet and give the work away in order to keep the client happy. We're also graded on the revenues we bring in, which is just the amount we actually bill. The way revenues are measured for performance purposes is very similar to how a MLM works, we get credit for the revenues brought in by the people below us, and the people above us get credit for the revenues I bring in, plus the people below me.