Overview of Recoverability

Recoverability is a key concept used to measure financial results for a project, portfolio or client.

At the most basic level, recoverability shows how much was billed to a customer compared to the value of effort that was worked. For a services business the goal is to be 100% recoverable - meaning that each hour that is worked is able to be charged to the customer at the agreed rate. Of course there are many factors that go into what can be invoiced, but for this article we'll keep it simple and ignore any reasons that could mean that work isn't going to be invoiced.


How recoverability is measured

Within Project Works we look at recoverability through two different lenses. While they are different, both views are equally important.

The two recoverability concepts are timesheet recoverability and invoice recoverability. 

Timesheet Recoverability

  • Measured on a month by month basis
  • Calculated based on the total invoiced (in any month) against the timesheet entries for a month
  • The timesheet recoverability for an earlier month can alter over time, if a future invoice includes previously unbilled timesheet entries
    • if $10,000 was worked in September and only $5,000 was invoiced in September, the timesheet recoverability would show as 50%
    • In October, if the $5,000 of September work in invoiced, the timesheet recoverability for September would be updated to 100% 
  • The recoverability % shown on the Recoverability screen for a Client or Project is the timesheet recoverability
Timesheet Recoverability calculation

Invoice Recoverability

  • Measured on an invoice by invoice basis
  • Calculated based on the total invoiced against the timesheet entries included on the invoice (regardless of which month they were worked)
  • The amount the customer was invoiced for all the timesheet entries included on a particular invoice, regardless of when the time was worked
  • The recoverability % shown on the Month End screen is the invoice recoverability
Invoice Recoverability calculation


Examples

The best way to see how recoverability is calculated is through some examples. The following examples show how recoverability would be calculated for a month, based on three different scenarios.

All work invoiced at the full rate

  • For the month of September, a total of 10 hours was worked at a rate of $150 per hour (Total value worked = $1,500)
  • The invoice issued at the end of September includes all time that was worked and fully charged (Value of Billed Work= $1,500
  • Value of Billed Work ($1,500)  /  Total Value Worked ($1,500) = Recoverability (100%)

The value of some work can not be invoiced (eg, a fixed price engagement)

  • For the month of September, a total of 10 hours was worked at a rate of $150 per hour (Total value worked = $1,500)
  • The invoice issued at the end of September includes all time that was worked, but only $1,000 can be charged (Value of Billed Work = $1,000)
  • Value of Billed Work ($1,000)  /  Total Value Worked ($1,500) = Recoverability (67%)

Some work left unbilled for the month, to be included in a future invoice

  • For the month of September, a total of 10 hours was worked at a rate of $150 per hour (Total value worked = $1,500)
  • The invoice issued at the end of September includes 6 hours of work ($900) with 4 hours left unbilled (Value of Billed Work = $900
  • Value of Billed Work ($900)  /  Invoiced value of Billed Work ($900) = Recoverability (100%)
  • NOTE: The 4 hours unbilled time does not reduce the recoverability as the time has not been billed at this point. It will be included on a future invoice or formally written off. Likewise,