New to project financials? Learn which processes and KPIs to master

At TimeLog, we have developed a 4-level model for project financial management to help professionals evolve their skills and expertise. As you progress through each level, you will work on specific processes and advanced key performance indicators (KPIs) to enhance your project financials.

Our model is based on over 20 years of experience working with professional services organisations in the Nordics, ensuring its relevance and effectiveness in the industry.

In this blog post, we'll focus on the foundational level of project financial management - or as we like to call it:  

Sidekick level: Collect high-quality data

As you embark on your journey into increased project profitability, whether you're a project manager or part of the finance team, it's crucial to lay a strong foundation. Start by focusing on the essential building blocks: Processes and KPIs.

Ensuring smooth and efficient operations is vital for securing a balanced workload among project members, aligning everyone in the same direction, and obtaining valuable, high-quality data on time. This data forms the foundation for making informed decisions throughout projects.

Sidekick level goal: Collect high-quality data

The main goal for the sidekick level of project financial management is to start collecting high-quality data, which is essential for keeping projects on track.

Quality data comes when your company masters these four processes: daily time tracking, review of work hours, comments on tasks, and task control.

Let's explore the processes at the sidekick level.

1. Daily time tracking

The best companies in our customer base track time during or at the end of each day.

Experiences from our customers show that you increase billable work time by 30-60 minutes per day when you track time every day instead of once per week or once per month.

You want daily time tracking for multiple reasons, but most of them can be summed up as follows: Data quality.

People can’t remember what they worked on for how long – yesterday.

This goes for all the essential information you want as a project manager. When you look at the logged entries, you want to know:

• What project?
• Which task?
• For how long (time)?
• What was made (a comment describing the task)?

Even if people think they can remember all these things the next day, next week or next month, the truth is that they can’t. 

And as the project manager, when the daily time tracking process is not smooth, you also miss out on the option of just-in-time corrections.

Also read: How to nudge your employees to track time

2. Work hours review

While most companies track time to some extent (even if they don’t do it daily), this process is often overlooked: Reviewing worked hours. 

When we ask our customers how project managers (or others) approve and review the registered hours, the response usually goes: 'We don’t review the hours. We bill the client.'

But the benefits of regular, e.g. weekly, follow-ups on time entries include:

• Get insights early – before the project goes south.
• Understand the status of all the projects you're managing.
• Learn how different people are working.
• See which tasks are completed or lagging.

Reviewing hours is a powerful process, but customers struggle with a structured approach.

Click to get a pro tip for reviewing work hours

 

Use the TimeLog report Allocated/Registered time, which shows employees, tasks, and time allocated and registered or actual time used.

3. Comments on tasks

The third process at this level is ‘comments on tasks’ and quality-checking the comments as the project manager.

Comments on a task allow users to add a ‘free text’ or description to a time entry.

The project manager can use this information for qualitative analysis, and the comments can also serve as documentation for the customer, clearly stating what the project members have been working on and for how long.

When we create a new offer and budget quotation for a client, we can estimate the price more accurately by utilising the comments on each time entry."

Grith Høegmark

CEO, Einfach

4. Controlling tasks

This process is small but essential for data quality. It simply ensures hours are registered on the correct tasks (and moved if not).

In a professional services automation platform like TimeLog PSA, when you track time, you select a project and then a task or subtask. While many people find the correct project, it becomes more vague when choosing the proper task.

But again, if you don't have the correct data—down to the tasks—you lose valuable information.

Also, be aware that if you see a mismatch between what people are tracking time on versus what you expected them to track time on, it can also indicate a more considerable mismatch. It can illustrate a crucial misalignment between project management and those executing, which needs to be addressed.

With that, you're ready to introduce the foundational project management KPIs you need to know.

Download the e-book Project Managers Guide to Project Financials.

The three project management KPIs to get your project financials off to a great start

• Burn rate (in hours)
• Realised project factor
• The 10-25% rule 
  
  

Burn rate (in hours) 

The burn rate shows how efficient your project is and monitors whether it is on track in terms of hours.

• Actual time spent on project: The amount of time (in days, hours...) spent working on the project.
• Planned time for project: This is the total time planned, allocated or budgeted.
• Burn rate: Tells you what percentage of the planned time has already been used.

To interpret the burn rate

• Burn rate < 100%: The project is currently on track or ahead of schedule. You’ve used less time than planned.
• Burn rate = 100%: The project is on schedule, and you’ve used exactly the amount of time planned.
• Burn rate > 100%: The project is behind schedule. You’ve used more time than was initially planned or budgeted.

2. Realised project factor

The realised project factor is another vital project management KPI that will help you steer project finances, monitor and optimise your project management practices, and ensure that projects are delivered within the expected time and cost parameters.

There are multiple formulas for calculating this KPI. In TimeLog PSA, we calculate it as the planned hours vs. the actual hours: 

The project factor is easily interpreted

• Project Factor > 1: The project is more efficient than planned, requiring fewer hours than budgeted.
• Project Factor = 1: The project is completed exactly as planned, with actual hours matching planned hours.
• Project Factor < 1: The project is less efficient than planned, requiring more hours than budgeted.

The realised project factor provides insights into the project's financial performance by indicating the percentage of revenue retained as profit after covering all project costs.

The project factor is our guiding light."

Anna Porse Nielsen

CEO, Seismonaut A/S

This metric helps project managers and stakeholders evaluate the financial success of individual projects and make informed decisions for future projects.

In TimeLog PSA, the project factor is calculated automatically and depicted from red to green, making it easy to follow. 

The burn rate and project factor may seem similar but serve different purposes in project financial management.

The burn rate indicates how quickly you are using your resources compared to what you had planned. On the other hand, the project factor shows how efficiently you utilised your resources compared to what you had planned.

The 10-25% rule

Have you ever wondered if you’re spending too much (or too little) time on ‘core’ project management tasks, such as stakeholder communication, internal meetings, and coordination?

But as every project is different, how would you measure it?

To help you put a bit of numbers behind the gut feeling, you can apply the 10-25% rule.

Working closely with project managers in the professional services industry, we have found that the ‘project management tasks’ of a project’s total allocated time should be between 10% and 25%.

Remember that (depending on your project setup) everyone from the project team can track time on typical project management tasks.

If less than 10% of the allocated time budget is spent on core project management, the project manager may not be doing the job well – or may not have time.

If more than 25% of the allocated time budget is spent on project management, there may be too much communication in the project.

Anything above 25% indicates communication overload in the project. Maybe the customer is asking for a lot of meetings or documentation. Either way, when the time tracking on project management tasks is above 25%, dive into the time sheets and ask team members for a status. 

Also read: Project Management 101: Understanding the Project Lifecycle

TimeLog PSA was the system that could solve most of our challenges and meet our demands regarding project management, time tracking and the invoicing flow.”

Allan Hime-Laurberg

Senior Business Partner, Inspari

Make all projects profitable now

TimeLog is a modern PSA solution that strongly focuses on project financial management. It lets you track the profitability of consultants, projects, and clients.

You can also book a 20-minute meeting to learn how we can help you ensure profitable and smooth projects.