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:
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.
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.
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:
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
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:
Reviewing hours is a powerful process, but customers struggle with a structured approach.
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.
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.
This KPI helps you, as the project manager, assess the efficiency of your project and monitor whether it is on track in terms of time management.
A positive time burn indicates that more time is being spent than planned, suggesting potential delays or inefficiencies in project execution.
Conversely, a negative time burn suggests that the project is progressing ahead of schedule, which could be a positive indicator if quality is maintained.
So, when you look at the time burn, you get a clear idea of:
The realised project factor is another vital project management KPI to follow to steer the project finances.
This KPI measures a project's profitability by dividing its earned value to its actual cost.
Revenue refers to the total income generated from the project. Total project costs encompass all expenses incurred in delivering the project, including direct costs like tracked hours/labour, materials, and equipment and indirect costs such as overhead, administrative, and other project-related expenses.
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.
You use this KPI to measure if the proper amount of time is spent on ‘core’ project management tasks, such as stakeholder communication, internal meetings, and coordination.
This KPI – which is more a rule of thumb – states:
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%, ask for status and hear if you can help.
Also read: Project Management 101: Understanding the Project Lifecycle
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.