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3 min read

Ready to take your project profitability to the next level?

You're an accomplished project manager. You've explored the realm of project financials and profitability analysis. You master project management KPIs like time burn, and your company have implemented daily time tracking habits.

What's next, you ask? The short answer is: Budgeting.

... And the slightly longer answer, you'll get in this blog.

 

Ready to take your project profitability to the next level?

TimeLog presents: The project financial management model 

Drawing upon more than two decades of experience collaborating with professional services organisations in the Nordics, our project management maturity model is finely tuned to deliver relevance and effectiveness within the industry.

It consists of four levels, and for each level, we describe the specific processes and key performance indicators (KPIs) you must master to elevate your project profitability. 

 

In this blog, we focus on the intermediate level of project financial management, also known as: 

Hero level: Budgeting!

Project-finances-hero

 

Hero level goal: Budget and forecast 

When the company has processes related to daily (or almost daily) time tracking implemented and high-quality data comes in, you’re ready for the hero level. This level is all about utilising the data to budget and forecast.

Also read: Comparing the best project management tools 

1. Budgeting based on real-time data

When you create a budget with real-time data, you can see early on if the project should be adjusted in scope, budget, and/or resources.

Make a habit of comparing the progress to the expectations and total hours consumed weekly or bi-monthly.

Also read: What is a project scope? A complete guide

2. Budget quotation

Another process at the hero level is budget quotation. A budget quotation is like a rough estimate of the project done as part of the client proposal before the project is begun.

Budget quotations allow you to understand how you saw this project before (or when) it began.

It sounds simple, but we see many customers start projects without a quotation and then, well into the project, try to reach a forecast and gain control of the project.

Another benefit of budget quoting on all projects is ensuring you have thought projects properly through.

When the data and process are in place, you can do “light” forecasting, constantly comparing the project's expectations to reality.

Also read: The effective project plan - the project manager's ultimate guide

clean-iso-marketing

Click to get a pro tip for handling project finances

 

Use the TimeLog report called full project overview to closely follow project factors, average hourly rate, budget vs actual and much more! How to get a full project overview in TimeLog PSAp

3. Budget transparency

The third process, budget transparency, is more about transparent communication than actual budgeting.

When you have the budget in place, the data is coming in, and you follow the ups and downs closely, a core process as the project manager is to communicate with transparency:

  • Communicate with project members, account managers, and stakeholders.
  • Share the budget.
  • Share progress on KPIs like time burn, realised project margin, etc.
  • Ensure everybody supports meeting the budget.
  • Ensure everybody reacts early if they see something odd compared to expectations.

Also read: Stakeholder Analysis

After using TimeLog PSA, we are more aware of how we manage the business. We always know our progress on specific KPIs with the key figure reports."
DGE_CFO_transparent
Hans Jørgen Nielsen
CFO, DGE

And that brings up to:

The 3 project management KPIs for budgeting and robust forecasts

Project Management KPIs - Hero level

 

Completion rate (also known as budget at completion) 

The completion rate, which is also known as the budget at completion (BAC), measures how much of the allocated budget has been expended or utilised relative to the total budget for a specific project.

It gives you insights into the financial health of your project by assessing whether spending is on track with the planned budget.

Formula for budget at completion

Budget at completion (BAC) = Forecasted at completion - actual cost (AC)

Forecasted project factor

The forecasted project factor gives you an indication of the profitability of the project once completed.

Forecasted project factor formula:

Forecasted project factor = Budget at completion (BAC) / Cost performance index (CPI)

Where cost performance index (CPI) = earned value (EV) / actual cost (AC)

The forecasted revenue is the expected income or revenue, while the forecasted total costs are all the anticipated costs, including working hours, materials, and administrative expenses.

As the project manager, this KPI gives you vital insight:

  • What’s the anticipated profitability? Based on the forecast, will the project generate profit or loss?
  • What (and where) is the potential financial risk? Are there areas in the project where cost control measures are necessary?
  • Informed decision-making: Use the forecast to make more informed decisions about resource allocation and management, budget tuning, and general prioritisation.

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

Average hourly rate

This is a true power KPI and helps you identify if your project is getting out of control.

Average hourly rate formula:

Average hourly rate = Total cost of salaries / Total hours worked 

Measuring the average hourly rate requires getting that information for every time registration in the project, which you can do with TimeLog PSA.

When you start measuring this KPI, you’re able to:

  • Control cost: You can quickly identify opportunities to control labour costs and optimise resource allocation.
  • Manage the budget: Monitor and ensure labour costs and hours are within your budget.
  • Evaluate performance: It’s easier to assess the project team's productivity and efficiency based on the costs and working hours.

Also read: Intro to project financial management and the 9 KPIs you need to measure

Every offer is based on reliable time estimates, and we’re constantly improving our estimation skills based on our experience with TimeLog. The project factor is our guiding light, and we’re continually mindful of not ‘getting too red'."
project factor kpi
Anna Porse Nielsen
CEO, Seismonaut A/S

Maximise the profitability of your projects

TimeLog offers a cutting-edge Professional Services Automation solution that prioritises project financial management. With our platform, you can easily monitor the profitability of consultants, projects, and clients.

Are you interested in learning more about how TimeLog PSA can help you achieve profitable and successful projects? Schedule a 20-minute meeting with us today.

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