The Importance of Budget Management

piggy_bank_with_glasses

There are numerous ways to manage a project in a company; but what is the best way to do so? A pragmatic method to manage your projects includes these three requirements:

I. Delivered according to the established schedule (Time) : It is very important to define a project’s steps because these can be identified according to their specific nature or to their time sequence. We proceed to the conception of a schedule in which the project’s main steps will be identified. In order to stay realistic, those steps will require the establishment of a time frame with the intention of dealing with unannounced problematics.

II. According to the specifications : The project’s specifications precisely define the nature and the amplitude of the deliverables. Generally speaking, these specifications are detailed throughout the project’s requirements. The technical considerations can be considered to be a method to define the project’s phases, but we will not got into details regarding this process.

III. With the established budget : The budget is a key element concerning the preparation of a project; by respecting the budget, you are able to reach the expected profit margins.

In a perfect world, project management would include the compliance of both the schedule and the budget. However, a budget’s quantities can sometimes be balanced even when the amounts are not, like in the following example:

project XY

For Project XY, we anticipated 100 hours at $100 each. To this day, we have used 50 hours from this budget, which equates to a profit of $5,000. For this same project, we had anticipated expenses of $5,000 but spent $8,000. Therefore, if our budget’s hours are still balanced, our expenses are not.

Consequently, the budgetary approach for project management shows the importance of establishing a time frame (adjustment requests management) while planning the project’s steps. This scheduled time span can help prevent the appearance of unannounced problematics which could easily influence the project’s progress. By planning a phase dedicated to adjustment requests, we can smoothly reorient our efforts upon the emergence of unpredictable events while complying with the established schedule.

A tool as powerful as Abak 360 becomes crucial in terms of budget management. Its multiple characteristics allow you to control every aspect of managing projects. You can even optimize your budget management by coupling it with Efficient 360, a software that optimizes project management and enhances team productivity.

Contact us for more details!

How to choose your project management software

If you are currently looking on the Internet, searching for a project management software, you will notice a high number of options. Which one of them is tailored to your needs while meeting your financial constraints? These are all valid questions.

Beyond the considerations you might have regarding the supplier’s geographical location, his reputation, the quality of their service and the evolving nature of their solution, it is important to adequately define our needs. We can cluster these future needs into three main groups:

Time management

  • Is the time I want to manage billable, non-billable or might be a bit of both?
  • Do I have to manage expenses?
  • Do I have to manage time related to a project?
  • Do I have to manage my employees’ time banks (regular hours, overtime, vacation, sick leave, holidays, etc.)?

Invoicing and financial management

  • Is my current invoicing process tailored to my needs?
  • Do I want to optimize my invoicing process and lower the time spent on it?
  • Is my current work in progress process tailored to my needs?
  • Does my current management system allows a suitable monitoring of my budgets?

Project management

  • Do I currently have a tool that allows me to properly calculate my projects’ budgets and to manage them?
  • Do I have to assign my resources to my projects?
  • Do I have to manage budgets with schedules?
  • Do I have to manage my projects’ documents?

If my needs are limited to time management, it is then recommended to choose a modular solution offering a software “à la carte”. My choice would be limited to time entering module. It is suggested to verify if the chosen option allows:

  • A differentiation between billable and non-billable transactions (time and expenses)
  • The entering of transactions in a project framework
  • The possibility of integrating employees’ time bank management
  • The entering of transactions exportable to Excel

If my transactions are billable, my choice will go towards a solution that combines time management and invoicing. Why so?

Because in that case, since the entering and invoicing modules are part of the same software platform, transfer errors (such as billing the wrong client, billing the wrong project, errors related to the rate, under-invoicing or over-invoicing) simply disappear. The invoicing and work in progress processes are then optimized.

It is particularly important to validate that the intended solution is able to communicate with the accounting software to send it the invoiced transactions.

If my billable projects need to be managed with details, it is wise to reach for a solution that combines time management, invoicing and project management. The obvious advantage comes from using a multipurpose platform that eases both the project manager and the financial director’s work since the software allows an organizational management (phase management, budget management, schedules, notes, documents, assignments, etc.) combined to a financial management.

Abak 360 offers a modular solution tailored to your need. From simple time entry to project management integration, you can build your software “à la carte”.

Contact us!

Why go for SIRIUS Software? To avoid the dangers related to project failing

Project management involves many risks that need to be measured and reduced to insure a realistic, appropriate and secure management. Beyond their key features, project management software are also precious tool for risk management.

rouletta

BUDGET MANAGEMENT

As expected, Budget Management requires precise calculation and realistic forecast. It is important to take all the aspects of a project into account to determine a rational budget that incorporates risk factors in order to avoid a financial overflow.

Budget management by project is of prime importance because unexpected events can modify the guideline we give to the budget. That is why it is important to always anticipate and prepare a budget for unexpected fees as well as making sure that you respect the cost allowed to each step of the project. This can all be management with a financial tool such as Abak 360.

INVOICE MANAGEMENT

Invoicing is a very important for the project manager, especially when it concerns professional services projects because time is the billable unit. That is why, given the types of projects (…) and applicable billing rate (…), it is important that the invoicing system is “connected” to the time management system. See Abak 360’s website for more details!

TIMELINE MANAGEMENT

Being too optimistic while planning a project with the sole intention of pleasing your client can be problematic regarding the project’s delivery. Not being able to meet the expectations you previously created could result in a declining sense of trust from the client. By perfecting the art of project management, you will succeed in conciliating the tasks of each project with the available resources, making it possible to determinate a realistic WBS. EPM Cloud 360 and Efficient 360 then become essential tools.

UNDEREQUIPPED TEAMS

Frequently, the success or fiasco of a project is attributed to the changes happening after its beginning; however, it must be noted that the absence of a management system allowing tracking and change approval is often enough the source of multiple problems affecting the project on the levels of:

  • Delivery delay;
  • Prices;
  • Required specifications.

Eliminate those issues with Efficient 360.

MANAGING CHANGES

When they are not planned, many teams find it hard to manage changes in a project. It is important to keep the team informed at all times regarding the changes happening during the project. For a sane and dependable management of the project and its changes, it is advised to use a specific too such as Efficient 360 that guaranties a global vision of the project’s history.

CAPACITY MANAGEMENT

Many managers believe they can accomplish more by starting all the projects they have at the same time; however, this often proves to be counterproductive. Juggling with multiple projects slows employees down, lowers the level of quality, and generates delays that can affect multiple divisions in the enterprise. To reduce these productivity losses, it is wise to diminish the number of simultaneous projects and set a system up to manage the company’s capacity of accepting new projects. Abak 360 and EPM Cloud 360 are the ideal tools to accomplish such a task.

ASSIGNEMENT AND ROLES

Some projects are affected by the problems brought up by wrongful employee assignment to roles that don’t fit for them. Using the tools that can help us assign our employees to the right roles allows an organized, pragmatic and well suited administration of the project. The Abak 360 and EPM Cloud 360 solutions answer this kind of need.

SKILL MANAGEMENT

Characteristically, a project manager can be assigned to a particular project simply because he is available, and not because he is qualified for this specific task. This selection method can cause multiple problems during the project’s execution because an unexperienced project manager – or one lacking the required skills – could ultimately jeopardize the project’s success. These kinds of problems can be avoided with the Skillmap 360 solution.

MOTIVATION AND CENTRALIZATION OF INFORMATION

On several occasions, a project can undergo important delays or simply fail because of a lack of implication from the employees involved. It is possible that project managers were not clear enough regarding everyone’s role, or did not emphasize the risks, the issues, the chain of communication and the project documentation sufficiently, or simply did not diffuse a feeling of emergency when the project needed it. For more information regarding the abolition of such problems, visit Efficient 360’s website.

LACK OF FLEXIBILITY

It might be difficult to derogate from the steps you carefully planned in your project’s plan. However, it is strongly recommended to allow some space for suggestions and new information, which could appear during the project. Take a step back: by having a general view of the current situation, you can improve the quality of the work to come and open the door to new possibilities. EPM Cloud 360, Efficient 360 and Abak 360 can help you reach full satisfaction!

METHODOLOGY

One of the most frequent problems in project management is lacking a metric to calibrate achievement. To understand what coefficients drive a project to success ensures satisfaction for everyone implicated. It is important to use time, assignment, timeline, capacity, invoice and change management tools, all within the conformity of the ISO certification with the qualified resources.

The importance of following up on projects: Work in process

working

Work in process (also called work in progress) is billable work or expenses that hasn’t been billed yet. Work in process is usually expressed in dollar amounts.

Work in process is similar to the list of orders that were delivered, but have not been invoiced yet. For professional services companies, the product is time, which means that the work in process concerns billable time worked, but not invoiced yet.

For professional services companies, work in process is the potential revenue for the current month. It is essential to know how much potential billings we have in our pipeline.

Now, not all billable work and expenses gets billed. Sometimes, companies can decide to not bill some hours. With a good work in process report, it become much easier to figure out where the company stands revenue-wise.

As work and fees get billed, they are removed from the work in process list. Normally, once a billing cycle is completed, the work in process list (the WIP) should be empty – or almost empty.

With an automated integrated system as performant as Abak 360, businesses don’t have to build the work in process list or purge it manually. As billable time gets logged in by team members, it fills up the work in process automatically. When the invoices are generated, the items invoiced at also automatically removed from the work in process.

Keeping an eye on your projects’ progression as never been easier than with Abak 360!

Basic budgeting principles for a detailed project

Blog posts are not great for long documents, so we’ll focus on basic principles to use when preparing a project budget.

Is the project part of a series of similar projects? In this case, project history can be used as a reference. For example, if I need to perform an assessment to automate an assembly line for a canned food factory and I’ve done similar assessments in other factories before, the data from previous projects would be invaluable to prepare the new project’s budget. Not only will the budget be more reliable, but we’ll also be able to plan where potential problems may arise.

Is this project for an existing client? Do we know this client well? A client’s history allows for more accurate budgeting, since we know how to work with the client, we know their preferences and their requirements. If we don’t know this client, we’ll want to add a risk factor in the project budget, to allow for adjustments to the new client’s unknown requirements.

Once we know the project and client, our next step is to make a detailed planning of the tasks that need to be completed in order to deliver the project.

When tasks have been defined, we can assign them to the people who have the optimal expertise and experience. For example, we can assign junior employees to less technical tasks, and senior engineers to critical steps of the project. This way, we’ll be able to control our costs.

We also need to estimate the time required to complete the tasks, including “slack,” which is additional reserve time to address problems or “surprises.”

We’ll also want to plan for contractors and equipment needs, along with other expenses, such as mileage or other travel expenses.

If we have many tasks in our project, it may be logical to group them under phases, which creates a structure for the project and also facilitates invoicing: when a project phase is complete, we can invoice it. No need to wait at the end of the project.

With a detailed budget like this, we’ll be able to provide a much more accurate quotation and also increase our control over costs. With a cost management system like Abak 360, it will be easy to prevent and address cost overruns at the phase or even at the task level, rather than for the entire project.

Project Cost & Profitability: Are You Turning A Profit?

Scissor-cut2-300x225

In the world of professional services, time is your product. There is no inventory, no production line, no factory. It can be hard to know how well (or how poorly) your company is performing.

  • Money might be coming in, but are you really making a profit?
  • Is your biggest client really bringing in big profits?
  • Is your best employee really billing enough to be worth their salary?
  • Are you sticking to your budgets regarding project spending and billing?
  • How much do you expect to make at the end of the month?
  • Does a big project really bring in more profit than a small one?

The only way to know the answer to all these questions is metrics. Metrics are measurements that can be established in order to assess the performance and progress of the company.

It’s surprising how many businesses only know their metrics globally from the annual balance sheet. Projects should be profitable, and non-profitable projects should be identified as quickly as possible.

All expenses should be associated with a project. This includes resource costs (from time sheets, for example), expenses, vendor and contractor invoices, and overhead related to the project. When all costs are coded to the right project, it is easy to use invoices for the project and identify profitable projects.

Businesses should have a target profitability level per project and per client:

pp

In the table above, we can see that Project C is bringing in more revenue. However, since only half of its time is billable, it is not turning a profit at this time. Project B, on the other side, is returning a higher profit, mainly because of its higher proportion of billable time.

About Gut Feelings, And Why You Need a Time & Billing Software

intuition

We had a client who signed on to us because he and his associate could not agree on what was most profitable in their business. While one thought one type of contract was most profitable, the other associate believed it was something else entirely.

The problem was: they were both basing their conclusions on their gut feelings, their instinct. And while instinct is indispensable in business, it may not be the best guide to assess business performance.

Why? Because our gut feeling does not have a 360-degree view of the business. It only has access to the data we pay attention to.

Sales Myopia

From the sales perspective, we’re focused on sales contracts; in other words, how much one client signs for over another. However, once the contract is being executed, it is often out of our hands. Hence, we may not know that the client requires a lot of non-billable work, which drives profitability down faster than a mortgage crisis.

Project Manager Myopia

From a project management standpoint, we can see how projects go: how fast we get approvals from the client, how well the project is scoped and how many (or how few) change requests we get. If the project budget and timeline are respected, then the project seems successful. However, if this client takes 90 days instead of 30 to pay invoices, and requires a lot of legwork to get contracts signed before the project can start, it may not be as profitable as it seems.

Administrator Myopia

From an administration standpoint, what makes a good client are accounts receivables. However, the speed at which a client pays does not necessarily mean profit. What if this client generates too much non-billable work? What if this client’s projects consistently go over-budget?

Our gut feeling doesn’t see straight

Because our personal perspective on the business is not as accurate as we would all like to believe, we need data. Cold, hard, heartless data.

Billable time: how much is your time worth?

IMG_1056 (2)

Deciding how much to charge for our time is always a tricky thing: if we charge too much per hour, we will lose clients. If we charge too little per hour, we won’t make enough to cover our costs.

Too often, we choose how much to charge for our services based on industry standards, previous jobs, or competition. While those are worthy benchmarks to gage our pricing against, they may not be the best factors to use while building our rate sheet.

Here are a few questions worth answering before choosing a rate:

  1. How much revenue do you need? Work up your costs, such as office rent, administration expenses, wages, etc. Then, add your target profit before taxes. This should give you a good idea of the amount that must be billed in a year. Knowing your costs will also allow-you to compute your break-even rate – the rate at which you’re not losing money.
  2. How many billable hours can you and your team work for? It’s naive to assume that 100% of work time is billable. Previous years can give a good idea of how many billable hours can be expected by a person and by the organization as a whole.

Revenues

Once you know your revenue needs and your productivity, divide one by the other and we get our billable hourly rate. For example, let’s say we have the following costs:

  • A team of 10 employees costing us 500 000$ per year in wages;
  • Office rent, equipment and administrative expenses costing us 60 000$ per year;
  • We aim for a 15% before-tax profit, which amounts to 98 823 $.

Our revenues should be of at least 560 000$ per year (to break even) and of 658 823$ to make our target profit.

Now, let’s look at our productivity:

  • Out of our team of 10, we have 7 consultants who can produce billable time;
  • We estimate that our consultants should bill around 70% of their hours, which equals 28 hours per week per consultant;
  • We estimate that each consultant will work around 48 weeks per year, keeping 4 weeks for vacation, holidays and other absences.

Our total productivity is

7 consultants

x 48 weeks

x 28 billable hours per week

= 9408 billable hours per year.

How much should we charge per billable hour?

To attain our profit goal, we need:

658 823$ / 9408 hours = 70.03 $ per hour

To break even, we need:

560 000$ / 9408 hours = 59.52 $ per hour

Can this work?

  • Once we’ve made those calculations, the question remains: is this realistic?
  • Are those rates in line with your peers in the industry?
  • Is your product more or less expensive than your competitors’?
  • What happens if your team’s billable hours ratio is 60%?
  • What happens if your expenses go up? If one of your consultants leave the company mid-project?

Today’s economy has taught us the importance of hoping for the best while planning for the worst.

Time Is the Product, Profit Is the Goal

time-management

It seems that in manufacturing, business managers are used to having metrics like product line profitability, expected revenue from sales, breakeven points, and the like. In professional service businesses, the same performance metrics can still be obtained, if we use time (and billable time) as our product, and resources as our product lines.

As we can see in the table below, the metrics really are the same; it’s just the names that change.

tableau pdt serv ang

Are your projects profitable?

The payments come, checks are cashed but the funds come out as fast as they were calculated in the company’s cashier? Furthermore, what about profitability and profit margins? What tools are available to measure your business’s vital financial information?

In a context of frequent movements of money, it is easy to get a profitability illusion when you don’t properly compare the revenues to the costs incurred.

Let’s not confuse revenues and profits

With a bookkeeping of project revenues and expenses, it is much easier to identify profitable projects from those that are delivered at a loss. The ideal tool should offer management indicators to display in real time the budget situation, the project’s profitability and the return indicators calculated using various parameters. In project accounting, it is possible to know at any time the financial results of your projects with a tool that combines financial and project management.

To do this, you should budget all required expenses and hours while applying a safety factor to the quantities – both on expenses and hours.

Regarding the hours, we will take a cost-plus into account, which involves the contributor’s real cost as well as the calculated proportional operating cost of each resource.

No flexibility

The current economic climate leaves no flexibility for companies. It is therefore essential to know all of our projects’ profitability. This helps making an informed decision: does the project bring anything else than an economic value to the company? Will the loss be covered by another project from the same customer?

The information

Knowing the profitability of our projects at any time allows us to make pragmatic and well-founded decisions for the company. Abak 360 allows a seamless project income and expense accounting; thus, the financial results of each project will have no secret for you!

Contact us for more information!

sales@abaksoftware.com

Follow

Get every new post delivered to your Inbox.