Project Budget Control: Are Your Sticking To The Plan?

Apollo 11 LaunchBusinesses can use their target profitability to put the project billing budget together. A budget should be as precise as possible: at least by project phase, ideally by activity. Creating a detailed project budget makes it easy to see if a phase or an activity on the project is running over budget, way before the entire project budget is out of control.

Doing a detailed budget also allows for better project estimates down the road. For example, historical information about the number of hours of support required for a specific type of project is essential in building more accurate quotes and improving profitability levels.

Budget for Project A

Task Budget
Hours     Amount
Work in process
Hours     Amount
Billed
Hours     Amount
Variance
Hours     Amount
Bookkeeping 60 6000.00 20 2000.00 10 1000.00 30 3000.00
Business Management 40 4000.00 5 500.00 10 1000.00 25 2500.00
Tax Planning 40 4000.00 0 0.00 10 1000.00 30 3000.00
Training 20 2000.00 0 0.00 0 0.00 20 2000.00
Support 10 0.00 15 0.00 0 0.00 (5) 0.00
Total 170 16 000.00 40 2500.00 30 3000.00 100 10 500.00

With a detailed budget as in the table above, we can see how far along we are for each activity in the project. It’s also easy to see that the support task, which is non-billable, is already over budget. We can hence plan a higher number of hours next time so as to improve our project profitability.

Project Cost & Profitability: Are You Turning A Profit?

Old Style Cash Register and Canned Goods in a Butcher Shop in New Ulm, Minnesota ..., 10/1974In the world of professional services, time is your product. There is no inventory, no production line, and no factory. It can be hard to know how well (or how poorly) you’re really doing.

  • Money might be coming in, but are your turning a profit?
  • Is Mr. Big Client really bringing in big profits?
  • Is Miss BigShot Employee really billing enough to be worth her salary?
  • Are you sticking to your budgets on project spending and billing?
  • How much can you expect to bill 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 these questions is metrics. Metrics are measurements that one can establish to assess their performance and progress.

It’s surprising how many businesses only know this metric 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 correct project, it’s easy to use invoices for the project and identify profitable projects.

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

Project Revenue Expenses Profit (loss)
Project A 2500.00 2000.00 500.00
Project B 3500.00 2000.00 1500.00
Project C 4000.00 4000.00 0.00
Total 10 000.00 8000.00 2000.00

In the table above, we can see that even though 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.

Save water: send your invoices by email

 

It takes 10 liters of water to produce one sheet of paper.  Humans need 2 liters of water per day to remain hydrated. This means that for each page of paper we use, we could keep 5 persons hydrated for a day.

Does it still make sense to invoice your clients by regular mail? Sending invoices by email is greener and faster. And it takes less space – one hard drive can keep thousands of invoices.

Abak automates invoicing by email – including recurring invoices. This helps businesses be even more efficient with their time and resources.

Today is blog action day. This year’s topic is water. Have a drink on us!

What is Work in Process?

Mirta Perez and Angie Valdez working on cigar packaging process: Tampa, Florida

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. Because in the profesionnal services sector, our product is time, then for us work in process is billable time worked, but not invoiced yet.

For profesionnal services companies, work in process is the potential revenue for the current month. It’s 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 not to bill for some work. With a good work in process report, it become much easier and faster 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, businesses don’t have to build the work in process list or purge it manually. As billable time gets logged 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.

Here is an example of a WIP report.