Project Profitability Analysis

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Job or project profitability is key to your business success. So if you bill clients based on time spent, then TimeSheet will be a key part of maximising project profitability, as it will help to avoid missing time recording and ensuring that all time spent on the job gets recorded. It will also help ensure that time is recorded regularly - not weeks later when recall can be sketchy and the chances of inaccurate recording and under billing are high.

If you bill projects based on quotations or estimates, a negotiated fee or list prices for different types of project, it is still important to track time, costs and/or a "standard" or "normal" fee, to provide you with project profitability analysis.

Using project profitability analysis is key to the long-term health of your business. You need to be able to see whether or not you are achieving target profitability on projects - and if you are not, you need to understand why.

To make these measurements, some TimeSheet customers use "full cost" rates - which exclude the profit element. Some use "standard charge" rates - which include the budgeted overall profit percentage. In fact, some TimeSheet customers use both.

If you are just going to use one rate, we advise using "standard charge", as this will provide a variance on most jobs, which can be expressed in percentage terms. With "full cost" rates, greater discipline is required when reviewing.

Considerations When Analysing Project Profitability

If you have a variance, the things that you should consider will vary, dependent upon your business, but could include:-

  • Did we quote/estimate/price the project too low?
  • Did we quote low for a reason - competition, "market" price, etc.
  • Were the hours spent as estimated?
  • Was the work undertaken by a more expensive resource?
  • Did we undertake additional work not included in the quotation and we could/should have made additional charges for?
  • Did the job simply take too long? - For internal reasons? For client reasons?
  • Can we improve? Our pricing? Our skill sets? Our processes?
  • Have we undertaken similar projects in the past and how similar is the result?
  • Is it a type of project for which we are likely to be uncompetitive but that is strategically important.
  • Is the marginal return supporting overhead that we cannot easily reduce and from which we do not currently have the opportunity to earn a more profitable contribution?
  • If we are making super-profit, is it because we have a competitive advantage or are we likely to loose business to competitors through over-pricing? Is this competitive advantage sustainable?
  • Rather than expand for growth and take on a larger overhead base, would it be better to focus on making a larger margin from the existing overhead base?

Some of these questions may not be relevant to your business, some you may only need to ask occasionally - whereas many should apply to every significant project with a material variance.

When answered, these questions lead straight to the action to be taken – and often lead to other bigger questions. But together, they all lead to a better understanding of your business and how you can improve performance.

Start using Sage TimeSheet and you’ll quickly be able to use it as a powerful solution for project profitability analysis. And as historic information builds and is retained over time, it will become increasingly valuable. Contact Us now to find out how project profitability can be managed in your business.