Financial metrics to follow in project management?

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Shannon M October 18, 2019

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What are the main financial parameters of project management?

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That's all, you've sold a big project to a client! It’s exciting!

Now let's get to work and make sure your project will be profitable. But wait, what exactly should you measure? Sure, you have income and costs, so it seems simple enough, but is there a way to anticipate any overspending? What are the best financial indicators to monitor the performance of your project?

Temps de travail </ strong>: lorsque vous vendez un projet à un prix forfaitaire, vous savez généralement combien de temps votre équipe et vous-même consacrez à ce projet. Et généralement, vous vendez un nombre de jours à des taux journaliers spécifiques. Même si vous avez appliqué un rabais, vous avez probablement inclus une marge lorsque vous avez fait une offre à votre client.

It is therefore essential to ensure that each member of your team spends as much or less time as initially planned.

The trick here is to continually update the time allocated in the past to this project and the time reserved or “busy” in the future for this project. Since you know the cost of each team member, you will be able to track how your margin is changing compared to what you had in mind. For this you need to use a tool in which each team member (and perhaps freelancers if you have external resources) can easily update the time actually spent on the project, and the project manager can manage their team precisely in the future. With the right tools in hand, the update will only take a few minutes and will allow complete tracking of the past and future costs of this project.

Expenses: It is also essential to track expenses. Sometimes you will agree with the client that 100% is billable. But most of the time, not all expenses are billable. Just think about the business part of this project. If you want to have a completely accurate analysis of the financial performance of this project, you must include in the margin all costs (time and expenses) incurred to win this project.

En outre, dans certains cas, vous n’accordez avec votre client que de facturer un montant fixe de frais par période. Dans cette situation, si votre équipe parvient à dépenser moins lorsqu’elle voyage, tout va bien, sinon cela aura un impact négatif sur la marge. Dans les deux cas, il est important de suivre cet impact, positif ou négatif, des dépenses.[/vc_column_text][/vc_column][/vc_row][vc_row type=”in_container” full_screen_row_position=”middle” scene_position=”center” text_color=”dark” text_align=”left” overlay_strength=”0.3″ shape_divider_position=”bottom” bg_image_animation=”none”][vc_column column_padding=”no-extra-padding” column_padding_position=”all” background_color_opacity=”1″ background_hover_color_opacity=”1″ column_link_target=”_self” column_shadow=”none” column_border_radius=”none” width=”1/1″ tablet_width_inherit=”default” tablet_text_alignment=”default” phone_text_alignment=”default” column_border_width=”none” column_border_style=”solid” bg_image_animation=”none”][vc_column_text]À Stafiz, nous aimons montrer un indicateur de performance très utile: nous l’appelons le taux de production

It takes everything into account (past and future time, expenses) and tells you if you can anticipate over or under execution of the project. Here's how we calculate it:

Project costs / [Actual and future work time spent on the project x daily rates]

Of course, the denominator takes into account the different daily rates of each member involved in the project.

So, if you sold the project at the exact value of each team member's expected time, multiplied by their daily rate, you expect to achieve a 100% production rate.

Let's take an example: you sold a $100,000 project and you plan to have a junior working 60 days at $1,000 a day, a senior working 20 days at $1,500 a day, and a manager working 5 days at 2 000 dollars per day: (60 1000 + 20 x 1500 + 5 x 2000 = 100 000). So in your plan the production rate is 100%.

But let's say you're a month into the project and now you expect the junior to spend 70 days, the senior 25, and the director 6 days. Now your production value is (70 x 1000 + 25 x 1500 + 6 x 2000 = 119,500). So the production rate is = 83.7%

This does not mean your margin is negative, as your daily rates may include a significant margin compared to the actual cost of your employee. But this means that you are underperforming compared to your initial plan, by 16.3%.

You need to find ways to speed up the project or justify a price increase to your client.

It also happens that during a project, your client may request additional work. In this case, you must review the initial plan, adjust the fixed costs sold and take this into account in your performance analysis. In Stafiz you can do this by adding as many new “production plans” as needed.

A project becomes unprofitable for many reasons: the costs of the business activity were underestimated, the expenses were not included in the margin calculation or you are simply stuck in the project and spend more time . In some cases, it will be the opposite and you will find yourself much more profitable than expected. The most critical aspect of all of this is to ANTICIPATE. You must have the reporting tools to have real-time visibility of your project's financial data. This will help you set the appropriate bid price and give you enough time to react and make decisions to expedite the project or reduce costs when you still can.

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