12 financial indicators for project management

Are you a project or planning manager? Do you work in a PMO or other project portfolio management function? If you're in charge of a team, you're bound to find that tracking project performance, progress, workload and execution in real time is far from straightforward.

To reliably monitor the financial health of a project, it is important to consider the relevance of the performance indicators to be selected.

• What are the most useful indicators for monitoring project finances?
• Which KPIs should project managers focus on?

Here are 12 financial indicators to track when managing projects and project teams.

Project performance indicators

Whether the project is in-house or billed to a customer, managing it has a cost for the company.

To monitor project performance, there are a number of metrics that provide visibility on progress and financial execution.

The completion rate

Often used in fixed-price projects, this is the ratio between the theoretical value of the time to be spent on the entire project, and the value of the time actually spent on the project.

For example, if a project was scheduled to take 10 days at €800 per day from ADR, but in reality took 12 days to complete, the completion rate is equal to 8000 / 9600 = 83.3%.

• Target completion rate

This indicator allows you to situate the project's actual performance in relation to the budget. It is particularly useful when the project is sold on a fixed-price basis, and the selling price is directly linked to the estimated cost of the project.

So, when the selling price is decided, it is common to do so by calculating the time needed to achieve it and multiplying this time by the Average Daily Rate or ADR (if the unit is the day).

In this case, the selling price can be determined using the following formula: (Time to be spent on a project) * (Average Daily Rate (unit = day)).

• A challenge for project managers 

The objective is then to keep to the planned number of days, or even to improve the organization in order to achieve the same quality in less time than planned and/or with more profitable collaborators for the project. This adjustment can be made by reducing the number of senior staff initially assigned to the project, in favor of junior staff if resources are available.

In these conditions, the challenge is to ensure that customer satisfaction remains at least as high as with the original plan.

• How do you monitor the completion rate? 

It's interesting to look at the completion rate at the end of the project, comparing it with what was initially planned. But it's also and above all during the course of the project that it should be monitored, as it's an excellent indicator of forecasted project performance.

To do this, you need to have established a budget, but above all you need to keep track of what remains to be done on the project. This means taking into account the time already spent on the project, as well as the time still needed to complete the job.

When resource planning employees are tracked, the data is already present to calculate this completion rate. Ideally, changes to resource planning will display an immediate reassessment of the completion rate, so that you can check the project's forecast performance and take corrective action before it's too late.

Margin on completion

The margin on completion is the forecast margin for the project on completion. The margin on completion therefore takes into account not only the costs already incurred on the project, whatever their nature (subcontracting, staff, expenses, etc.), but also those to come, in order to deduct them from the total forecast sales for the project.

• Target margin on completion

There are a number of reasons why it's so important to monitor terminal margins.

Firstly, to ensure that a project's forecast margin is not negative. Beyond the good management aspect of ensuring that projects finish with a positive margin, this verification is mandatory for accounting purposes, so that provisions can be made for losses on completion if necessary.

In addition, monitoring margins on completion enables us to manage costs more effectively. There are many ways to improve a project's margins: reorganize the resource planning website, reduce planned travel expenses, pick up an additional order, and so on.

• How do you track this indicator? 

To monitor margins on completion reliably, it is necessary to re-estimate sales forecasts, but above all to be able to forecast future costs.

It's usually the project manager's job to calculate the initial budget and then, during the course of the project, to re-estimate all these costs for staff, subcontracting, expenses, purchases and any other additional costs.

We strongly recommend regular reviews of all projects to identify those that deviate from the budgeted margin, so that corrective action can be taken as quickly as possible.

Unbilled production

More useful in a project on a time-and-materials basis, this metric calculates, as its name suggests, the production achieved (either in value or in time) which has not yet been invoiced to the customer.

To calculate this unbilled output in value terms, the number of time units already spent on the project is multiplied by the billing rate applicable to this unit, an Average Daily Rate for example, and this value is then compared with the amounts billed to date.

Its formula is as follows: (Number of units of time spent on a project) * (Billing rate applicable to this unit)

Monitoring of unbilled production and percentage of completion

• Purpose of tracking unbilled production 

Knowing the value of unbilled production is above all useful for managing cash flow. Whatever the payment terms, this represents cash that can be recovered in the short term. Of course, it's not always possible to invoice this production immediately according to the payment terms agreed with the customer. However, it is an excellent indicator of future cash flow, especially when viewed on a consolidated basis.

• How do you track this indicator? 

It's easier to monitor this indicator using an integrated solution that tracks the time spent on a project, the Average Daily Rate (or Average Hourly Rate) allocated to each resource, and which also manages invoicing, as these elements are compared with each other.

A review of unbilled revenue by division or overall enables us to analyze best billing practices.

Percentage of completion

This indicator can be used to check the progress status of a project. Progress can be analyzed using the time unit, or if the project is associated with sales, using the value unit.

Tracking of unbilled production and percentage of completion in Stafiz

This percentage of completion can also be analyzed in relation to the initial budget or the latest estimate. When your management tool calculates sales on a percentage-of-completion basis, it is also possible to know the percentage of completion in relation to sales.

• Percentage of completion target

It's important to monitor the percentage of completion to ensure that objectives are being met. Completing deliverables on time is a major objective of project management.

This target is also often analyzed in conjunction with another metric, On-Time-Delivery, which calculates the number of projects completed on time as a proportion of total projects. The project manager must therefore always keep a close eye on this important project management metric.

• How can I track the percentage of completion? 

You need to compare the budget in terms of time and value, with the actual, which is based on the activity reports of your employees. When the project management tool you use also enables you to re-estimate project costs, progress can then be measured against the last forecast, making it more accurate.

Team management indicators

utilization rate (or TACE)

• Purpose of the utilization rate

Excluding vacations, the activity rate ensures that teams produce work that will bring profitability to the expected level. When projects are invoiced to customers, as in service companies - such as consultancy firms, retail IT Services or agencies, the salesdepends directly on the project billing.

It is therefore vital that the company's main resources, i.e. its employees, use their time to work on billable, i.e. sales-generating, projects, rather than on internal projects, even though the latter may have a favorable impact on profitability (deployment of an ERP solution to generate productivity gains, simplification of processes, sales activity, etc.).

It is not uncommon to set different workload targets for different employee populations. For example, in a consulting firm, junior employees are often expected to have a very high utilization rate , often in excess of 80%. Managers, on the other hand, spend more time developing the business, and therefore have lower utilization rate targets.

• How to follow utilization rate 

Tracking employee activity should make it possible to allocate time not only to chargeable projects, but also to all the projects and activities on which they spend time: training, internal projects, work on sales proposals...

Activity tracking software (Compte Rendu d'Activité) must enable time to be allocated to all these categories, and provide consolidated reporting, to give visibility on past and future utilization rate (the latter depending on resource planning), by employee, team or type of employee population. With this visibility, it's much easier to identify the issues that stand in the way of improving profitability.

Occupancy rate

• Occupancy rate target 

Unlike utilization rate, the occupancy rate is used to monitor the overall workload of employees, whether on projects sold to customers or on any other type of activity. Some employees, even if they have lower utilization rate , are not necessarily less busy.

A finance manager, for example, will work more on internal projects than other employees, often with a heavy workload. They will therefore have a high occupancy rate.

The occupancy rate is calculated using the following formula :

• How do you track this indicator? 

It is particularly interesting to have a forward-looking view of this metric. Seeing employee workloads over the coming periods, not only on projects but also possibly on other categories of activity, enables you to identify problems of over-capacity or under-capacity which are in the process of materializing. It can then react and correct the situation by hiring, for example, in the case of under-capacity. To optimize resource management, it's important to set up project governance so as to remain aligned with the company's objectives.

Monitoring occupancy rates in Stafiz

Production

Production, when defined as part of a project, can be tracked in terms of value or time (usually in days or hours).

When we look at production in days, for example, this is the total time spent on a project to date.

For production by value, this is the total number of days spent on the project multiplied by the value of a day (often called the Average Daily Rate). Its formula is: (Number of days spent on a project) * (Value of a day).

• Production monitoring objective

It is often interesting to monitor production and production capacity at team or company level. Depending on the number of employees and their availability, it is possible to read production capacities in days or in value. A well-organized and optimized company will always seek to align its production capacities with its sales and growth targets. So being able to track this metric ensures that sales targets are aligned with available resources.

• Case study

The JAVA company has 100 developers, whose ADR is set at €800 as standard, and 50 consultants who have a ADR of €750. On average, all employees work 217 days. Total production capacity is therefore :

[100 x 800 + 50 x 750] x 217 = €25,497,500.

Theoretically, if the teams remain at the same level, a minimum contract value of €25.5m is required.

• How do you track this indicator? 

In a business management solution, you often have the option of tracking actual production, but sometimes also forecast production. When forecasts are also available, this enables you to know what capacities remain in the coming periods, i.e. the sales effort required to cover at least the company's resources.

Indicators linked to the overall management of project financial monitoring

If you're in charge of several projects, or if you're a manager, you also need to track metrics that give you a more holistic view of business performance. In this case, it's a good idea to track these three indicators.

Commercial pipe

Commercial pipe tracking

pipe corresponds to opportunities identified but not yet won. Monitoring the pipe sales pipeline enables us to anticipate future sales linked to these opportunities.

• Purpose of monitoring pipe

Keeping track of pipe sales is crucial for any company, not just those working in project mode and selling services. As well as anticipating sales performance and being able to forecast future sales, this monitoring enables us to anticipate resource requirements in order to respond correctly to future projects.

It's in this context that it's crucial for team leaders and managers to have a clear view of the maturity of opportunities and the associated resource requirements.

• How do I track pipe ?

It's essential to have a project management tool to centralize all opportunities, and if possible segment them by maturity or chance of success.

Ideally, it is possible to identify the stage of progress of the opportunity (prospecting, offer sent, negotiation in progress...) and to apply a percentage of chances of success, which makes it possible to weight the associated amount and provide a more realistic vision of future sales.

Sales opportunity management

Pre-staff your teams and anticipate your resource requirements as soon as the opportunity arises with Stafiz. Once the opportunity has been won, the project is automatically created, keeping the resource planning and budget data previously entered to save you time and optimize your workload.

Stafiz CRM

When CRM is adapted to resource management, it can also be used to edit an associated workload plan: what types of roles will work on this project if it is won, for how long, at what Average Daily Rates, and what skills will be needed?

Depending on the maturity of the offer, it is possible to "push" requirements to planning managers or team leaders so that they can identify the employees who will be able to meet the need, or, on the contrary, to alert them to identify external candidates or subcontractors.

Linking pipe to team planning is therefore a good practice for getting projects off the ground on time, and ensuring that the right "cast" is in place to meet project needs.

The cost of customer acquisition

This is the total cost of selling projects. These include the time spent by teams on drafting proposals, time spent on sales activities or travelling to meet with prospects. It also includes travel expenses in the pre-sales phase, or any other expenses incurred in connection with a call for tenders, for example.

• Purpose of tracking acquisition costs

Monitoring customer acquisition costs is another crucial indicator for ensuring the profitability of sales activity. In a way, it's the investment needed to land projects.

You need to ensure that the value generated by the contracts associated with the business is far greater than the commercial investment. A ratio of 3 times the value in relation to the acquisition cost is often seen as the minimum required to maintain good profitability.

Properly monitored, this indicator can also be used to compare the performance of individual sales reps. It's an excellent indicator that goes beyond the amount of sales a salesperson achieves.

• How do you track acquisition costs?

To be able to track sales activity and costs, you need a solution that allows you to track time spent, costs and expenses, and allocate them to each opportunity, or to more general activities, such as e-mail prospecting or trade show participation, for example. Knowing the cost of each sales person, it is then possible to calculate the total sales cost spent on each opportunity and on other sales activities, per employee.

Depending on the project management tool you're using, you'll be able to track and generate reports that give a more precise picture of acquisition costs overall, per team or per sales rep, and the profitability of these costs in relation to the amount of sales earned.

Actual and forecast sales

Calculating sales for projects can be quite complex, as several methods are used, such as the percentage-of-completion method or the completion method.

The percentage-of-completion method allows sales to be recognized in the income statement according to the percentage of completion. This percentage of completion is generally calculated as the percentage of costs allocated to the project in relation to the total costs forecast for the project. It is calculated as follows:

Under the completion method, sales are recognized only at the end of the project.

• Sales monitoring objective

There's no doubt that tracking project sales is an essential KPI. Whether projects are invoiced internally or to customers, applying a sales figure gives value to the time spent by resources on the project.

Even if you're working on in-house projects that aren't invoiced, it's a good idea to apply an Average Daily Rate to your resources, to identify the sales equivalent that could have been generated by the resources if the project had been sold.

• How to track sales?

Sales tracking can be quite complicated, depending on the size and duration of projects. The financial teams in charge of this often use Excel models, but the use of an ERP solution that can automate and secure the calculation is an asset, not only for the time savings it brings to support teams, but also because this metric is so important that it needs to be tracked in real time not only by financial teams, but also by project managers and other managers.

Business profitability

Monitoring the profitability of an entity that carries out projects means being able to track the profitability of the various projects and analyze the different types of costs: team costs, subcontracting costs, expenses and other types of expenditure, etc.

• Profitability monitoring objective

This monitoring ensures that the activity is generating profits at the expected level. Not all project activities are intended to generate profit, but when they do, it's important to have an overall view of the activity's profitability by tracking past and future project profitability and comparing it with the budget.

Monitoring business profitability in Stafiz

• How to monitor business profitability?

Here, too, Excel-based tracking can do the trick when there aren't many projects, but using a dedicated solution brings a host of advantages, from automated tracking to secure calculations, not to mention tracking dashboards that enable you to immediately identify budget overruns and the reasons for them, and pinpoint any discrepancies.

Project billing

This involves monitoring the progress and completeness of invoicing in relation to what was planned. This follow-up should extend to the monitoring of payments, in order to keep a firm grip on cash flow.

• Billing follow-up objective

Business performance doesn't stop with sales: you have to make sure that the amount sold is collected, and if possible as quickly as possible, to keep your cash flow as healthy as possible. This means ensuring that the process is organized.

1. Billing deadlines, i.e. the deliverables that will trigger invoicing, are tracked, and communication between project managers and the teams in charge of invoicing is excellent, enabling invoicing to take place as soon as possible.
2. All billable items have been invoiced, and nothing is forgotten: in a project, not only are deliverables billable, but it's also common to re-invoice expenses, for example. It's important to keep track of these items, otherwise re-invoicing is forgotten and money is left on the table.
3. Customers respect payment terms

Project billing follow-up with Stafi

• How do you track this indicator?

You need to keep track, project by project, of what has been invoiced, what remains to be invoiced, what has been paid, and to be able to easily identify invoices that have not been paid when they should have been. It's always easier if invoicing follow-up is linked to project follow-up.

When progress tracking and invoicing elements are linked, for example, it is possible to let the project manager confirm the production of a deliverable in order to trigger an invoice. The teams in charge of invoicing then see this deadline as an invoice to be issued, and can send it to the customer as quickly as possible. By accelerating the cash flow cycle, the entire cash flow of the business improves.

Stafiz helps service companies gain visibility and better manage the progress of their projects thanks to real-time data. Stafiz is a SaaS solution for resource planning, project management and business intelligence. As a result, budgets and margins are always respected, and you can make better decisions for your business.

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