Whether you’re an engineer, architect, or working in another profession, there’s no doubt your team is constantly working on several diverse projects- each one important to your company and clients. However, out of all these projects, do you know which ones are the most profitable? If you don’t know the answer, you risk not making the right long-term investment decisions or optimizing billable utilization. For your company’s growth, it’s important to look at your project profitability and see how you can improve it.
What is Project Profitability?
One of the most vital key financial metrics to measure your project performance is project profitability. Your project’s profitability is a comparison of your costs versus what you’ve billed and the resulting profit.
When you’re fully aware of your project’s profitability before and during the process, this helps you make the right decisions to keep your project on track until completion.
Project profitability is the ultimate gauge of what you should and shouldn’t do the next time you work on a similar project. When you continuously monitor profitability, you’re able to witness larger trends and know which projects your company should pursue.
How to Improve Project Profitability
Your company’s project can be anything: a new office building or residence, manufacturing a new product, or large-scale construction management of a mass transit system. It can be ongoing or short term.
Since every project is different, it’s important to understand project profitability and how you can prioritize and improve your projects to help you out now and in the future.
Track the Correct Metrics
To improve project profitability, you want to determine the metrics that matter most to your company’s growth. A consensus for metrics that are important to a vast number of industry projects includes:
Project overruns: the percentage above budgeted cost or time compared to actual cost or time of your project.
Project margin: the percentage of revenue which remains after paying for the direct costs of delivering a project.
Billable utilization: the total available time employees spend on project-related activities.
Annual revenue per employee: measured by dividing total revenue by the total number of both billable and non-billable employees.
Annual revenue per billable consultant: your firm’s total revenue divided by the number of billable consultants.
While you can always consider metrics that are unique to your firm, these basic metrics are a good starting point to reach your profitability goals.
Scope management is a surefire way to help ensure project profitability. Scope creep happens when extra work is added to your project without the necessary change orders in place to cover the work and keep the profitability of that project where it needs to be. This occurs when your project is not properly controlled and documented.
To avoid this, don’t let too many projects go by with extra work added without the necessary change orders made to cover that work. Instead, add the revenue you need for that extra work and keep the profitability of the project in place.
Managing scope creep comes down to controlling changes in scope via a change control process that involves:
Monitoring the project’s baseline scope
Determining the cause of the changes found
Comparing actual work performance measurements with the baseline scope
Managing all change requests and actions
Track Your Time and Budget
Time tracking helps improve project profitability by allowing your firm to have real-time insight into the hours (which provides insight into wages and cost) that have been invested in a project at any point.
Many projects can be broken down into phases with budgets assigned to each phase. Combining real-time time tracking with the % of phase completed coupled with the budgeted $ for the phase will allow your firm to compare how much cost they have incurred thus far vs how much cost they have budgeted thus far.
If the actual cost incurred is less than the budgeted cost, the project is now currently profitable. If the actual cost incurred is now greater than the budgeted cost, then the project is currently unprofitable.
By having real-time insight into your time tracking, firms can course-correct when they see projects in the unprofitable zone.
Time Tracking Software for Employee Utilization
When you have a high employee utilization rate, your employees are spending a sizable proportion of their available working hours on client work. This means more client work=more billable hours which in turn brings in higher profits.
This is when you want to set an internal target utilization rate (typically in the 80%-90% range) and monitor each employee’s utilization rate in real-time.
If an employee’s utilization rate falls below their internal target, this means they more than likely need to assign that employee more work, reduce the number of non-billable tasks, or account for the billable hours that the employee is doing.
It’s important that you track your project expenses down to specific levels of detail. Do you need to know how much you’re paying subcontracted labor? What about specific tools added to the project?
When you can track and bill for these expenses, that gives you a large advantage in improving and managing your project profitability.
To improve expense tracking even further and make this process easy on yourself and your clients, you want to use a smart expense tracking software. BQE CORE makes it effortless to track all expenses and receipts while linking them to projects for accounting and billing purposes. A good time tracking platform lets you track expenses in real-time so you can compare them to the expenses you have budgeted toward the project, thus identifying potential cost over-runs before they happen vs trying to address them afterward.
Provide Accurate Estimates for Clients
While maintaining a profitable project is important, you also want to maintain good client relations. If your client comes to you on the spot asking for a price on a project and you give them an answer, only for a week later to realize you forgot about Y or Z cost and must draw up a completely new quote, you run the risk of having a dissatisfied client that may cancel the project altogether. This situation is avoidable.
Sometimes you just don’t know your costs on the spot. That’s okay. In this case, it’s better to get back to them in 24 hours and spend those hours accurately adding up the cost of each aspect and phase of your project. When you can come back with an accurate estimate, this shows you’ve put consideration into the project already and will give your client a better peace of mind.
It’s always beneficial to reflect on the likely costs beforehand and take notes on overlooked items to help you improve project profitability. You may even notice things you can charge more for or costs that have been ignored and can put this quote together for future clients.
Communication and Real-Time Visibility
Communication and real-time visibility into the work being done on your projects is important for improving the project’s lifecycle.
The easiest way to achieve this is with a project management platform that gives you the real-time visibility you need so you can communicate directly with your team. A project management platform, such as CORE, provides easy-to-understand and accurate key performance indicators that measure every aspect of your project, so you’re never surprised by the cost overruns, poor employee performance, or missed deadlines.
This way you can monitor the pulse of every project, in real-time, all in one place, so there are never any surprises.
Improve Project Profitability with BQE CORE
To achieve profitable growth on all your projects it’s important you apply these best practices and take control of every aspect of your project from beginning to end.
BQE CORE can help by allowing you to manage your projects all in one place. Gain access to customizable dashboards, time and expense tracking, complete project management, real-time visibility, full billing and accounting access, and more.
With CORE, we’ve made improving and managing your projects simple by giving you all the information you need right at your fingertips so you can save time and make your projects more profitable.
To see just how easy improving project profitability can be, request a free demo today.