Whether you’re a lawyer, an IT consultant, an engineer, or working in PR, architecture, or for an advertising agency, or indeed any other kind of professional service organisation, it is your time that is probably the chief determinant of project cost, and the fees that your firm will charge to your customers. Sometimes it’s a matter of adding up all the time you’ve reported in your timesheet and multiplying it by a fee rate; sometimes your firm will have estimated how much time is needed for a project and calculated a fixed price for a well-scoped piece of work. In both cases, it’s never quite as simple as you would wish it to be. Sometimes there’s time you can’t charge, and very often a fixed-price project takes more time (and very occasionally less time) than planned.
If you’re working for a professional services company and you’re in a position of responsibility you’ll be familiar with these month-end questions:
‘How much of your Work in Progress (the time you haven’t yet billed) will you be able to bill? How much is it really worth?’
‘How is your fixed price project going? Do you expect it to take more time or less time than planned? ‘
You’re asked these questions especially sternly by your firm’s Finance Director, since he or she is responsible for calculating revenue for the month that’s closing, and revenue depends on the value of the project time that you’ve reported for the month. This is not just a matter of multiplying time by fee rate.
At year-end it’s even more important, since it’s your annual P&L that statutory and corporate auditors will analyse, and if you’re not too careful your managers will defer serious consideration of the value of Work in Progress and the progress of Fixed Price Projects until then. That can mean unpleasant surprises in the last month of the year.
At LLP Group we use systems@work’s time@work to keep an eye on what’s going on. Adjustments to Work in Progress value and the value of time in Fixed Price Projects are tracked as discounts or uplifts to the values that are calculated from timesheets. We can track how these values are discounted or uplifted when billed or written off, and we can track when this is done.
It’s never pleasant to discount work, but it’s some consolation when it’s done steadily throughout the year, rather than all in the last month. Take this report, for example:
This, from one division of the company, shows the month in which work was executed down the left y-axis and the month in which the value of time was increased or decreased along the top x-axis. What we see is that the value of time is written up or written down in the month in which it is recorded, or a month or two later. This is virtuous. This division doesn’t execute many fixed price projects and doesn’t hold Work in Progress for long.
The matrix, above, shows data for another division, one which executes more fixed price projects. It’s clear that decisions about the write down or write up of time are made sometimes many months after time is recorded, and as year-end approaches large values are written off. This is less virtuous.
If you’re running a professional services organisation this is the kind of tool you need if you want to avert unwelcome surprises.
When it comes to Fixed Price Projects you might also track the estimates that your project managers give you and track time recorded on the project (green), planned time (blue), and evolving estimated time (orange).
In this case, below, the project manager has seriously underestimated the number of days’ consulting that the project requires. As the project progresses he or she estimates more and more work. The result is that the achieved project rate is nearly 40% lower than the planned rate of 500. It’s probably loss making.
In the more complex case, below, the project has been ‘sold’ on the basis of ‘planned’ time, and as the project progresses the client adds additional scope and additional planned time (though not at the same fee rate). Time estimated by the project manager for the whole project gradually exceeds planned time. The Rates graph shows how the planned daily rate for the project is reduced as the scope of the project increases, and the actual achieved daily rate also declines.
Whatever kind of service you’re selling, it’s essential that you keep track of the value of Work in Progress and the progress of Fixed Price Projects every month of the year.