A professional services firm has its own set of indicators to track. Unlike manufacturing companies that manage inventory and sell products, service firms generate most of their revenue from billable hours and the expertise of their resources. Their projects require rigorous tracking of time, budgets, and profitability.
Does your firm manage by project? To effectively navigate this complexity, tracking these key indicators directly in your management solution becomes a strategic lever, if not an absolute necessity for driving your company’s growth.
Here are some of the main elements to monitor to help you sleep soundly at night.
Ensure the Profitability of Your Projects
For project-based companies, financial performance isn’t measured solely through financial statements. It must be tracked continuously through a detailed project subledger to ensure profitability, optimize productivity, and support decision-making. Here are the key elements to monitor and what they can reveal:
- Total Budget: The total budget is the amount negotiated and approved by the client. You should be able to track the hour budget, cost budget, revenue budget and refer to them at any time.
- Cost to Date: Total costs should include salaries, expenses, benefits, and overhead. Including all project costs provides a true picture of profitability.
- Revenue to Date: Total revenue includes both invoiced amounts and work in progress. It may also be useful to include “unposted revenue,” meaning fees recorded in timesheets for the current period.
- Work in Progress (WIP): WIP refers to employee and consultant fees that haven’t been invoiced yet.
- Fee Margin: Percentage (%) of margin (profit) calculated for fee portion only (i.e., time-based fees).
- Total Margin: Percentage (%) of margin (profit) calculated from total revenue over total costs.
- Fee Ratio: Similar to the fee margin, this ratio shows the amount of fee revenue relative to total fee costs.
A detailed view of project costs and revenues gives you the tools needed to make strategic decisions and ensure your firm’s profitability.
Detailed Project Tracking
To track in real time and easily access key information, a detailed project sheet gives access to all these metrics, not only for the overall project but also for each phase and task. Access to this data allows project managers to be proactive and manage projects continuously, instead of dealing with surprises at the end.
Project sheet in OMZY, project financial management solution
Not Sure Where to Start to Improve Performance?
Ask yourself the following questions:
- Do you have clear visibility into all the aspects mentioned above to manage your projects?
- If not yet, do you need it?
- Would real-time, detailed tracking of these metrics help improve your profitability?
For professional services firms, having an accounting system tailored to your reality is an essential tool to ensure both profitability and growth.
At JOVACO, we understand the unique challenges faced by project-based firms. That’s why we don’t just provide software, we offer a strategic partnership to implement a complete solution tailored to your needs. With OMZY, powered by Microsoft Dynamics 365 Business Central and backed by our expertise in project-based management, you get a system designed specifically for service firms, with all the features you need to optimize your operations and financial performance. Chat with us to discuss your project management challenges.
