For over 20 years I had the benefit of having Project Profitability calculated for me by our (pricey) accounting software. You could choose from two methods. Method A was automatic but gave useless results. Method B required periodic input by us using a factor to allocate overhead per hour of time charged to the project. This method gave consistent results and the results were accurate as long as your overhead factor was realistic.
We knew how to calculate a realistic overhead factor, and you can see how here.
Why Determine Project Profitability
I think there are several reasons for knowing your Project Profitability.
How To Determine Project Profitability
Determining Project Profitability is actually pretty simple. You allocate your overhead expenses based on the hours charged to the project. You simply multiply the Overhead Factor times the individual’s hourly pay rate. Then add this amount to the project expenses for each hour charged to the project instead of just the hourly pay rate.
That is the key to calculating Project Profitability. Simple.
When you have a timekeeping app like MyCorbu it is pretty simple to track Project Profitability. However knowing your BOF is a prerequisite, so follow this Billing Overhead Factor How-To.
Every month, quarter or year use one of the methods below to determine Project Profitability. An even easier way is to make use of the Budgets feature in MyCorbu. This isn’t as accurate because it assumes all time has the same cost, which it rarely does. But it is really easy to check without an export process.
Method 1: En Mass
This Method will give you profitability for all your projects. You start on the Project Time page with the “All Project Time” table.
Compare the totals to what you have billed for the project JTD [Job To Date] after deducting expenses charged to the project (if any). That gives you your Project Profitability.
As you collect more and more time data, this method gets unwieldy and time consuming. I find that if you look at everything it is usually to find the winners and losers. Most of the time you already know the status based on gut feel or the time budget status. In that case it makes more sense to just export and study specific projects or phases as in Method 2.
Method 2: Project by Project
This Method will give you profitability for one project or one phase of a project. You start on the Project Time page with the “All Project Time” table.
You might use this process to start your invoicing process.
The TIME version of MyCorbu that will be available late in 2017 will have billing rates included so that the Budget feature will show you where you stand without exports.
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