When you think about making improvements to your project management methods, you should start by defining what a project is, identifying the kinds of work you perform, and understanding what data is most important.
There are three major categories of projects you should track:
- Internal (for your own business) projects
- Billable external (customer) projects
- Non-billable and fixed-fee external projects (where costs need to be monitored)
All three project types have the same essential core elements – the task types/categories to be performed and the staff or contractors who will deliver the tasks. Having a good project service management (PSM) system allows you to track time, schedule work, produce accurate data for accounting purposes, provide reporting mechanisms, and more.
An “internal” project is work performed for you rather than for a customer; they involve tracking the costs of personnel and out-of-pocket expenses but, because you’re performing them for your company, there are no cost markups and no calculations necessary for revenue, as there is none.
There are many projects you can consider internal, including preparing for a tradeshow event that requires staff to spend salaried time preparing artwork, ordering carpeting, etc. And what about product development that you’ll sell, such as a software application? Because a software application isn’t for one particular customer, the costs have no direct tie to the ongoing development costs and are undertaken at your own risk until sales begin. If you manufacture multiple products, you’ll want to track time investments in different types of work (development, Q&A, documentation, etc.) in the aggregate as well as by module. Without a project and linked tasks, that’s just not possible.
External projects are more complex than internal projects. To deliver external projects successfully, you must deliver the tasks within quoted budgets and timeframes to make the customer happy and have predictable costs so you can generate profits. That adds variable costs (salaries and contractors), along with revenues that may vary based on type of work, location, consultant skill sets, and more.
While there are most commonly two kinds of billable external projects ─ “fixed-fee” and “time-and-materials (T&M)” ─ these two types come in multiple combinations. Fixed-fee projects may include fixed-fee work in some phases with some T&M activities for items like travel time. Also, T&M tasks are often at different billing rates that vary by customer.
Meanwhile, other work deliverables may not be billable at all, such as goodwill or as technical efforts as part of winning a deal in the sales opportunity. In all cases, however, you must track costs based on the staff person or subcontractor delivering the work.
A common factor that makes managing external projects more complex is the incorporation of necessary internal project management, or oversight requirements where specific staff time can’t be billed even though the overall project is billable.
For example, if you’re truly managing a project, there are always some behind-the-scenes non-billable costs. Calls, emails, timesheet approvals and meetings may be overhead you can’t bill (or you’ve factored it into your pricing) but knowing how much time and staff cost you’ve invested could make your heart stop; the number is even more important when the project is large and that consumption of time may affect delivery schedules. And what you’ll learn by understanding those costs factors into your next quote for a similar project.
External projects often accumulate change orders during delivery – some element of the project has changed, so the quantity of work originally proposed must be re-evaluated, perhaps reworked into various schedules, and then requoted for approval. That takes time beyond the expected additional time for the change order work. Are you tracking that? All these situations could happen multiple times during the same project, and if you don’t track and manage them all, you’ll be bleeding costs you can’t see clearly.
External projects also have out-of-pocket expenses (airfare, travel, mileage, parking, meals, etc.). Do you just let them go or make guesses because they’re difficult to track, let alone manage? Are you building up history to know for sure on the next quote? Both the costs and revenue (if you can bill for some of that) add up every day as the project proceeds and affects the project’s profitability. Why not control it? Maybe you have equipment rentals or materials. Is that being managed in one or two additional applications that have no direct link and impact on project control, success, and managed profitability?
Costs of subcontractors are even more complex because they could be T&M or fixed-fee from the vendor and billable or non-billable based on those costs. (When it’s a fixed-fee vendor cost, how does your accounting department match the vendor’s invoice to the agreed-upon price before paying the invoice?) Does that waste two people’s time with a phone call or email to verify the amounts with a staffer in the project department or a location in a different time zone that takes three attempts to connect?
Let’s also note that not one topic discussed thus far can be done with a standalone time and billing tool, or even by the well-respected Microsoft Project, which deals only with scheduling and progress of tasks and resources. Expenses, time records, vendor invoices, and more don’t even exist in MS Project.
If you have questions about the complex process of tracking internal, external, and non-billable/fixed-fee projects, TimeLinx can help. Contact us today for more information.
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TimeLinx delivers innovative project & service management software as a complete solution that perfects the sell-track-manage-support-bill cycle that services organizations must have to delight their customers; TimeLinx brings the cycle together in a single application that offers less frustration, better project management, complete reporting, and improved profitability – all specially designed for Infor and Sage.