Monitoring the margin of a project helps understand whether a project has been financially successful for your organisation.
For many organizations, margin (profit) is an important KPI used to determine the success of a project. Projectworks keeps track of all costs and revenue associated with a project, so the projected margin is updated as new data is entered. This is another reason why updated timesheets, resourcing, and revenue forecasts are important.
You can predict the margin you will make on a project before you even start working on it. By entering the financial forecasts (revenue expected) and the resourcing required to complete it (the cost to deliver) you can see the projected margin and verify whether the project will deliver the financial results expected.
The project metrics screen includes tiles showing the current margin and the projected margin of the project.
- Current margin: The value of invoices issued to date less the cost of all time and expenses lodged.
- Projected margin: The value of projected revenue at completion (invoiced already + forecast to be invoiced) less the cost at completion (time and expenses lodged + time resourced and future expenses)
The project margin screen is accessed by clicking either of the margin tiles from the Metrics screen for a project.
Margin details are sensitive so generally, not many people will have access to them. We suggest you talk to your manager if you feel you need access to the margin for a project.
Understanding project margin
The margin of a project is calculated by subtracting the costs from the revenue. Costs can comprise of time worked by your team as well as expenses required to complete a project. Margin is presented as a dollar amount and percentage. The margin percentage is calculated as the percentage of the revenue that you get to keep. In other words:
(Revenue fewer costs) divided by revenue
While a project is open the margin is fluid as it is impacted by costs incurred and planned, as well as revenue recognized or forecast.
Projectworks allows you to keep your eye on the current and projected margin.
The current margin is a point in time value, based on the revenue recognized (invoiced to date) less all costs that have been recorded. The current margin is always being updated. As each time entry or expense is logged the margin will reduce and will increase again when an invoice is issued.
The projected margin is the margin expected at the completion of the project. It is calculated by subtracting the costs at completion (time and expenses lodged + time resourced and future expenses) from the revenue at completion (invoiced already + forecast to be invoiced).
Changes made to future resourcing will have an impact on the projected margin. For example, if you are able to switch one of the resourced people to a lower cost person you can see how that impacts margin.
Margin on Time
The margin on time is calculated on a mixture of timesheets and resourcing details (for costs) and invoices and forecasts for time-based budgets (for revenue).
The cost of each time entry is calculated based on the person's hourly cost rate that applied on the date of the time entry. The costs to date are presented in three portions:
- Cost of time logged, invoiced: Time that has been linked to an invoice.
- Cost of time logged, not invoiced: Time that is recorded but not included on an invoice.
- Cost of future time (resourced): Calculated using the cost rates that apply for when the resourcing is scheduled.
Revenue is calculated as Revenue to date (invoices issued to date) plus Forecast revenue (forecast to be invoiced). Only revenue for time-based budgets is included.
Margin on Expenses
The margin on expenses is calculated from expenses incurred (for costs) and invoices and forecasts for expense based budgets (for revenue).
The purchase price of an expense is used to calculate the cost. All expenses lodged against the project are factored into the cost equation. That means an expense that isn't billed to the customer will impact the margin achieved for the project.
- Cost of billable expenses, invoiced: All billable expenses that have been linked to an invoice.
- Cost of billable expenses, not invoiced: All billable expenses lodged but not included on an invoice.
- Cost of non-billable expenses: The costs of all expenses that are marked as non-billable.
Revenue is calculated as Revenue to date (invoices issued to date) plus Forecast revenue (forecast to be invoiced). Only revenue expense based budgets is included.
A breakdown of the cost of time and expenses is provided.
For time, the costs for each person are presented, showing the hours and rate that applies. A mixture of timesheet data (logged time) and resourcing (future time) are used to calculate the overall (at completion) costs.
Each expense that has been logged is shown.
Costs incurred in different currencies
Any costs incurred in a currency different from the currency the project is operating in will be converted to the "project currency" to allow margin to be shown.
Cost of time: If a person is paid in NZD and the project is operating in USD, the costs of that person's time entries are converted to USD using the exchange rate from the date of the time entry.
Cost of expenses: If a currency is incurred in Euro and the project is operating in USD, the cost of the expense will be converted to USD using the exchange rate from the purchase date of the expense.
Note: Exchange rates are sourced from www.fixer.io.