In fast-paced services industries, savvy CFOs track numerous key metrics like net income, current ratios, working capital, cash balance, DSO, gross margins, and more. But the one metric that may matter more than any other for long-term growth for professional services firms is project profitability.
The nature of the “project” can range from a technology implementation or ad campaign to a marketing event, research study, or countless other outsourced services. But the one constant? Each project typically has a beginning and an end, and employees and contractors assigned to deliver the service. Contracts can be short-term or last for years. Billing terms can vary widely such as time and materials or fixed fee based on milestones. Since every project is unique, it’s essential for you to clearly and quickly understand an individual project’s profitability as well as the profitability of different classes of projects.
After all, once you sign that contract, you own the outcome, whether it’s profitable or not. Project profitability isn’t the job of just one individual or department. When you’re seeking to raise your game with project profitability, you need teams that can collaborate throughout project lifecycles and across functional disciplines. Sales must bid on the right projects at the right fees.
Project managers need to assign the right resources to that project. And your talented professionals have to deliver their work on time and on budget.
While all of that happens, you’re charged with monitoring budgets vs. actuals to avoid overruns, ensure profitability—and analyse the data to make even better bids in the future.
Here are five important steps your firm can take to achieve, preserve, and enhance project profitability.
With so much data (in so many formats across extensive timeframes), it’s tempting to generate screen after screen of reports, analyses, and statistics.
But amid all of the information you can access, you don’t want to lose sight of what matters most. One crucial step toward improving project profitability is to determine which metrics are important to your
“Sage Intacct lets us create utilisation, efficiency, and expense reporting at the project, task, department, or customer level for granular transparency into our labour costs and profitability across various operational categories.”
Brian Lawrence, Senior Director of Finance and Taxation
Having the right data is one key to profitability. But, to make the right decisions, you also need time to analyse the data and make recommendations. According to a PwC survey, top-performing finance organisations spend 20% more time on analysis vs. data gathering. (Source: More than tech: Why finance transformations should start with people first (pwc.com))
Modern, cloud-based accounting software automates your finance and accounting processes and eliminates duplicate data entry by easily integrating with third-party tools.
“By understanding the cost of sales and profitability for each industry we’re in, our segment leaders can spot market opportunities, define strategic plans, and make more informed decisions.”
Mark Mead, Vice President of Finance
Ernst & Young found that 67% of 769 CFOs surveyed believe improving cross-functional collaboration is a high priority for finance. This is especially true for project-based companies where project managers and client services drive project execution and profitability. Finance can improve collaboration with project managers by providing information they need to be more efficient and make better decisions.
“We love Sage Intacct’s permissions-based dashboards, which cut days of report preparation each month, because we’ve created helpful self-service dashboards where our executives, client services team, and department heads can find relevant, timely business insight.”
Natalie Bonczek, Controller
The trend toward fixed fee projects and value-based pricing continues. According to TSIA, 50% of professional services projects they analysed are sold on a fixed-price basis across the industry. If you’re billing based on time and materials, you already track your labour costs through time and expense entry. If your billing is based on a fixed fee and long-term contracts, it’s also critical to know the details of your cost.
Smart CFOs use technology to understand the full project cost — and avoid the so-called “peanut butter” approach of spreading the cost
evenly. Armed with detailed direct and indirect labour costs, they can make insightful decisions because they clearly understand which projects have higher margins, which clients are more profitable, and which employees are more productive. The more you know about the costs of your services at a granular level—not just at the P&L level—the more informed decisions you’ll be able to make.
“I used to spend about nine hours every month just creating time and labour costs. Sage Intacct [does it automatically]. I don’t even remember how I set it up now—it works so smoothly I never have to think about it.”
Tanya Yakhnis, Chief Financial Officer
According to Forrester Research, 74% of firms want to be data-driven, but only 29% say they are good at connecting analytics to action. CFOs play a critical role in fostering data-driven decision processes throughout the firm.
That culture starts by providing the same reliable, trusted data in both financial and operational reporting. They want the same data to create P&L reports for executives and project-margin analyses for project managers. And they need timely data, in context, in real time.
“As our leaders have learned Sage Intacct’s powerful capabilities, they’ve started using more reports and are employing an increasingly data-driven approach for every business decision. Now everybody sees the same data, and we have much better information with which to collaborate and make decisions.”
Mike Munson, Controller
CFOs can no longer afford to simply operate the finance and accounting functions. They are becoming strategic advisors to the company—especially in project and service-based organisations.
By collaborating closely with the operations team, CFOs can have an outsized big impact on the key metric for success: project profitability. To adopt these best practices and reach that next level of sustainable, profitable growth, CFOs must modernise the accounting software foundation by adopting a best-in-class solution that’s built for the needs of professional services organisations. What’s more, a cloudbased solution with open APIs easily integrates with other systems critical to your unique business processes. A flexible, customisable solution that is available to your cross-functional teams in real time, any time. And a scalable solution that can easily support your growth now and in the future.
Contact us at Akuna Solutions and find out from a Sage Intacct implementation specialist how your organisation can have a finance transformation and benefit from the best cloud accounting software in Australia.