How can CFOs Maximize Project Profitability?September 01, 2020
Wondering how you can increase project profitability in your business? There are five things that you should be implementing…we dive in below.
CFOs…having trouble staying on track with project profitability? You may not be prioritizing the right things. The key is to have information that is timely and actionable. You need information that can help improve the accurate estimating of projects at the initiation and timely information that will identify deviations from original scope. This will help you communicate properly with customers, enhance the success of obtaining change orders when needed, and can significantly improve profits.
We cover five important things you should be implementing in your business to maximize profitability.
- Track the right metrics- It can be tempting to continuously generate reports, analyses and statistics when you have so much data (in so many formats across extensive timeframes). It’s important to not lose sight of the most important things, however. You need to determine which metrics matter the most to your firm’s success. Many businesses have benefited from implementing these five key performance indicators (KPIs) as a starting point- project overruns, project margins, billable utilization, annual revenue per employee and annual revenue per billable consultant. As you develop the right set of metrics for your organization, it’s helpful to consider these five to start off.
- Make time for analysis- One key to profitability is having the right data, but you need time to analyze the data and make recommendations. A recent study by PWC shows that top performing finance organizations spend 20% more time on analyzing data than gathering data. Nowadays your business can take advantage of cloud based accounting software to automate your finance and accounting processes. Additionally, this software can easily integrate with third party tools and help eliminate duplicate data entry.
- Create dashboards for project managers- A recent study by Ernst & Young found that 67% of 769 CFOs surveyed believe that one of the main priorities for finance professionals is improving cross-functional collaboration. For project based companies where project managers and client services drive project execution and delivery, it is crucial to establish collaboration across the board. Project managers succeed when they are given information they need to be more efficient and make smarter decisions.
- Understand fixed-fee project costs- Fixed fee projects and value-based pricing has grown in popularity through the years. A recent study by TSIA shows that, across the industry, 50% of professional services projects are sold on a fixed price basis. Billing based on time and materials already requires a process to track your labor costs through time and expense entry…so transitioning to fixed prices shouldn’t be a huge undertaking. When using the fixed-price method, it’s critical to know the details of your cost. Having accurate data that will help in estimating costs up front and tracking change orders are most critical in fixed fee projects. Technology has made this process significantly easier. Once you know the detailed direct and indirect labor costs, you can better understand which projects have higher margins, which employees are more productive and which clients are more profitable…which will lead to more insightful decisions. Understanding your costs beyond the P&L level, and more at a granular level, will allow you to make better decisions.
- Enable data driven decisions - Forrester Research’s recent study shows that 74% of firms strive to be data-driven but merely 29% consider themselves adept at connecting analytics to action. Fostering data driven decisions and processes throughout your firm depends on providing consistent trusted data in both financial and operational reporting. The data should be the same (and timely!) whether you’re creating P&L reports for executives or project-margin analyses for a project manager.
Gone are the days when CFOs simply operated the finance and accounting functions. Companies depend on CFOs who not only lead these functions but are also strategic advisors to the company.
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KLR Outsourcing CFOs serve as temporary, contract, fractional or interim CFOs, providing companies with senior-level business and financial executives without the need or expense to hire a new member of the management team. Learn more about our Outsourced CFO Services at KLRoutsourcing.com.