When it comes to our projects, we need to know as much as we can to ensure we stay on track for our firm and our clients.
There’s a fine line between what we know and what we need to know. So I’ll ask you: When was the last time you told someone that you didn’t need to know something?
Some of us are adamant about what we know, even if it’s incorrect. Sometimes, we decide we don’t want to know or don’t need to know something for various reasons. If one of your children comes to you at home with a Sharpie marker in one hand and their younger sibling behind them covered in said marker, you probably don’t want to know what happened. However, if your revenue from a project is less than your expenses, you really do need to know.
After leading a project management seminar, one piece of feedback I received was that the financial management section I presented was not necessary, because “Project managers don’t need to know that.”
I don’t mean to belittle anyone, but I found the comment funny and concerning at the same time. Since when shouldn’t a project manager, or any firm leader for that matter, not need to know about a project’s performance?
Project managers and principals need to know the numbers behind a project if they are to maintain the firm’s financial viability and progress on their growth goals.
There are many things every project manager must know about their projects, but here are what I consider the minimum:
- Budget. How much have we spent on this project versus our expected expenses at this point?
- Time. Have we spent the expected amount of time on this project? Too much time? If we spent more time than planned, what caused the deviation? How much time is left, if we are to stay on budget?
- Resources. Do we have the right people, subconsultants, enough time, or other resources available to complete the projects? If not, how do we acquire the necessary resources? What resources will we need to complete the next phase or the one after that?
- Billing. Have we sent an invoice to our clients for the work we have already performed? When did we send the invoice? Did they receive the invoice?
- Collection. Has the client paid for the services we provided? If not, when will they pay for those services? Who’s responsible for collecting payment?
Additionally, many firms track specific numbers and multipliers that highlight trends in their financial health. Here are a few of the typical metrics we see:
- Chargeability or utilization rates. This is the amount of labor directly charged to projects versus the total number of hours worked. Most firms track this and have targets they seek to achieve, but this is probably one of the weakest metrics because time can be manipulated which can lead to overspending on a project.
- Net multiplier. This is the amount of net service revenue earned per direct labor charged. It can indicate a firm’s project efficiency.
- Revenue factor. This is a great way to measure a firm’s performance over time, because of its simplicity. How much did the firm make – minus subconsultant expenses – divided by the firm’s total labor costs.
- Average collection period. How quickly is your firm getting paid for the work performed? When you allow your clients to be delinquent in paying for your services, you have effectively become their bank, allowing them to finance their project, literally, at your expense. An ACP under 60 days is a good target.
There are probably some things we don’t need to know, such as “What’s in this hot dog?” or what happens after someone says, “Hold my beer” or “Watch this!” But when it comes to our projects, we need to know as much as we can to ensure we stay on track for our firm and our clients. Just don’t be too quick to say, “I don’t need to know that.”
Bill Murphey is Zweig Group’s director of education. Contact him at bmurphey@zweiggroup.com.
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