Revenue Profit Margin

J

Jon

I had a project that a client agreed to $100,000. How
should I budget this dollar amount when I have not built
out the schedule? Also, how should I calculate revenue and
a profit margin?

Thanks,
Jon
 
J

John Beamish

First of all: Project is not budget management software. You should be
tracking that information in a spreadsheet or using another appropriate
software.

Secondly, you are doing this backward. When you had an idea of the work,
you should have planned it using project so that you could determine the
work, durations, resources, and staffing rates. Once you had that
information you would know what your costs would be. When you have your
costs, you add your profit margin and then AND ONLY THEN do you submit a
quotation.

Finally, you should be aware that there are a variety of "costs" that you
might be tracking. You might be simply tracking the billable rate of a
third-party resource, or you might be tracking their billable rate plus a
markup or you might be tracking a fully burdened staff cost. Your raw
materials costs could also be tracked at a variety of different rates.

Given the general format of your question, the best advice I can offer is:

1. prepare a plan with tasks, durations, work.
2. prepare a resource sheet with rates
3. assign resources to the tasks.
4. display the project summary record
5. insert a milestone task at the very beginning with a task name of your
budget and then compare the cost file on the project summary record with
the amount you have in the task name of the milestone.


I had a project that a client agreed to $100,000. How
should I budget this dollar amount when I have not built
out the schedule? Also, how should I calculate revenue and
a profit margin?

Thanks,
Jon
Click to expand...



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M

Matt Steele

Jon, John's advice is correct. You should be building the
estimate using MS Project then submitting the estimate.

Project does give you 5 cost rates per resource. Using
them, you could assign a "cost" rate for each resource
(cost A), then assign a "billing" rate for the same
resource (cost B). But Project will not let you do math
between the two fields, so you have export the data for
each rate to excel.

I personnaly saw this as one of the biggest shortfalls of
the system. MS Project is a project budget management
tool. But there are many users for whom gross-margin is
not a concern. Yet i believe there are many for whom it
is a concern. Many businesses operate the way you and i
do (including MS Enterprise Services). They pay one rate
for a resource and they bill another. The difference
being a gross margin. Yet neither MS Project nor
Primavera offer a "rate-table" feature specific to the
project resources (as opposed to specific to the resource
in the enterprise).

I designed a plug-in that gives each project its own rate
table. Now each resource has a cost rate at the
enterprise level and at the project level each resource
has a billing rate. My solution now allows us to estimate
a project and easily see the gross margin on each
resource on each task on each project. Furthermore we
save that as a baseline and I can now see what resources
are consistantly underestimating estimates or
consistantly not performing. Also, it allows us to adjust
the billing rate on the fly for any group of project
resources (material, office labor, field labor, etc.) by
using a multiplier of the cost rates. This allows us to
adjust the estimate before we call it final.

You may have to look into developing your own solution if
your company needs to track project gross margins, or
estimates like mine does.

If I can help, please let me know. Good luck.
Matt
 
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