3 simple steps to track fixed price project portfolio for your service organization
For service organizations such as agencies, consultants, and system integrators, the entire business is a portfolio of billable client projects. Many of such projects are fixed price projects, where the service provider takes on the risk of completing a fixed set of deliverables for a fixed price. If manage incorrectly, a single failed fixed price project can incur large budget overruns which will erase profits from many successful projects and potentially doom the entire business.
This article will introduce a simple process to track your fixed price project portfolio, based on practice standards from the Project Management Institute (PMI). The goal is to identify red flags early so you can make corrections before it’s too late.
1. Break down your project into small tasks
Have you encounter projects where the last 10% takes 90% of the time? One way to counter that is to break the project down into small enough tasks that are either 0% or 100% complete (you no longer arbitrarily assign a % complete).
Allocate a budget for each task. The total project budget will be the sum of the budget for each task.
2. Track cost and completion of the small tasks
As you execute your project, track all the time, materials, and expenses incurred. Time can be quantified in dollars by multiplying actual hours spent and the applicable bill rate.
As you complete each of the tasks, write down the completion date.
3. Review earned value metrics
You can monitor your project portfolio by reviewing these simple metrics:
Budget Used, or Actual Cost (AC) = sum of all the time, materials, and expenses incurred
Earned Value (EV) = sum of the budget for each completed tasks. This can be how you recognize your revenue.
Cost Variance (CV) = EV – AC. If it is negative, the project is over budget, and vice versa.
Cost Performance Index (CPI) = EV / AC. If it is less than 1, the project is over budget, and vice versa.
Variance at Completion (VAC) = Budget Allocated – (Budget Allocated / CPI). It is the forecasted Cost Variance (CV) for project completion assuming the current trend continues. If it is a large negative number (over budget) you will need to make corrective actions to change the trend.
You can review the weekly metrics to monitor status for a given week, or the cumulative metrics to monitor status to date.
There are many software tools available to automate a lot of these steps, including timesheets to track actual time spent and earned value management systems to calculate the earned value metrics. Billable Insight is a cloud-based software-as-a-service (SaaS) tool featuring timesheets, earned value management, and more. Try it for FREE (no credit card required).