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profitAre you able to track the true profitability of the projects that your business delivers? If your business provides services that are delivered by multiple people or departments in your organization, you may not be charging enough. Estimating costs to cover salaries, sales time, travel time, and other hidden expenses may be eating up your profits without you realizing it.

Take the guesswork out of project costing with a systematic review of the projects that you have delivered. Evaluate how you should capture and assign actual costs to specific projects, including:

  • Project definition. Projects take different forms for different organizations, and it’s helpful to have a good understanding of what yours entail. A manufacturer could define a project as a custom-made machine. A marketing campaign is a project for an advertising company. Each wedding would be set up as a project for a caterer.
  • Assign the costs that should be allocated. Direct costs, such as materials, are easy to allocate to projects, but other costs might be less obvious. Think through all the steps of your project activities, from conception to delivery, to capture the full cost of delivering that project.
  • Determine how to track time, costs, and expenses. Rule of thumb: keep it simple. Consider how much detail you really need to capture to accurately track costs. And be sure to make it easy for your employees to enter and assign time and expenses to each project, no matter where they are – you’ll get more accurate results.
  • Monitor. Check the results of your project costing regularly to make sure that your employees are using the system consistently. Use reports to monitor the profitability of each project, and then adjust your prices accordingly.

Project costing is a critical business management technique that most companies today need for at least a part of their business. A business management solution such as Dynamics ERP can help you manage projects and the expenses that go with them automatically. Give us a call and let us help you get a handle on project profitability.

Published on 7th February 2012 by Jeanne DeWitt.

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