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Project managers, invoice managers, executives
Understanding how your forecasted project compares to what actually happened is important for organizational learning. This training is designed for project managers and financial project team members. Learn how to set up project budgets, compare the planned budget to actuals and use real-time budget information to map out anticipated costs in the future.
- Understand the rate flow so you can choose the best methodology for your team
- Identify when your project is in danger of going over budget
- Analyze your portfolio using customized financial reports
Today’s training covers how you can create a budget on a project for both your labor and non-labor expenses. Then you’ll learn how to review actual values for labor and expenses as your team members enter them.
The benefit of tracking your planned budget against your actuals, is that project managers will have the information they need to ensure that the project is staying on budget while the project is being executed. This ensures you still have time to address any issues before it affects your profitability, return on investment, your customers or your employees.
Top Down Budget
The first topic being covered is what is called a ‘top down budget.’ When you are first tasked with creating a project, you may be given a budget for that project. This budget could be the cost of the labor hours, the cost of non-labor expenses or both.
For example, if your sales team has been working with the client prior to the start of the project, they may have developed a high level estimate or budget that you must manage the project to.
Or perhaps your senior management team reviewed the project history and provided you with a ballpark estimate for the new project.
Whether or not you have that high level budget information prior to creating your project will depend on your organizational business processes and the types of projects you are performing.
In some organizations, project managers will be involved in developing a top down budget, but in others, they are not involved and just receive the numbers from another source and must manage the project to that target budget.
Add a Project
When you create a new project, you can add the target budget information. This allows you to build the schedule and manage to that high level budget.
Let’s start by adding a new project. To add a project, navigate to the folder that you want to add the project to.
You do that by clicking on the folder in the Left Navigation pane.
Add a project by selecting the Add icon and click on Add Project option.
The Project Add/Edit form will appear. This form is the same if you’re adding a new project or editing an existing project.
Enter a project name Software Implementation.
In the Copy from Template, there is a template set up.
Select that template.
If you need more information on adding a project, attend the Creating Your First Project webinar.
Add a Target Budget
Adding the target budget allows you to track the variances as the project moves through its life cycle. Project managers are able to compare the target with detailed budgets and manage stakeholder expectations about this budget.
To add the top down budget, click on the Target Budget Information tab. When you enter Target Budget Information, you record how much the project is expected to cost, or the Target Budget. This is on the first row.
If you have external customers that you’re billing for the project, then you also want to track how much you expect to bill them. This is recorded in the Target Budget Billable field which is the second row.
A lot of project teams don’t bill external customers. They simply track their internal hours and costs. That’s fine. You don’t have to use this Target Budget Billable data.
In most cases, when you receive budgets for your costs and billable amounts, they will just be total high level dollar amounts.
However, in some instances, maybe you’re given an estimate for the number of hours the project might take, an average rate to apply and the estimated non-labor costs.
You may enter the number of hours – say you estimate that it’s one hundred hours at an internal average labor cost per hour of $50. If you enter that, you’ll see the system automatically calculates the total labor cost to be $5,000. If you add another $2000 in non-labor costs in our expense field, you can see that the system calculates out the total cost to be $7000.
You could do the same thing with the billable information. You enter 100 hours but at a billable rate of $80 per hour and you charge out our expenses at 1.5 times or $3,000, then you can see that this is expected to bill out for $11,000.
If you just want to use a total cost and billable amount, then just uncheck the “Auto-calculate target values while entering” option, blank out the other fields and just enter the total amount of $30,000 cost for the cost, and $60,000 for the billable.
Now you now have your total estimated cost and your total estimated billable amount.
Time, Expense & Billing Information
Before you save the project you may want to add more information. For example if your organization uses rate cards or contracts, you may add those.
This step is useful if you are billing external customers for the project and there will be different rates depending on the resource type that is performing the work on a task. However, some companies use internal rate cards as well. Those may be associated with the project here.
Click on the Time, Expense & Billing information tab.
Select the Company (or client) that you are performing this project for by selecting the Company from the drop down list.
Next you may associate the contract or rate card. In this case, select the current year rate card that’s been setup.
This is reviewed a little bit later during the rate flow discussion, but essentially you’ve associated a contract which will specify the rates per hour based on the resource type that is needed to perform the work.
Now that you have the company and contract added, save and display the project.
Because we created the project from a template, the tasks carried over which is what you see here in the task list.
Templates are a very powerful feature of Project Insight. You can create templates for the different types of projects you do based on past history, knowledge and lessons learned. Then with a lot less effort, you can use your template to create a new project and then just modify the information to reflect the current deliverables.
If you click on the arrow next to your first summary task, you’ll see that it expands to show you all the child or detailed tasks that are required to complete this stage of work.
You’ll also see that there is some pre-populated information for each Task such as Duration and number of Work Hours and the type of resource that is required on this task.
For budgeting purposes, the important information that you need for each task, is what type of resource is needed and how long is it going to take.
Resource Pop Up
For the first task, there is a default amount of planned work or effort of 20 hours. You could change this if you thought this task for this project would take more or fewer hours, but for now, just leave it at 20.
Click on the resource assigned to this task, the Resources Detail layer appears.
You can see the burden rate for this resource as well as the billable rate. The costs in Project Insight are referred to as burden, which means the fully loaded cost to your organization.
This is simple math, you take the 20 hours and multiply it by a cost of $70 per hour and that’s going to get you the planned labor cost or Work.
Then your take the 20 hours and multiply it by $100 per hour to get the planned billable amount.
Now click on the X to close the resource layer.
But you don’t need to do that math. The system does it for you, that’s the benefit.
To show these calculations, go to your Display Options and add in the following columns in your display:
- Work Rate
- Work Time
- Work Billable Rate
- Work Billable Time
You can remove some of the other fields to keep your display uncluttered. Just double click on these fields to remove them.
And now you can update your Display.
You can see that you have the Work Hours multiplied by the hourly Work Rate or cost rate, gives you the total labor cost for this task or what is called Work Time.
You also have the work hours multiplied by the Work Billable Rate to get you the total planned billable amount or what is called the Work Billable Time.
Task with Two Resources
You can have more than one resource assigned to a task at a different rate.
To see this, click on a task that has more than one resource assigned.
For this second task, you can see there are two different resources assigned, each with a different number of work hours and at different cost and billing rates.
In this case, Project Insight will take the number of work hours for the first resource multiplied by the rate and then add the number of work hours for the second resource multiplied by their rate to give the total labor cost for the task.
Let’s close the resource layer.
You can now see that total for both resources in the Work Time field.
An average hourly Work Rate for both resources is automatically calculated by taking that total Work Time Value and dividing it by the Work Hours.
Rolling Up Budget Numbers to Summary and Project Total
You have the Work Total value and the Work Billable Total for each individual Task.
These individual task values automatically rollup to the Summary Task Level and you can see the total labor cost and the total billable amounts for the summary task.
You not only have the roll up at the detailed and summary task levels, but the figures all rollup to give you totals for the whole project.
If you scroll to the bottom of the project, you can see the total values.
For this project, there is a planned cost of just over $38,000 and a planned billable amount of nearly $80,000. That’s a pretty good profit margin if your project executes according to the plans.
Creating a Bottom Up Budget
At the beginning of this session, you were shown how to enter a top down budget, now you see how in a few simple steps, you can create a project from a template and immediately get budget figures based on actual tasks in a project. This is called a bottom up budget.
Bottom up budgets are far more accurate than a top down budget because they are based on more detailed, and often, historical information.
The template contained default work hours assigned to each task. For this project created, some of these work hours may remain the same, but some may also differ because the work that is required is different. In those cases, you can easily change the hours.
For example, for our first task, ‘Determine Project Scope,’ instead of 20 hours, you think for this new project, it will take 30 hours.
To change that, just double click on the Work Hours, type in 30 and hit enter.
You will see that as soon as you change the hours, the Work Total and Work Billable Total automatically change to reflect that as those changes on the task level and those values are automatically rolled up to the summary and project level.
A lot of organizations don’t do bottom up budgets during the decision making process because it is too much effort. By using Project Insight with templates and cost and billable rates set, you can quickly create a bottom up budget and that can give you more accurate estimates.
Where do Rates Come From?
Click on the resource again to bring up the resource layer and you can see the burden and bill rates on the resources on a task.
Where did this data come from? Project Insight offers an advance rate flow that allows for different situations. Let’s start from the simplest and move to the more complex.
Burden from User Profile
In a lot of organizations, the cost per hour for a resource is the same from project to project and doesn’t change. Therefore the burden or cost rate is set on each individual user’s profile.
To show this, click on the resource name to go to their user’s profile page.
If you are an Administrator in the system, you are able to edit the User Profile by clicking on the Edit icon.
This first tab contains the general information
Click on the RESOURCE INFO tab to set the rates.
The Default Burden Rate field is where you set the user’s default costing rate
There is also a Default Bill Rate. In some organizations, there is just one bill rate for each specific resource, no matter what type of work they do. In that case, you would fill this field in.
Now, that you’ve seen where rates are set on the user profile, click on the back button to go back to your project.
And bring up the resource layer again by clicking the resource name
You see the Burden Rate that’s displayed, its coming from the Burden Rate that was entered on that user’s profile.
As you saw, you can also enter a billing rate against the user profile, but organizations that bill customers for project work, will often have different bill rates from one project to another and those bill rates will be based on the type of work being done on the project.
When you created the project, you had the option of assigning a customer and a contract rate to that project.
This allows you to set billing rates by customer, by project and by the type of work that is being done in the project.
If you are Administrator, you can add and create customers and contracts.
Let’s go to the Administration section and click on Companies.
This is where you maintain a list of the clients that you’re doing projects for.
Click on the name of the client that you assigned to the project.
This shows you the client details.
Click on the Contracts section to expand that section out.
You can see the Contracts setup for this client.
Click on the Contract that you assigned to the project.
You will see the different Resource Types that are associated with this contract.
For example, there are business analysts, developers and project managers on the contract or rate card.
There is also a billing rate associated with each of those resource type roles. This means that whenever this role is assigned to a task on a project with this contract associated with it, this is the billing rate that will be applied.
Setting up Clients and Contracts is covered in a different training session but you can now see where this data comes from.
Let’s go back to the project and click on the project name to see the project task list
For this task, you can see that you need a business analyst to do the work.
Let’s bring up the resource layer again by clicking the resource name.
You see the billing rate. This billing rate is coming from the contract and the bill rate set there for the business analyst role.
Two different rate flows have been described – rates from the user profile and rates from a contract. These are two fairly common methods of applying rates to a project.
However, some organizations have different requirements for determining rates and Project Insight can accommodate that.
If you click on the help icon and choose online manual, then type ‘flow’ in the search.
You’ll see a link to the Project Costing Rate Flow. Click on that. Now rest your cursor over the diagram.
This diagram will help you see how you the different options and logic applied in different scenarios.
Close the help by clicking on the X and returning to our task list.
So far, the concentration has been mainly on labor costs. But on a lot of projects, there are non-labor costs as well.
For example on some tasks, you may not measure the cost based on hours and rates, but you have a fixed amount that’s going to be spent on the tasks.
This may be things like an external contractor amount or equipment purchases.
If that’s the case, you need to plan for and track these non-labor costs in addition to your labor costs.
First, you add in the fields that let you track and manage your Work Expenses.
To do that, click on the Display Options
You need to add two new fields right after the Work Time. To do this, click on the field right after Work Time to tell the system that’s where you want to insert the new fields.
Then double click on Work Expense to select it and double click on the Work Total to select it.
Those two fields relate to the cost of the expense to our organization
If you are charging that Expense to your client, you also need the fields for that.
These fields are called Work Billable Expense and Work Billable Total.
Click on the field right after Work Time to tell the system that’s where you want to insert the new fields.
Double click on Work Billable Expense to select it and double click on the Work Billable Total to select that field.
Now click on the Update Display icon.
For any tasks without any Work Expense, the Work Time or cost of the labor equals the Work Total.
However, if there is a Work Expense entered, those two fields no longer match. That’s because the Work Time is the cost of just the labor while the Work Total is the cost of the labor plus the Work Expense.
You don’t edit the Work Time field or the Work Total field because they are automatically calculated fields.
To enter or change the Work Expense for a task, double click on the white space of the field to go into edit mode or click the edit icon.
Enter in the value of the Work Expense. This is the total cost of this non-labor item to your organization and is a fixed amount of money you expect to spend on the task.
Click Enter or save.
You’ll see that the Work Total for this task has now changed to include that Expense amount.
That’s entering the Work Expenses to track what they are costing your organization.
If you’re transferring the cost of those Expenses to your client, then you also need to add in the amount you’re going to charge the client for these expenses.
You enter that in the Work Billable Expenses field.
To enter or change the Work Billable Expense for a Task, double click on the white space of the field to go into edit mode.
Enter in the value that you’re going to bill the client for this expense in the Work Billable Expense field. This may be the same as the cost to your organization or it may be marked up.
Click Enter or click the save icon.
You’ll see that the Work Billable Total for this task has been changed to include that Expense Billable Expense amount.
Summary and Project Totals
You can see again these expense amounts rollup to the summary level tasks and if you scroll to the bottom of this project, you can see that they roll up to the total for the project.
You know what your planned costs are. You also know what you plan to bill the client.
Based on that, the software will tell you what your forecasted profit will be.
To do that, click on the Display Options.
Click on the field right after Work Billable Total to tell the system that’s where you want to insert the profit fields.
Then double click on Profit – Forecasted Time & Materials to select it and also double click on Profit – Forecasted Time & Materials % to select that field.
Now click on the Update Display icon.
This shows you the profit for each task, each summary task and also the overall forecasted profit and profit % for the entire project.
You can review that here, as well as on other Portfolio level reports.
Comparing Top Down Budget to Bottom Up Budget
Now remember, you entered a total top down budget.
You can compare the planned labor and expenses on the work break down structure to that budget.
To do that, Go to Project Views and click on Project Status
On the Project Status report, you can review high level information about the project.
To see the budget information, click on the Budget tab
Scroll down so you can see all your budget information. Towards the bottom you have the data about the Target Budget.
This is where you can see those top down budget amounts that you put in when you created the project.
You can compare this to the bottom up budget that you just built, which is the Work Total line.
Summary of Planning
Some organizations just track planned hours and planned expenses.
However, it’s important to realize that this is the planned numbers. What management may want to know is what did you actually spend?
If you’re not entering the money that was actually spent, and if you’re not entering time, you don’t know what the true cost is of the project.
If your organization is not in a position to track actuals currently, it will likely something that management may want in the future. This is especially true if projects are not being delivered on schedule or on budget.
A lot of you do track actuals and it may be one of the key reasons that you use Project Insight. By tracking actuals, you have the data you need to monitor the health of your project while it is underway. You can identify issues or problems and correct them before your project goes over schedule or budget and affects your customers and other projects.
Before your team starts entering actual time and actual expenses, it is very important to ensure that the rates that were talked about earlier have been setup. You want to look over your budget and make sure it’s right before people start entering time.
If the rates aren’t set before you start to enter actual time, the system won’t know what the rate is and it can’t apply the right rate on the time entries people enter. This is critical. You must have that data in the system. You must have your budgets and rates correct before you start tracking actuals otherwise your data will be skewed and you would have to go back and correct it.
One way to review your financials is from the task list.
Time & Expense Entry
There is a separate training session that covers all the methods for entering actual time and expenses, but once you’ve ensured your rates and budget are correct, click on the task name that you want to enter time and expenses for.
That takes you to the Task Detail Screen.
To enter time, click on the Time tab.
This tab shows any time entries that were already made and you can also enter more time.
As project managers, you’ll see more detail such as work and billing rates.
You team members won’t see this.
Let’s go ahead and put in some actual time for this Task and click save.
To enter Actual Expenses, click on the Expense tab.
Enter in the actual expense cost and the actual billable amount and click Save.
The Actual Expense entry has now been created.
Now your Task List is showing the planned amounts. You want to change that to display the actuals as well.
Click on Display Options.
Click on the field right after Work Total to tell the system that’s where you want to insert the actual data.
Then double click on the following fields: Actual Hours, Actual Time, Actual Expense and Actual Total.
Now click on the Update Display icon.
Now you can see the Actual Expenses that were entered and the Actual Time and the Actual Total.
And that’s a really important thing to know if you’re truly on schedule and budget.
Project Report with Data
You’ve been looking at all this financial data within a single project now let’s look at the project reports to get this same information but at the portfolio level.
To do that, click on the Reports menu option
Click Create New Project Report.
There are a lot of options that we cover in other training sessions. For now, click on the Column Selection Options to expand out that section, to select what data you want on this Project Portfolio Report.
You can select all the same data elements that you had displayed at the task level on the project.
However, for this case, let’s keep it simple and select just the Actual Total by double clicking on it and the Work Total by double clicking on it and the Target Total by double clicking on it.
And run the report.
Now you are looking at what the target total, which was the top down budget amount, the work total, which is the bottom up budget amount and the actual totals to-date.
If you scroll down to the end of the report you can also see this for the entire portfolio.
This is a very simple view.
If you click the Display Options again, and start to scroll through some of the other columns of data that are available, you can see that you can view additional project management data such as:
- Work Hours Estimate at Completion
- Profit Figures
You can click on a field and click on the Show tooltip for selected columns to get more information about that data.
The portfolio level reports are generated in real-time and give you, your executives and your other stakeholders the data they need to make decisions and act before your projects are over budget or behind schedule.
Stakeholders don’t need to have IT involved to create a report. They can simply choose the filtering options and data elements they need, save it and share it with others.
Reports can be saved and put on Dashboards for instance access and it eliminates time spent searching for information.
Check our calendar for further training sessions on the Reports and Dashboards.