For companies that work on a project basis, the KPI is project profitability. The challenge is that determining whether revenue truly outweighs costs is tricky, and no single individual or department has sole responsibility for profitability.
With so many moving parts in play, oversight and leadership are essential. Those are the responsibilities of the CFO, and the best ones are able to coordinate efforts in a way that maximizes project profitability. Here’s how:
Focus on the Key Metrics
Complex projects require simple performance indicators. Focusing in on the metrics that reveal the true health of a project allows early corrections to be made along with honest post-project evaluations. It’s up to every CFO to identify the right metrics for each project, but these five tend to be insightful and instructive:
- Project Overruns
- Project Margins
- Annual Revenue Per Billable Consultant
- Annual Revenue Per Employee
Prioritize Data Analysis
Gathering data is important, but analyzing it is what actually delivers value. The analysis process is time- and labor-intensive, which is why the CFO must make it a priority and allot resources accordingly. At the same time, the CFO should be searching for solutions that expedite the analysis process so that less time is spent searching insights and more time is spent applying them.
Support the Needs of Project Managers
The success of a project is a shared priority even if the project manager does not work in the accounting and finance department. Since financial data is crucial for managing any project, CFOs must be proactive about distributing accurate, updated data in real time. When accountants and project managers are able to collaborate on a shared dashboard it eliminates unnecessary confusion and delay.
Track Direct and Indirect Costs
With projects that are billed based on time and materials it’s fairly easy to track direct and indirect costs. When the project is billed on a fixed-fee, however, it’s harder to understand how input affects output. Instead of thinking of costs as a single entity, CFOs must look at them on a granular level. That way they can identify the projects, clients, and employees that drive the most profit.
Improve Data Quality and Access
CFOs have a leading role to play in helping companies make data-driven decisions at all levels. That starts by creating data sets that are comprehensive, complete, free of errors and omissions, and rich in context. The next step is to make that data available to the widest number of stakeholders as seamlessly as possible. When organizations get great at using data they get much better at managing projects as well.