How a Statemant of Work (SOW) becomes a budget. How to monitor the financials and integrate it to an accounting system.
This article will make you a champion of controlling project budgets. It is relevant for everyone - also those whom don't work at a digital agency or IT consultancy, but is a part of a Plus, e.g. in marketing, running projects, etc.
The Forecast philosophy is that every project should run with P&L in mind (profit & loss) - also the internal ones. See this blog post on how internal projects can run as P&L projects.
Please Note: This guide is written for permission levels of Controller and Admin.
- Setting up your account fundamentals, i.e. rate cards & cost on resources.
- Review the Scoping page
- How the Scoping forms the budget
- Where else in Forecast you can follow project financials
Getting You Ready for Financials
First, let's ensure that you actually have more numbers than the project hours to report on. This will require that you look into:
- Rate card on Roles
- Per hour cost on Persons
Rate card on roles
The rate cards is what determine how a resource should bill a client. You might have seniority structure to your rates, e.g. Jr. Developer and Sr. Developer.
Step 1: We need to make sure that you have the roles that are relevant for you in the system; so let's go to the Admin panel. Please Note: If you are a controller, you don't not have access to creating Roles.
Step 2: Select Roles on the top.
This will show you the list of Roles you currently have in your company. Editing this to match your company is pretty straightforward.
Step 3:With Roles in place let's make sure rates are as they should be. Nature has it that different clients have different rates. In Forecast you can have as many rate cards as you want. You create them in the administration under the rate cards tab.
The list shows you all of your rate cards. You can choose to make one of them your default rate card. All new projects will have the Default rate card as default. You can always switch the rate card for the individual project.
You edit the rate cards simply by clicking on them.
We encourage you to have a good naming practice in order to help yourself in the future, e.g. [CLIENT NAME - PERIOD VALID - MISC].
Per hour cost on persons
Forecast lets you set a cost on each individual resource. You can choose to do this in two ways.
- The ultra correct PSA approach - Choose Forecast's Plus plan and let Forecast take employee cost from your accounting system plus an admin overhead and divide that by the person working hours in each individual month.
- The good enough approach for most - By using a light ABC (Activity based costing) method, where you take your employees' salary + benefits + average overhead and divide this by an average FTE full months hours, e.g. 150 hours.
The result is either pushed automatically from the accounting system (1.), or manually inputted into the person's profile (2.).
Scoping a Project (Statement of Work)
The Scope on the individual project is where everything starts. This is also the first place in a project's lifecycle where you can leverage the AI engine.
First start by structuring your project into logical milestones, then create cards (tasks/issues) under each of the milestones. If you are really interested in the planning part of a project i recommend that you also read the How-to guide on scheduling
Role - The role is used to associate the work needed done with a cost taken from the associated rate card. We know that cards might have multiple roles working on them, however it is most likely that one of the roles will be the primary resource, reporting hours on the cards (doing work). This is the one you should choose as the role.
The role is used to generate the initial budget, and this does not mean that everything that gets time reported on the cards go in under the rate associated with the role of the card. In Forecast cost and rate always follows a person, not a card - except when cards have been marked as non-billable, since this overrules the person's rate.
A Designer can always report time on a card marked as a developer card. In this case the Designer's personal cost will be put on the card, as will the external rate the the Designer will bill the client for the work done on the project. More on this when I elaborate on the different metrics in the budget.
Estimate - It doesn't matter if you estimate by using storypoints or hours, you should always specify how long you expect the task to take before it is completed.
Remaining - Remaining hours that are still left to be registered in the task. At first, your remaining will be equal to the estimate hours.
As you register time in the task, the remaining hours will become fewer until you have either matched them, and completed the task, or surpassed them, and completed the task.
Please Note: If you go above the remaining hours estimate you will trigger a warning informing you that you went above the predicted hours but it will not affect your task at all.
Planned Revenue vs Actual Revenue
A lot of the financial information comes from the scoping page. The amount of time a certain role and team member registers in a task is going to be depicted in the budget page. For this, the scoping page assists you by providing early an indicator for how much money a task will cost in the form of Planned Revenue and, once the task is completed, an indicator for how much the task did cost in the form of Actual Revenue.
Note: If you are unable to view this information and you are an admin or a controller, please enable via the Show/Hide (eye icon).
The formulae that these two indicators operate on are these: Planned Revenue is calculated by the time estimate multiplied by the rate associated to the role of the task. So for example if the role of a developer has been assigned to the task the rate of that role will be multiplied by the estimated amount of time.
Whereas, Actual Revenue is calculated by the time entries multiplied by the rate of the role of the person that logged the time. So if a team member with the role of Developer registers x amount of hours that will be multiplied by the rate of his role and that will make up the actual revenue.
The last step in scoping is to approve by setting a checkmark for each card, or approve all at the bottom to accept the full milestone. This is when the milestone is ready to get moving, and the cards will be moved to the workflow automatically.
Scoping and the Budget
The process of scoping your projects into milestones is closely related to the project budget as well. As mentioned earlier, the data accumulated from your entered estimates, and in general the work of the AI engine, does all go together and predicts the time and thereby budget of your projects.
The budget is actually set up automatically based on your scoping and rate cards. It's also updated in real-time, and will thus reflect the most recent changes.
The two tabs at the top changes the view between money and hours, respectively.
If you have a fixed budget for your project, you can enter it in the box as shown above, and it will add the horizontal red line on your budget and adjust the remaining values. Thereby you always have a visual and data specific view on your spend and remaining funds.
If you have any additional fixed expenses, you can add them below, simply by expanding the 'expenses'-section, give the expense a name, the amount, and click 'add expense item'. The expense should immediately reflect on your budget.
If you dig deeper, i.e. scroll a bit, you'll see different sections of your budget. These are the milestones of your project. Here you can expand each, and view more details about the cards and data for each.
Reporting your Financial Situation
In addition to your project budget, the reporting section of Forecast also helps you get an overview and perspective on your budgets, and how each of your projects are progressing. In fact, you can customize your reports to your needs. You can create as many as you want for both internal and external use, and the categories span over projects, people, business and the portfolio.
Example of a budget related report component:
Do You Have Any Questions?
If you still have some questions about how this whole thing works, then we have a Help Center, else we're always ready for a chat with you directly through the chat button in the lower right corner of your screen. You're always welcome!