Unlocking The Power of Project Budgets With Kantata
This is part 2 of a three-part series on how your professional services business can unlock hidden value with the Kantata Cloud for Professional ServicesTM. Learn more about the power of resource allocation in our previous post in the series.
The Hidden Value of Project Budgets
If you’ve been working in professional services for any length of time, then you know how important a project budget is for the everyday needs of a company. Knowing how much you can spend and what will be needed for a project will help you make informed decisions in hiring, creating timelines, and managing the scope of work for a project so your company doesn’t cut into crucial profit margins. But there’s more to project budgets than just maintaining the daily costs of work.
If your professional services company is struggling to stay profitable with difficult-to-manage budgets, you’re not alone. According to McKinsey Digital, IT projects on average run 45% over budget and 7% over time while delivering 56% less value than predicted. And according to Chron, 85% of all projects go over budget to some degree, meaning that it’s far more common to not meet your project budget than it is to actually come in at or under cost.
Detailed and accurate budgets should be as close as possible to actual costs when a project is completed. But the reality of working in the professional services world means that unforeseen complications can often get in the way of this happening. However, companies that work on refining their budgeting over time by reviewing past budgets and their related work can improve the accuracy of their budgets. More accurate budgets have a wide variety of benefits that can actively improve many aspects of a company beyond a specific project’s success. These include:
- Consistent Margin Improvements – Knowing the true cost of a project through reviewing finished work in detail will help a business better budget any future similar projects. When done right, managers can make changes in tasks, resource assignments, timelines, and client billing to steadily improve profit margins, improving the overall profits of a business over time with each better budgeted project.
- Improve Client Trust – Presenting clients with an accurate and detailed project budget will go a long way in establishing and maintaining trust. When a client is able to see where they are being billed and can believe that the work they are paying for is being done correctly, they will be more likely to return for future business.
- Accurate Financial Outlooks – Detailed, accurate budgets play a major role in establishing a company’s financial outlook, both in the short- and long-term. This means that when done well, a company can make better investments, hiring decisions, and more financially-motivated actions while trusting the accuracy of their financial projections.
- Fiscally Responsible Management – Managing day-to-day work isn’t just about getting the best person on a task, it’s about properly using your company’s financial resources in ways that have been entrusted to you. Strong, informed budgets mean fiscally responsible managers that work with the company’s larger financial needs in mind.
The Impact of Improved Budgets
When project budgeting is consistently inaccurate, it can have an immediate and devastating impact on a company.
An incorrect budget will most likely cost a professional services business money when they should be making a profit from their work. In these scenarios, a business will often have to eat the cost instead of billing a client for more work, making a project a fiscal burden instead of the exciting opportunity that it seemed to be initially. But beyond the immediate project effects, it can also lead to many different harmful repercussions. Having a systematic approach to changing inaccurate or inconsistent budgeting practices can have positive long-term impacts on your business’s teams, clients, finances, and overall project performance..
|Inaccurate Budgeting||Accurate Budgeting|
|Teams||Teams will likely go over budget during a project and must work extra hard to correct project timelines, tasks, and deliverables, which might lead to burnout and attrition.||Teams can work on projects with a financial safety net, leading to less distractions and complications for healthier, well utilized resources.|
|Clients||Project complications create dissatisfaction among client stakeholders, who will doubt the company’s ability to deliver what they promised.||Clients will have more trust in knowing that they are being accurately billed for work, with future projects being given similar budgets, instead of changed due to major financial corrections.|
|Finances||Inability to know what new solutions, new company roles, partnerships, and advertising investments have the best return on investment and unpredictable cash flow can harm company finances.||Accurate budgeting on a micro level informs accurate budgeting on a company-wide level, helping companies create quarterly and annual budgets that are successful.|
|Projects||Inability to provide competitive pricing for new projects from client prospects creates unsuccessful project bids and project prices that hurt profit margins.||Successful project bids bring new work and accurately budgeted projects create healthy and stable profit margins, which elevate company success.|
Calculating and Refining A Project Budget
When creating a budget, a professional services organization should remember the following:
- Include employee wages, benefits, taxes, and overheads when calculating labor costs.
- Include the cost of material procurement, such as supplies, equipment, goods, and services that come from external sources
- Separate costs into either fixed costs, which will not change, and variable costs, based on activity.
- Track your costs on a timeline to understand your weekly budget and identify variances in spending between similar projects.
Once a project is finished, remember to review your budget vs actuals to determine how close your estimates were and the areas where spending increased unexpectedly. Understanding this will help you either prevent these cost increases going forward or adjust future budgets to accommodate them.
Refine Your Budgets For New Success
What can Kantata do for your professional services business’s project budgeting needs? Kantata provides strong financial insight and management solutions that take your company beyond simply budgeting for work. Here are just a few Kantata clients that have found success in improving their project budgeting:
- DIGARC Improves Utilization by 20% With Kantata
- Emarsys Increases Projects Delivered on Budget by 12.5% Year Over Year with Kantata
Contact us to learn more.