What is the Most Fundamental KPI for Services Businesses?

Today’s services businesses are facing shrinking project margins. In order to deliver each project as efficiently as possible, services firms are utilizing Key Performance Indicators (KPIs) more than ever.

KPIs evaluate the success of specific activities, such as a project, product, or other initiative that your business has undertaken. However, there are countless KPIs that can be tracked through today. The amount of time and effort put into tracking KPIs, as well as the business decisions based on their insights, means that choosing which KPIs to track is a crucial decision for every project.

However, the most fundamental KPI that every services organization should be tracking is Work in Progress (WIP).

Why You Should Track Work in Progress

Work in Progress is work, typically time and materials, that has been charged to projects but not yet been billed to clients. This will eventually be billed, whether at project completion or upon an agreed-upon interval, but for the time being, the work is ongoing and unpaid.

High-performing businesses track WIP closely to make sure the hours being delivered by employees are also invoiced correctly when they are eventually delivered to the client. Continually tracking WIP means that your actual hours are closely tied to your billed hours. The closer your time and materials are tracked, the less likely you are to have incorrect billing.

Accurately tracking WIP can help your company avoid two major billing mistakes:

• If you bill too high for actual hours, you can lose the trust and return business of a client when they realize they have been overcharged for your work.
• If you bill too low for actual hours, you can quickly eat into your project margins and overall profits.

Tracking from the start also eliminates the time-consuming process of reviewing all related hours when a project has been completed. Instead, billable hours are ready to be invoiced as soon as the project is finished so that teams can focus on the next project or other critical business processes.

What Can Tracking WIP Prevent?

Inaccurate estimates regarding billable hours become more and more likely when estimates are completed long after the actual work has taken place. And the larger a project is, the more complicated it becomes to collate and explain all relevant work.

If a company simply bills a client based on the estimate provided before beginning a project, it is likely that billed and actual hours will not be the same. However, companies that are not tracking KPIs during project completion may shy away from trying to collate and bill for actual hours due to the amount of time needed. Implementing Work In Progress as a KPI that is tracked throughout every project help your company move toward more accurate and profitable projects that are based on hard, proven numbers.

The insights gained from WIP can extend beyond accurate billing and toward improving your project and resource management. These incremental changes will strengthen resource utilization and margins over time for consistent and predictably profitable work.

Make the Most of Your Metrics

The Kantata Professional Services Cloud is designed to not only help you better understand company performance, but take action to improve it. Learn more about what Kantata can do for you.