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Before initiating a project, professional services firms want to know how much profit and revenue they can generate for the company. Return on Investment (ROI) analysis helps firms to evaluate a project’s performance. The higher the ROI, the better the financial gains for the company.
How to Calculate the ROI of a Project
Before initiating any project, managers conduct an ROI analysis for accurate budgeting. For instance, let’s say a project is estimated to cost $50,000 to $60,000 with a 25 percent correction cost for risks and uncertainties.
The return on investment is then calculated as a percentage that an investment is expected to earn. The formula used is: ROI = (Benefit – Cost) / Cost
So, if a project is estimated to generate $70,000 profit on an initial investment of $50,000, the ROI comes to 40 percent. At the outset, this seems like a good number to go ahead with the project.
On careful observation, we notice that the above calculation fails to account for the time value of money (TVM).
TVM is a way of calculating the value of profits earned in the future in terms of its value today. TVM emphasizes that the money available today is worth more than the money available later. A dollar today is worth a dollar, but a dollar in a year is worth less than a dollar.
In project management, TVM is applied to understand the impact of the schedule on payback and ROI. Going back to our example, let’s say the estimated profit ($70,000) is invoiced after completion of the entire project, which took one whole year. Now, the profit is not really $70,000 but less because the value of money has dropped over time.
Therefore, when it comes to how to calculate the ROI of a project, managers need to consider payback value and payback period. Projects with a shorter payback period are more desirable as they can be invoiced quickly without losing the value of money to time.
Delayed Timesheet Submissions and Late Invoices
Now that you know why it is important to have projects with a shorter payback period, let’s understand how the same concept applies to project time tracking and client billing.
To get paid on time, professional firms need to track their time accurately and submit client invoices as soon as certain project milestones are reached. However, accounting teams can’t raise invoices until all the related timesheets have been submitted and reviewed for accuracy. When managers are dealing with several cross-functional team members who are working on multiple projects, collecting timesheets becomes challenging with managers often chasing behind teams.
To make things more complicated, different types of employees — exempt, non-exempt, part-time, full-time, etc. — are billed at different rates. Sometimes, the same individual working on multiple projects may be billed at different rates. To ensure invoice accuracy, all of these factors must be accounted for. Manual time entries and applying of rate cards can become costly with even minute accidental errors. Finding the mistake in an avalanche of data can be time-consuming and cumbersome.
Agile Time Tracking for Real-Time Client Billing with Replicon
To overcome the challenges and drawbacks we discussed above and improve project ROI, Replicon’s configurable timesheets are designed to support agile time tracking. Our agile and configurable time tracking allows for superfast, accurate capture, validation, and approvals of time data for in-the-now costing and billing.
Agile timesheets enable employees to submit their timesheets as soon as they complete a project, giving project managers complete visibility into the project progress and enabling instant approvals of timesheets for quick billing. This means that finance teams need not wait until the end of the week or month to raise invoices.
Replicon enables professional firms to accelerate ROI with:
- Intelligent timesheets that enable pre-filling of timesheets based on previous entries, project allocations, calendar appointments, and more. Employees have to just review the pre-filled timesheet before submitting it for approval. This reduces missed time entries and delayed time entry submissions.
- Intuitive mobile apps that empower the remote workforce to track their time on the go. Employees can track time and managers can easily validate and approve timesheets anywhere, anytime.
- Accurate project costs that ensure real-time mapping of time to projects to give a clear comparison between the estimated and the actual costs. Group projects into programs to understand the bigger picture and manage costs at an aggregate level.
- Estimates vs. actuals tracking enables managers to set estimates for costs, hours, and billing. As the project progresses, managers can easily compare estimates vs. actuals in real time using dynamic in-context summary charts and comprehensive dashboards to keep all metrics on track.
- Improved billable hours and utilization that help business leaders map revenues to billable hours and set utilization targets at the organization, department, and user level.
- Accurate costing, billing, and invoicing that lets you manage fixed-bid, T&M, or value-based projects. Accurately manage project costs with inputs from your resources and leverage multiple templates, discounting, and add ad-hoc invoice lines.
Improve ROI of Your Projects with Replicon
At Replicon, we’ve built our software with knowledge and experience we’re gathered over two decades and solving every use case there is around time. With Replicon’s cloud-based products, Fisher Vista LLC, a leading marketing software and services firm in the human resources industry, achieved an 85 percent increase in productivity with valuable time back — time that can be spent on billable projects.
Want to achieve similar results for your organization? Sign up for a custom demo.