Project profitability

Project profitability is what a project returns after the cost of delivering it. It is calculated by subtracting the cost of the recorded hours and the external costs from the revenue invoiced. In project businesses it is usually known accurately only once the project has closed, which is too late to change it.

How is project profitability calculated?

Invoiced revenue minus the cost of the recorded hours and the external costs attributed to the project. A project invoiced at 60,000 euros with 420 recorded hours at a cost rate of 85 euros and 12,000 euros of external costs returns 12,300 euros, or 20.5 per cent.

What is the difference between margin and profitability?

The two are often used interchangeably. In practice margin usually refers to the ratio and profitability to the amount, and both depend entirely on which costs are included. A figure that counts only direct hours is not comparable with one that carries overhead.

Why is project profitability found out too late?

Because the three inputs arrive at different times. Hours are recorded daily, external invoices arrive weeks later, and the revenue is final only once the invoice is agreed. If those three live in different systems, the complete picture appears after the project is finished.

How can it be known earlier?

By keeping the quoted effort, the recorded hours and the external costs on the same project record, so the gap between plan and actual can be read while the project runs. The figure then becomes an estimate that improves rather than a result that arrives.

troi keeps revenue, hours and costs on the same project. See reporting and controlling.