When you talk about the return of a project, your mind immediately thinks of the economic benefit to be obtained. But return is a broad concept that, depending on the type of project, may include more qualitative and intangible aspects, such as the acquired knowledge, the achieved operational improvements or even the “social return”, derived from those benefits that a project can bring to the environment where it is developed. For instance, that can be especially relevant in solidarity projects like those developed by NGOs within their social function.
However, no doubt that, in many projects, there is an essential explicit goal to achieve profitability. The clearest example that we can find is one in which a project is developed based on a price. This price can be either previously agreed with a client or established as the budget of the project by the organization that is undertaking it.
We’ll define, first of all, the project profitability formula:
R = 1- (C / P), where
- R is the project profitability (as percentage %)
- C is the total cost incurred in its development (in units)
- P is the price or budget (in units)
If, for example, you spend 70 work hours in the execution of a project with a $50 hourly cost, plus $100 for travel and subsistence, and the project budget is around $6,000, the profitability of the project is estimated as follows:
R = 1- [(70*50 + 100) / 6.000] = 40 %
Let’s consider now the 2 elements that take part in calculation of the profitability of a project according to the formula outlined above.
The cost should list all the economic costs related to the execution of the project, including the cost of the spent hours in it by the participants, the cost of necessary materials that have been purchased and other additional expenses such as those related to travelling.
The price or budget indicates the peak that can reach the incurred costs to get a “profitable” project. That is, the profitability will be positive if the price is higher than the cost.
The important thing to bear in mind is that it is necessary to define the project profitability goal clearly in the planning stage in order to be able to assess its progress by continuous monitoring. Sometimes the price, or budget, will be the starting data and based on it and the desired profitability it will be known a priori the maximum number of hours that can be invested in the project.
How does Doolphy help you to know the profitability of your projects?
Doolphy provides you with the necessary elements for its calculation.
- Cost: Doolphy lets you assign an hourly cost to each user that is registered in the project and record the hours that have been spent on the project using the timesheets. As we told you last week, we offer a Time Report, which lets you analyze in detail the time that has been spent on each project. Furthermore, in Doolphy you can charge any additional expense that has been incurred in during execution.
- Price or budget: you can provide this data in a specific field within the “new project” form.
But undoubtedly, the great advantage provided by Doolphy lies in the “Financial Report” recently updated with the rest of the new reports.
The report shows graphically, the accumulated costs of the analyzed project or projects. In addition, the margin and profitability summary includes, in addition to the price or budget, the margin (equal to price/budget minus costs) and profitability, both in the selected time range and the total time of the project.
Without doubt, this is an essential analytical tool to optimize the economic benefit of your projects. What are you waiting to check it by yourself? If you have not already done it, sign up now! ;-)