We’ve all heard it before: “time is money,” and while we don’t advocate for Gordon Gekko’s “greed is good” mentality; there is a direct connection between time spent and money gained. Or at least there should be; the real trick is in ensuring it is a positive correlation.
Effective project management is all about organizing your time and resources wisely to get work done. But did you know that time tracking can help you better control your project budget?
Below we’ll tell you exactly how time tracking can help you manage your budget no matter whether you’re working on a fixed-fee or time and material project, and why tracking non-billable hours is important too.
Why tracking project budgets matters?
If you’re running your own company, or even working freelance, your project fee strategies will always somehow be connected with the time you spend doing work.
One of the most common billing strategies is charging your clients for the time your employees use on projects. And, often this will require you to factor in the wages you pay to your employees. Simply put, to stay in the black, your billable rate should always be higher than your cost rate.
But, in real life, everything is a little more complicated and, of course, this isn’t the only type of billing strategy. There are many different types of projects, and sometimes tasks or even employees in a project may be non-billable. Other factors also impact your billing; occasionally tasks are underestimated, the scope may vary, etc. Without time tracking software, you simply rely on chance, or a very good memory; and that’s kind of like betting your business in a casino.
Accurate time tracking allows you to give estimates and make sure you meet them. Besides, it tells you exactly how much time is left at any given moment to project completion, and where you underestimated the project or where a buffer could have been helpful.
In the end, when you use a time tracker, you’ll be able to analyze and take the results into account for your future projects.
Now let’s take a look at three different types of projects–fixed-fee, time and material, and non-billable.
When you quote a client for a fixed-fee project you provide them with a certain amount of work for a set amount of money, and this is precisely why it’s key to get it right the first time around.
Get it wrong, and you could be working essentially for free, or at the very least a low profit, or conversely, even worse, price yourself out of a job completely with a too-high rate.
Employing a budget tracker and time tracker is essential in such types of projects, this allows you to monitor the time spent on the project, costs, and evaluate clearly if any additional finances are required.
Secondly, if your client changes the project or adjusts it mid-way – this provides you the chance to reasonably charge extra or offer the opportunity to replace something in the scope with similar estimate to stay within the original budget.
To sum up. For fixed-fee projects, tracking time is a must to stay within agreed budget and remain profitable. Such projects have a tendency to be underestimated and customers usually want to add something in the middle of the project. To avoid uncomfortable discussions with your client, start by setting up reliable time tracking software.
Time and material projects
Also known as the pay-as-you-go contract, when you charge a client for time and material you simply report to them how much time and energy it has cost you alongside a price.
The key element for both the client and the vendor is, of course, providing this time-money balance accurately; building your credibility, transparency, and accountability as a business.
Using a budget tracker on such projects allows you to count as you go by monitoring costs for specific actions, which will later go on to form your invoice.
The fact that you did not agree on a fixed price from the beginning doesn’t mean that your client isn’t counting their money and that they never review time spent. Very often, your client still wants to time assess in some way for some reason – a monthly retainer or payment per milestone – and you need to ensure that the estimated time coincides with the facts.
Time trackers help to ensure you’re not spending too much time on a set action, or if you need to draft in extra help to get the work done. Tying these to payments can be particularly helpful in ensuring the work gets completed on time and to satisfaction.
To sum up. In these types of projects, as a vendor, working with this model is less risky in terms of going beyond the budget, but many clients do not like it. Usually, this is because they do not understand how much the project will actually cost at the end of the day. One way to compromise would be a recurrent monthly budget model, wherein both parties agree on a certain amount of money monthly and try to stick within this budget.
The non-billable project
Sometimes tracking budgets isn’t just about being able to invoice your client effectively, perhaps your team is between projects or working on developing some super-cool internal software that you’re going to release in the near future.
Whatever the reason, to ensure your business remains profitable you still need to know the costs.
Budget trackers and time trackers can be used in this case to estimate work productivity, its effectiveness, and if it is profitable for your company. This allows you, as an employer, to more evenly distribute work among staff, and figure out if you need more, or perhaps fewer employees.
When engaging this method, you may consider monitoring the process over a certain amount of time, for example, a one-week period. If everything matches up and you see that on your project dashboards everything is “green”, you know you can sleep a little easier.
And, if it’s not, you’ll easily be able to identify the anomaly and resolved the problem quickly.
To sum up. Even when you’re not directly charging a client, it can be advantageous for your business to monitor time spent. This helps you to better analyze working processes, keep your business profitable, and become better at providing estimates for future projects.
Bonus: Undertaking a project checklist
This is our quick step-by-step guide to undertaking a new project:
- Step 1. Create a detailed work breakdown per project
- Step 2. Estimate the time each task will take and confer with actual people who will undertake the job for a more realistic amount
- Step 3. Add a buffer
- Step 4. Assign staff and their billable rates
- Step 5. Set your project budget
- Step 6. Configure your budget alerts – 50%, 75%, etc.
- Step 7. Ask your team to track their time accurately, per estimated task
- Step 8. Group unestimated tasks or change requests separately
- Step 9. Follow up and recheck your estimated time against your actual time
- Step 10. Send your client a detailed time reports on a continuous basis
- Step 11. Ensure you have your billable and non-billable tasks separately, making sure that non-billable task titles are self-explanatory and your team understand their purpose
- Step 12. Track your project-related expenses and consider if you need to include them in your budget
- Step 13. Include an option to restrict tracking time above budget
Ready to get your time-budget relationship in check? Let’s go! We wish you a happy time tracking journey to a better budget.