Components of a Project Profitability Report

The Project Profitability report is used to monitor the planned and real cost related to a project.

Profitability analysis is a part of the financial analysis that deals in putting measures of profit into perspective. Like for instance: a company that has made a profit of $1 million in the year 2017 doesn’t tell us the details about how well it performed compared to previous year, which moves contributed towards this performance or the capital margin company deploys to reach such a profit level. Profitability analysis makes it easier to understand these aspects:

Also due to the need for a relative measure of profit rather than absolute profitability analysis is essential. At a fundamental level, investors need a sound measure of how good an investment is compared to another one. The concept of internal rate of return or IRR is such a measure.

One of the influencing factors of profitability is costs. Costs impact profit directly and for this reason, a good understanding of costs structures can help to increase profitability. Profitability of a particular project is usually a fairly objective measure. When a company already has several projects on its business, the profitability of a new project can result from synergies and diversification with existing projects. This is called relative profitability. Few of the major factors that come within profitability analysis are stated below.

The report contains the following elements:

Planned Services and Expenses:

  • Revenue: the amount from the field Service Revenue on the multi-phase project
  • Cost: the amount from the field Services Provided Cost on the multi-phase project
  • Outsource: the amount from the field Outsourced Cost on the multi-phase project
  • Margin%: the margin from the field Planned Service Margin % on the multi-phase project. The planned service margin % is calculated using the formula: (Service Revenue – Services Provided Cost – Outsourced Cost) x 100/Service Revenue.
  • Re-invoicing: the amount from the field Re-invoiced Expenses on the multi-phase project
  • Expenses: the amount from the field Planned Expenses on the multi-phase project
  • Margin%: the margin from the field Planned Expenses Margin % on the multi-phase project. The planned expenses margin % is calculated using the formula: (Re-invoiced Expenses – Planned Expenses) x 100/Re-invoiced Expenses.
  • Gross margin: overall planned margin for the project
    • Gross margin amount: calculated using the formula: (Service Revenue – Services Provided Cost – Outsourced Cost) + (Re-invoiced Expenses – Planned Expenses).
    • Gross margin percentage: calculated using the formula: ((Service Revenue – Services Provided Cost – Outsourced Cost) + (Re-invoiced Expenses – Planned Expenses)) x 100/(Service Revenue + Re-invoiced Expenses)

Real Services and Expenses:

  • Revenue: cost reflected on sales invoices for the customer for:
    • Re-invoicing of outsourced work by a third party.
    • Invoicing of the cost for completed project phases.
    • Only sales invoice lines with service type products will be taken into account.
  • Cost: Cost of worked hours based on processed time sheets multiplied by the cost that is linked to the salary category of the employee at the expense date.
  • Outsource: Cost of worked hours executed by a third party based on purchases invoices.
  • Margin%: real margin for services based on the formula: (Revenue – Cost -Outsource) x 100/Revenue
  • Re-invoicing: expenses invoiced to the customer on sales invoices for:
    • Purchased goods related to the project
    • Invoice-able item expenses.
    • Only sales invoice lines with products whose type is not service will be taken into account.
  • Expenses: real expenses based on purchase invoices for:
    • Purchased goods related to the project from a vendor
    • Reimbursement for item expenses for an employee.
  • Margin%: real margin for expenses based on the formula: (Re-invoicing – Expenses) x 100/Re-invoicing
  • Gross margin: overall real margin for the project.
    • Gross margin amount: calculated using the formula: (Revenue – Cost – Outsource) + (Re-invoicing – Expenses)
    • Gross margin percentage: calculated using the formula: ((Revenue – Cost – Outsource) + (Re-invoicing – Expenses)) x 100/(Revenue + Re-invoicing)
  • Collected: The amount that was collected from the customer for the sales invoices related to the project.

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