Definitions of Key Project-Related PS Enterprise Metrics (3 of 3)

Alan Birchenough

In the last blog post we looked at opportunities and budgets. These are vital metrics for any professional services organization, but are of course only half the equation.

PS Enterprise tracks labor costs (based on Approved Timecard hours) as both Internal (staff-resource-related) and External (subcontractor-related). These figures are derived from the resource hourly costs multiplied by Approved Timecard hours. PS Enterprise also tracks "Other Costs", which come from so-called Miscellaneous Adjustments and any custom cost calculations you may implement. (We'll have to defer discussion of Miscellaneous Adjustments to another time, however.) PS Enterprise adds all these amounts to create the amount called "Total Costs".

Example 1: John Doe is assigned to Project Death-march with a bill rate of $200 per hour, and an hourly cost rate of $85. He is an Internal Resource (according to the flag on his Resource record). He works 38 billable hours during the first week of the Project, and incurs $737 of Expenses. (Only 38 hours? Perhaps the death march drummers haven’t really got started yet?) For the time being, no one else is on the Project. Assuming that the necessary approvals take place, PS Enterprise figures the Project Internal Billable Hours as 38, Internal Costs as $3230, and Expense Costs as $737, giving Total Costs of $3,967.00.

PS Enterprise also tracks revenue at various points in the value chain. The chain of revenue-related events and metrics in PS Enterprise is as follows: Billings; Billed; Invoiced; Revenue. There are also Pass-Through Billings, which simply roll up billable expenses from approved Expense Reports.

We shall now look at the definitions and examples of these metrics - and for simplicity we shall limit ourselves to talking about Time and Materials projects - but before going into detail, we’ll note that each provides insight into a different link in the value chain. At the extremes of the chain, "Billed" revenue comes from immediately approved transactions, but is not fit to report to Wall Street yet. To do that, we have to move right down the chain to "Revenue", which represents recognized revenue according to "Generally Accepted Accounting Practice" or GAAP. In the middle of the chain, our PS Enterprise metrics monitor the behavior of the billing process in PS Enterprise and the invoicing and cash application processes involving our AR and, hopefully, our customer’s Accounts Payable (AP) organization. (Or we might be drawing down against a Pre-Bill, but that is out of scope for this discussion.)

Looking at each of these in turn, Billings is the totalled amount over all approved Timecards, Expenses, and Milestones.

"Billed" then represents the total amount of these that have been through the PS Enterprise billing process, which entails having Billing Events generated for them, and then being flagged as "Billed".

"Invoiced" means that the Billing Events have made it across to AR, and that AR has reached back and flagged, at the Billing Event level, whether each Billing Event has yet been Invoiced. The ability to obtain this figure depends on how the manual invoicing processes, or the AR integration with PS Enterprise, has been implemented. In either case, PS Enterprise uses the "Invoiced" flag on Billing Events to compute this value.

"Revenue" represents recognized (or GAAP) revenue. PS Enterprise does not itself automate revenue recognition, nor does it define any built-in semantics for the Revenue metric. So again, the ability to obtain this figure depends on how the integration, automatic or manual, with external financial systems has been arranged. If set up correctly, this amount should total the amounts on downstream General Ledger (GL) postings to labor and expense GL revenue accounts.

Example 2 (continued): Billings on Project Death-march amount to $7.600, along with Pass-Through Billings of $737, for the week in question. These billings will move through billing (in PS Enterprise), invoicing (outside PS Enterprise but flagged on Billing Events) and revenue recognition (outside PS Enterprise) to show up in due course in Billed, Invoiced and Revenue.

Finally, note that we can compute margin as the difference between revenue and cost, based on definitions of cost and revenue from any point in the value chain that we choose. PS Enterprise uses the closest credible definition delivery activities (rather than the more official GAAP view), so it simply subtracts Total Costs from Billings plus Pass-through Billings to figure Margin.

Example 3 (concluded): Based on Billings of $7.600, Pass-Through Billings of $737 and Total Costs of $3,967.00, the Margin is $4,370.00.

Phew! We made it all the way through from Opportunity to Billing Event, and learned how to measure each process link in our PS value chain on the way, using metrics that are built-in to PS Enterprise. In this "no excuses" climate, all that remains is for our PS business to rise to the challenge of improved future performance and overall growth, with the help of PS Enterprise and all the insight that it provides.