Despite profitability being a top priority, too many professional services firms continue to track the financial progress and performance of their engagements using manual spreadsheets or siloed software. This means engagement information is static and changes to resource plans are not always accurately reflected. As a result, true engagement performance only becomes clear after a project is completed.
But in order to scale with confidence and protect revenue, professional services firms must transition from a reactive to a proactive approach to managing project finances, and instead adopt a real-time approach to engagement economics.
In this article, we explain how resource managers can utilize engagement economics to enhance visibility, control, and profitability firm-wide.
Engagement or project economics are used by firms in the professional services sector to monitor the financial performance of engagements. Effective project financials tracking is essential to keep firms agile, minimize revenue at risk, and manage client relationships
The key factors impacting engagement economics include resource costs, suboptimal resource utilization, unexpected changes in scope, and the continued use of disconnected, static tools
A dynamic approach to project financials tracking enables engagement leaders to proactively plan, prioritize, predict, and prevent as part of their wider engagement management strategy
Dayshape’s AI-powered resource management platform provides leaders with firm-wide, real-time project financials to turn engagement economics into a strategic advantage. Get a single source of truth into project economics, and receive real-time alerts when work is at risk of overrunning to enable agile adjustments
1. What are project economics?
2. 3 key factors impacting project economics
3. The importance of tracking engagement economics in real time
4. How to interpret and act on engagement economics data
5. The 4 Ps of engagement performance
6. The role of AI in project financials tracking
7. How to track engagement economics in Dayshape
Project economics or engagement economics are utilized by professional services firms to measure the financial performance, health, and profitability of an engagement.
Managing engagement economics requires a granular understanding of how the pricing structure of a project interacts with the actual cost of delivery. To do this effectively, resource managers need to:
Calculate the gross or net revenue of a project based on the fee
Calculate the cost of the specific staff selected for the engagement, including their rates and the actual time spent executing the work
Factor in variables, such as client discount rates or internal operational costs
Since people are both the primary cost and revenue driver for professional services firms, resourcing and staffing decisions directly impact a business’ bottom line. The key factors that affect project economics include:
Staffing costs, including the rates for highly skilled resources, are one of the biggest factors influencing project economics. The specific grades and even locations of individuals assigned to a project determine its total delivery cost.
Deploying higher-cost resources on lower-value work can impact profit margins, so firm-wide visibility and data-driven suitability scoring are key to optimizing costs.
Suboptimal resource allocation that leads to resources being either over- or underutilized can result in unbalanced workloads, impacting project costs. Scope creep or inefficient time tracking can add unplanned hours to a project, eroding the profitability of a fixed-fee engagement.
This highlights the importance of aligning resource forecasting and data-driven capacity planning with project economics to ensure engagements remain commercially viable.
Firms that rely on disconnected, static spreadsheets and manual processes make it difficult to see how even minor scheduling changes impact rate and margin calculations. This is why centralized resource management, real-time reporting, and firm-wide visibility are integral to efficient project delivery, and keeping engagements on time and on budget.
Too often, firms analyze a project’s financial performance once the engagement is completed. This automatically puts revenue at risk, as it means budget overruns are only identified after the fact – and by the time this is retrospectively reported on, it’s too late for fixes.
Cost overruns occur in up to 50% of audits, data from the Big Four accounting firms shows. Combined with higher costs, this means firms may be challenged with increasing their fees, while still meeting clients’ cost expectations.
Implementing real-time project financials visibility methods allows project managers and other key stakeholders to capture live data while work is underway. Tracking engagement economics in real time enables teams to:
Stay agile: real-time reports and firm-wide visibility enable agile scheduling and proactive interventions when required. Dayshape’s in-built Gantt chart scheduler makes it easy to maximize efficienc
Minimize risk: keep revenue at risk to a minimum with live project financials tracking. By identifying potential budget overruns in advance, engagement managers can act quickly to protect project profitability
Manage client expectations: access to live project economics enables earlier, data-driven conversations with clients about changes in project costs. Rather than waiting until the end of an engagement, managers can identify when out-of-scope work has been requested or budgets have shifted, helping clients understand the commercial impact and agree on next steps before costs escalate
Access to data is not enough; this data must be gathered and monitored in real time, and engagement managers must know how to interpret it to make strategic, data-driven decisions on project economics. By analyzing live actuals alongside future forecasts, managers can keep on top of key metrics, including:
Gross revenue
Net revenue
Internal delivery costs
Profit margins
If, for example, the live data shows that a project is pacing ahead of budget, engagement managers should review historical data on budget variances to optimize the financials for future engagements.
Meanwhile, if the data projects a drop in margin, resource managers can pivot by optimizing the ways resources are allocated; for instance, by switching a higher-cost resource for a lower-cost yet equally qualified resource to realign the project with target margins.
Plan, prioritize, predict, prevent – the 4 Ps of engagement performance. Each of these areas is impacted by a dynamic approach to project economics, throughout the engagement lifecycle.
Strategic project planning is essential for effective project financials tracking. Accurate planning and budgeting from the outset to ensure the right people and the right skills are used at the right time is the key to optimal profitability.
Engagement managers need to strike the right balance between people, profit, and client expectations. A real-time view of the impact of resource changes is vital to ensure plans can be adjusted using agile methods to prioritize and keep overall performance on track. Techniques utilized may include resource leveling or resource smoothing, while audit trails should be evaluated periodically to inform continuous improvements.
Our real-time engagement economics insights provide resource managers with predictable engagement performance at every project stage. Project leaders can compare actuals against forecasts, and analyze engagement performance year on year to drive continued efficiency. Transparency across engagement portfolios is vital to inform strategic, data-driven decisions.
Dayshape uses AI-powered project controls and automated alerts to identify engagements at risk of exceeding budget before issues escalate. By highlighting underperforming projects early, resource managers can take action to reduce write-offs, protect margins, and keep delivery on track.
AI is transforming project financials tracking from an administrative burden to a strategic advantage. AI can easily process thousands of data points simultaneously, across teams, departments, and geographies to analyze project economics across portfolios and firm-wide.
Our AI-powered resource management platform calculates margins and rates in the background to forecast profitability, automatically working out the financial impact of every staffing decision before resources are confirmed.
Bringing together live project economics and predictive resource management data enables firms to spot commercial risks before they impact the bottom line.
As Andrew Bone, VP Product and Co-founder of Dayshape, explains: “If you can pull a report that shows predicted write-offs based on current plans and timesheets, you can highlight potential overruns and lost revenue. But the key is catching it early – if you can predict these issues in advance, you have time to adjust the project scope or have proactive conversations with the client to bring things back on budget. That’s real, measurable value, and it’s the kind of evidence that shows the true impact of effective resource management.”
Dayshape provides resource managers with the accurate, real-time insights they need to plan and price engagements, and keep them on track. With AI at its core, Dayshape delivers real-time project financial visibility, enabling firms to monitor engagement economics and act with confidence.
With Dayshape, resource and engagement managers can create and adjust resource plans and see their likely impact on profitability before these are finalized and work begins. What’s more, Dayshape seamlessly integrates with firms’ existing financial and time-tracking systems to help them evolve beyond static spreadsheets to provide a single source of truth for project financials.
Book a demo today to find out more about Dayshape’s real-time project financials tracking, or contact us if you have any questions.