5 tips for a true understanding of contract or customer project costs
Profitability of customer contracts or delivery of customer projects is a regular talking point across our clients and how a true cost to service can be captured easily and reported on. Costs are slipping through the cracks daily that in some cases start small but over the life of the contract represent a large missed opportunity. Ultimately this hits the bottom line of your business.
1. Visibility of information – cross functional
Assign costs appropriately. Consider all functions that go into the project or contract. This spans materials, labour, equipment etc. When looking at labour, dig deeper into all the touch points. Does your customer call your accounts team and require a customized report that takes 3 hours to produce each month? Do they pay on time or need reminding? Do they struggle with technology and call your service desk regularly? All of these take the time of your staff and should be captured accordingly.
Within your business, how many spreadsheets are being used to consolidate time each month? This is another black hole, due to best intentions of time capture however quickly leads to consolidation of spreadsheets, followed by poor data integrity that impacts reporting. Entering time into a central system with structured customer and project codes ensures accurate reporting. Effortless time confirmation is vital.
2. Cost allocation
Are you apportioning the costs accordingly across contracts? Are your Cost of Goods Sold (COGS) or Cost of Sales (COS) setup correctly? Can pre and post project costs be captured accurately? Many project tools don’t cater for the ability to capture post job effort. We have witnessed numerous examples where the post project costs that occur before a follow-on contract go uncaptured.
Ultimately these costs impact profitability. Examples of these include; writing reports, follow up actions, minor change requests and in some cases, materials cannot be accurately assigned and subsequently invoiced.
3. Accurate and timely data
Payment cycles, EDI’s. Are your customers frustrated with invoices arriving on their desks for contract “true ups” with little explanation? Providing data to your customers in a format that assists them in identifying where costs have crept in goes a long way to assisting in remediation. A platform should provide this and even better if this can be automated based on workflows.
Having the depth of information and in near real time ensures project costs don’t get out of control. In our experience customers are more amenable to discussing variances when the sums are smaller relative to the contract. We haven’t yet found a customer who has been happy at receiving a large contract adjustment unannounced.
PWC identified that using commercially available Project Management software drives higher levels of portfolio performance and greater satisfaction. PWC also reported that 44% of projects do not use any project management software…
4. Breaking down the silos
Do you know who is working on the account? Are they time confirming into a central system that eliminates duplicate data entry? On the surface this could be labour such as consultants, skilled field staff or drivers etc. but what other departments are playing an active role in delivering a result for the customer. This could be a fraction of an FTE, but it all adds up and could be distributed across finance, sales, marketing, operations or IT.
Real Example #1 – A customer had multiple customers of their own accessing their system. This system had stability issues that meant service desk calls were logged frequently for help. Our customer was only looking at the system uptime as a cost and had missed the volume of service desk calls coming in. Once those were reviewed, replacing this system became an instantly positive business case that our team were able and willing to undertake with our Intelligent Operations Platform.
5. Integration & Accessibility.
Having a centralised system is one step but providing the means to use it is more important! Accessing the system from any location on any device and at any time goes without saying in 2019. It should be straight forward with low change management effort and slot into your life without being obtrusive. Furthermore, your existing systems of record hold vital customer or project information that needs to be accessed to create a full picture. This leads us to integration capability. Removing duplicate data entry and providing real time updates.
Real Example #2 – A customer operated a fleet of vehicles to service their customers that were tied to contracts. They didn’t have the ability to capture the costs associated with running those vehicles at a granular level, so a large number went unassigned to their respective contracts. This showed a highly unprofitable fleet servicing division.
Dusk were able to deliver their workshop module that connects back into their operational software. Costs are captured at the point of use via their mechanics before being allocated to the contract. The finance department and Contract Managers have a true cost picture now.
Confirming time in an integrated platform that synchronises your multiple calendar types against jobs is a key starting point, to provide details of everyone who is working on the account. Capturing this at a level commensurate with the billing is important. E.g. per job, per month, per contract term. Without that profitability and project cost analysis is very challenging.
Integrating back into your existing systems to provide an “all of job” view is crucial in understanding project costs. This should be easy to do and not require significant IT investment to achieve. If you’d like to find out more on time confirmations, centralised project visibility with workflows and easy integration for your teams or business, connect with our team below.
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