Best Practices with Resource Management

Here are some best practices for getting started with Resource Management.

Reduce Complexity

Whether you run a team of five people or 5,000, operational complexity costs money. For companies who bill based on time, reducing operational complexity is even more of a necessity.

The level of detail that’s typically put into creating plans can get in the way of doing the actual work. By planning the boundaries of a project in terms of time and budget, you can ensure that work is completed as intended without the plan becoming too prescriptive.

The goal with planning projects in Resource Management is to put in the right level of boundaries so your team stays on the same page with respect to time and budget, but there’s enough room for people to have autonomy and fill in the details themselves.

Operational complexity can also be reduced by choosing a blended bill rate for all people, and by sticking to one single rate for all clients.

Fully Schedule Projects

We recommend fully scheduling resources on a project up front, rather than on a weekly or daily basis. This way, there’s better insight into your team’s availability over a longer time frame and your team knows what’s ahead.

Things change daily, however, which means adjusting the Schedule daily. But when projects are fully staffed ahead of time, these changes can now be precise and will only have an impact on people on the impacted projects.

From an organizational perspective, scheduling a project fully upfront will provide real-time insight into the profitability of the project. Before a project starts, a fully scheduled project should be exactly up to the budget, so you’re mapping the work plan for the project to the actual fee you’ve estimated.

For example, if there’s a $96,000 budget and you schedule two people for two months, full-time at $150/h, the future scheduled amount should match the budget.

Internal Teams

Internal teams who don’t need to track rates or fees in Resource Management should make two changes to Account Settings:

  1. Progress: select “Show project progress in days”

  2. Incurred Hours and Amounts: select “Confirmed hours and unconfirmed past scheduled hours”

Making these two changes maintains project time data without requiring your team to track time. This will enable you to get accurate insights and analytics.

Track Real Time Project Schedule Updates

If you fully scheduling resources on a project up front, rather than on a weekly or daily basis youll have better insight into your team’s availability. And your team knows what’s ahead.

Things change daily, however, which means adjusting the Schedule daily. But when projects are fully staffed ahead of time, changes can be more precise. 

Scheduling a project fully upfront provided real-time insight into the profitability of the project. Before a project starts, a fully scheduled project should be exactly up to the budget, so you’re mapping the work plan for the project to the actual fee you’ve estimated.

For example, if there’s a $96,000 budget and you schedule two people for two months, full-time at $150/h, the future scheduled amount should match the budget.

High level planning project budget estimate

 

Now, as your team reports their hours, you can immediately see the impact on the forecasted budget.

You might not know who is going to work on the project. But if you know either the discipline or department that will do the work, you can create a Placeholder Team Member for that discipline (for example, Visual Designer). This placeholder team member can have a bill rate so you know the impact on the schedule.

When you identify the right person for this project, you can assign the project to that person. And if you make scheduling decisions on a weekly or daily basis, you can split the Placeholder’s assignment, reassigning each segment to another person on the team.

Reassign work schedule

Use Bill Rate to calculate costs and profitability

Bill rate is the rate used to bill your customers. Bill rate takes profitability margin and utilization into account. When a project is completed on budget, you know your profit margin has been met.

When you set your bill rates, consider the following: 

What’s the cost involved in doing the work?

This includes staff salaries and benefits, and overhead costs of non-billable people, rent, and other operational expenses.

What's the utilization goal of the organization?

Work can be divided between direct labor (project work that clients pay for) and indirect labor (work that’s considered overhead, or work in-between clients’ projects). Utilization is the percentage of work hours that are considered direct labor.

For example, one person has 2080 work hours within one year (capacity). If they work 1200 direct labor hours on client projects, the utilization for that person is around 58% (1200/2080). For an organization, you can calculate the capacity is for a group, and then define what percentage is the target utilization.

Utilization differs per organization, but it’s typically in the range of 50% – 75%. Higher than 75% may be unhealthy for an organization over a long period of time.

What's the profitability goal?

If everything runs according to plan, what’s the profit margin that the organization is aiming for? This also differs across organizations but is typically in the 15%-25% range.

Let’s say an employee has $80,000 salary, $20,000 in benefits, and another $50,000 in overhead and operational expenses. The total cost for that person is $150,000 per year. If the utilization goal is 58%, that cost needs to meet with the 1200 hours that this person is likely to work on client projects within the year. This equals a rate of $125 ($150,000/1200). If the company’s goal is to earn a 20% profit margin, you need a bill rate of approximately $155 per hour to cover their costs and meet your profit goal.

This is called a fully burdened rate. When you know the true cost per production hour for each team member, you can calculate exactly how much you need to charge per hour for that person to meet your gross profit goals on the projects. Budget status show if you’re below, meeting, or over your profit goal.

Profitability goal fully burdened rate

One way to calculate a bill rate is to use a pricing multiplier. Start with the base salary of an employee, $80,000 per year. Divide that by the number of work hours in a year, which is about 2080. This results in an hourly rate of around $38.50. ($80,000/2080).

A typical pricing multiplier is between three and five. So, using a multiplier of four results in a Bill Rate of $154 (4 x $38.50). Multipliers vary greatly and depend on your industry. Research what multiplier makes the most sense for your team.

Profitability bill rate multiplier

 

Labor expenses and overhead expenses change over time. Recalculate this rate once or twice a year to make sure it’s current and adjust the bill rates for new projects as needed.

Calculate estimated project costs

When presenting your clients with a price for your work, base your estimate and calculations on this external bill rate. Figure out how much time it would take to complete the work and multiply that by the hourly rate. For example, if it takes eight weeks (320 hours) for one person at $150/h to complete the work, then the cost for that work is $48,000 (320 x $150).

It may be better to communicate this to the client as a fixed bid and not to divulge the hourly rate calculations that went into it. Otherwise, it can lead to situations where you’re negotiating around every hour, rather than the value of the work performed. Even when project durations are unpredictable, as in software development work for example, you can still calculate in blocks of time, and with an upper budget limit.

Set up your project budget in Resource Management

Fixed Bid Projects

For a fixed bid project, you bid to complete a defined set of work for a certain amount of money. Your budget is the price you charge the client. 

Retainers

For a retainer, the client pays a fee for a set amount of work, but the scope isn’t typically defined upfront. There may be a not-to-exceed agreement for the budget. With retainers, the budget is dependent on how you want to break up the retainer.

For example, it could be a series of one-month projects or phases or a year-long project. Read more about setting up retainer projects here.

Time and Materials

For Time and Materials projects, you get paid for actual hours worked. You can leave the budget blank and simply keep track of incurred fees. You can also enter a target amount or the maximum agreed-upon amount. For Time and Material projects, you might need to adjust bill rates to reflect the agreed-upon markup for worked hours.

Estimating the budget for a new project

Estimation is typically based on experience or a set of quick calculations.

If possible, keep estimates and subsequent proposals high level rather than calculating every minor expense upfront.

The project below shows one designer and one developer for two months, at $150/h, totaling $96,000 in billable labor.

High level planning project budget estimate

 

In Resource Management, you can create a new project then assign people (or Placeholders for roles and disciplines) for the amount of time you estimate the project will take. The resulting Future Scheduled amount is the estimate for this project.

When the project becomes a reality, this estimate becomes the budget. When you add future assignments to the project, the resulting future scheduled amount should be up to the budget.

When you schedule too many people or too much time on a project, it will be immediately apparent that this project will go over budget.

Over budget

 

If you don’t schedule enough people to a project, you may not have the right resources available when you need them.

Under budget

Tips for tracking and analyzing time and budget

Don’t track more than you need

Tracking time puts a burden on the person who needs to enter it. It’s more efficient to track as little as possible to meet your organization’s goals.

Some organizations don’t track time at all. They assume what was planned is what was incurred. These teams calculate incurred hours and amounts as confirmed and unconfirmed past-scheduled hours.

Other organizations need more information, and record only the hours needed for each project. They set time tracking to hours and minutes.

Detailed tracking requires your team enter notes for each time entry. This method allows for more filtering and analysis of reported hours.

Enable good decision-making

People who do the work are better at determining the best time to do it, as long as expectations around deadlines and how much time they should spend on something are clear.

It’s best to make assignments as high-level as possible, for example, a week-long assignment of 20% of a person’s allocation rather than a day-long assignment of eight hours, for example. This way, people have the ability to plan their entire week around higher-level expectations.

Analyze across segments

Reports allow you to group incurred and future hours, budgets and utilizations, and more, from different perspectives. You can analyze the hours for one project, all hours grouped by client, discipline, role or month, or many other pivots.

Analyzing reports helps you make strategic adjustments going forward. You might find certain people always need more time for work or certain clients always go over budget. These details help adjust your estimates going forward. For example, that client that always runs over? You might add three extra weeks when you start your next project with them.

You can create project templates with suggested budgets for certain activities. Report data gives you real insights into how to set up those templates, improving your baseline planning every time.