Project managers bear a lot of responsibility in a professional services firm, but what is a project manager? Simply put, a project manager is a person that manages a project from start to finish, including the tasks of planning, monitoring, and closing out the project. With these vital duties resting on the shoulders of project managers, firms should invest in helpful tools that can make project management easier and faster. These tools should give managers the ability to pay closer attention to the details of each project. The most important task performed by project managers is evaluating project profitability. Whether they are a construction project manager or a consultant project manager, ensuring that the project will be done well and is profitable is essential. 

Assessing project profitability starts with knowing the advantages of profitability index formulas for the task. A simple profitability index definition is as follows: the profitability index (PI) measures the difference between the costs and benefits of a potential project. This index can tell project managers at professional services firms whether a project they are considering or one they are currently working on is going to benefit the firm and result in growth. The project profitability index can be the indicator for managers to know whether they should take on a project or not.

What is a good profitability index? It is an index that is greater than 1.0, which would mean that the project is profitable. If a project results in a PI of 1.3 and another is 1.8, the latter will generate more profit for the firm. Calculating the PI of a project can be done with the profitability index formula. Excel is a tool that can be used to lessen the manual calculation required in this formula, but a software solution is going to be far more efficient. BigTime is a tool designed for professional services firms that can accurately calculate the profitability of a project. This can help firms decide if a project is worth taking on, or if they can make one more profitable by adapting their strategies according to the detailed information provided by BigTime’s software.

Project Profitability Formula

A firm's profitability is the key to whether or not it will grow. How can the profitability of a business be determined? Essentially, a firm's profitability is the sum total of the profitability of its individual projects. If the firm works on highly profitable project ideas, then it will be profitable in total and will grow. Calculating profitability begins with a project profitability formula. While some formulas might be simpler than others, the project profitability index formula takes into account the critical measure of the present value of future cash flows. The index formula looks like this: PI = PV (purchase value) of future cash flows / initial investment. 

The project profitability index can measure the profitability of a project, but it does not provide the level of detail that may be attained in the proper project profitability report format. For instance, the index may tell the firm that a project has a 1.3 score, but a report that is in a detailed format will break down the exact costs and benefits of that project. This report can be created with a project profitability analysis Excel template. However, firms that are looking for more detail should still use the project profitability index formula to get a quick view of the profitability of the project. A project manager can quickly get an index number by utilizing a profitability index calculator.

Project Profitability Calculator

Professional services firms and project managers need to know how to calculate profitability. One of the most straightforward ways is to find a profitability index calculator with cost of capital included in the formula. These calculators might be found online or created using a profitability index calculator Excel spreadsheet. In Excel, the cells can be edited so the firm can tweak the formula as needed or include more detail in the sheet than they would otherwise get with an online project profitability calculator. Additionally, if using an Excel template to calculate the index, ensure that the template utilizes the project profitability index formula.

Two other calculators can be used to calculate profitability, but they would need to be used in conjunction with another calculator or a spreadsheet to finish the calculations. These two calculators are an IRR calculator and an NPV calculator. An IRR calculator provides a percentage of the rate of return of an investment using the actual cash value, while the NPV calculator provides the amount of profitability in dollars for a project using the discount rate. A project profitability calculator will provide the information needed without using multiple tools. It will also be easier to develop a project profitability report format based on a single calculator than with several. On the other hand, among the most efficient and accurate ways to calculate project profitability is to utilize a platform like BigTime.

Project Profitability Analysis

Professional services firms that are working on profitable project ideas should consider performing a project profitability analysis before and during the project. A profitability analysis report provides more detailed information to the team than the profitability index formula can on its own. A suitable project profitability report template can help product managers understand how to make a project profitable if it is not already. In other words, a project profitability analysis does more than just list project profit and loss. 

A project profitability analysis example can help project managers understand what an analysis report should look like. At a basic level, it will include the precise details of the type and cost of labor and materials used to complete the project and the exact revenue generated, as well as the difference between these. Firms can analyze a project’s profitability in a few different ways. One option is to use a project profitability analysis Excel template, which can then be filled out with the correct information. QuickBooks Online has a method to use software to create a project profitability report. Otherwise, firms can generate detailed, real-time reports automatically with BigTime.

Project Profitability Template

Measuring a project’s profitability does not have to be done manually or from scratch. There are plenty of project profitability template options available online. With many businesses using Excel for their spreadsheet needs, a project profitability Excel template could be a practical choice. For research, project budget template Excel sheets can guide managers through the cost analysis process so that they know how much a project will cost beforehand. 

Another choice for this task is a project cost template Excel spreadsheet. Whether a firm is working on a construction project or a software project, budget template Excel spreadsheets will make it easier to gauge the project's profitability. A simple project budget template Excel spreadsheet can be a great place to start when trying to understand project profitability analysis. Additionally, if the firm would rather use Google products for a project budget template, Google Sheets could be used instead of Excel.

What Is Project Profitability?

A project profitability report can be an indicator of how profitable the firm will be in the future. What is project profitability in regards to the entire firm? Essentially, suppose a firm takes on too many projects that merely breakeven or cost the firm more than the revenue the project generated. In that case, the firm itself will be on a downward trajectory. This is why firms use tools such as a project profitability report template or the project profitability report QuickBooks Online tool to perform an analysis. A profitability analysis example can help with understanding exactly how and why it needs to be done.

Assessing a project's profitability is the first step for managers who want to know how to improve project management. If the project gross margin is low, then a manager will need to figure out how to improve project performance. What is project margin? It is the percentage of revenue that is more than the cost of the project. A professional services gross margin needs to be high in order to see growth in the firm. Firms can use BigTime to generate a project profitability report with the gross margin and get data that can help them know how to improve project profitability.

Project Profitability Report Excel

The most helpful project profitability report template will be in a format that is useful to the team and will contain a profitability model. Excel can be used for this purpose, and it is relatively easy to find project profitability Excel templates. Once the model and calculations are completed, the firm can create a project profitability report Excel spreadsheet that contains more detailed information for the team. 

In a case where a firm is interested in a project but needs to know if it will profit them in the long run, they can develop a pricing analysis Excel sheet. This will helpbreak down the expected costs and compare that to the revenue. A company analysis Excel template could be used when looking for a way to analyze the firm’s profitability as a whole. Whether the firm needs a simple or detailed report, a product profitability analysis template will only be helpful to a certain extent. On the other hand, when firms use BigTime, they can generate reports and get an idea of a project’s profitability at a glance, or they can see detailed metrics that can be used to make the project more profitable.