Effective Project Billing – For Smoother Project Execution




Reading the experiences below of how money and projects are managed in the business world may cause you flashbacks, frustration, anger and/or feelings of despair. If you’ve been through or might still be going through similar experiences, do not fear, as you continue reading there will be insights, help, and solutions ahead.

Freelancer / Solopreneur / entrepreneur:

I budget my projects based on how much profit I want to make. I price out jobs, the work gets completed – most projects are good, a few are bad. At the end of the day, my projects have generated X% profit.

The reality: I don’t compare my estimated budgets with actual project execution. I keep track of my hours wherever I can – receipts, excel, back of mail envelopes, cell phone text messages. I’m working on 95 different projects, 95 different things I need to do for my business and personal life. I’m not sure how things really went with many projects. I think – really, I desperately hope – I made X% profit. It’s now tax time, my CPA has worked up my taxes and this doesn’t make any sense – where did all the money go?  My profitability is actually one-third (1/3) of what I thought. Turns out, I’ve been spending more time and money than I realize because its spread out over multiple cards, accounts, invoices and time and things have crept up on me. Where am I going to get this money to pay my taxes? I probably should have budgeted the projects better. My life is like the musical band Bon Jovi lyrics, I too am “Living on a prayer”.

Small Business

Budgeting is fairly easy for us, we’re excel masters, black belts. We’re not really at the point where we need big expensive software to do everything for us. Excel is a great way for us to accomplish everything and we know to excel like the back of our hands. My employees know what to do and so far, everything has been working out just fine with our excel for a project management strategy.

The Reality:

Hidden chaos! My excel project budget estimator was started by some people and has morphed into whatever it is now. My employees don’t really know how to fix anything in it without googling for hours at an end – when they should be working. It’s so challenging changing anything that we can’t add any new project budgeting controls and don’t even bother trying. The budget analysis report for my projects has been off for some time and we didn’t know. By the time we figured out what was wrong – we underbilled our projects. Nobody really knows how to fix this so we’re stuck and don’t know how to get out of excel. Our black belts weren’t in excel, they’re from Amazon.

Medium and Large (Enterprise) Business

We’ve got software that does it for us – we’ve invested in the best of the best and it has the capability to do everything we need. We set it up for the different project budgeting types we use and so far, things are working great.

The Reality:

It’s 10+ years old, but it feels like it’s from the movie Jurassic Park. Most days we waste more time trying to figure out how to use the budgeting controls and system as a whole than doing billable work. We have consultants, first party and third-party vendors who promise us the world but never deliver on it. When we migrated to the system, the switchover was so bad we’re scared to move out of the system. The system has tons of controls, options and settings but none of the processes our business needs today.

At this point, most people are exporting data out into excel and working in their own silos. When the team needs to figure out how the project is really doing, we’re not sure who has the most relevant answer where – in the system or on their excel file. New people join the team but no one really knows how to use the system. The best part is our CEO has promised the project will be delivered on time, on budget and with amazing quality to the end client because we have such great systems in place. It’s ok though, much like Jurassic Park, I too am looking to run for my life.

Money Matters and Needs To Be Well-Managed

Every Project needs money. The financial support is perhaps the most crucial factor which determines whether a project succeeds or not. Therefore, handling this side of the process is of utmost importance. This section of Project Management which deals with financial aspects is called Project Billing.

This is a crucial aspect of project management which critically impacts both the client and the company which executes a project.

Project Billing – Getting Onto Details

Every project has its associated expenses that comes with its execution, and these expenses need to be dealt with quickly and correctly so that it is a win-win situation for all the parties involved. The efficiency in managing these costs determines how fast and smooth the project gets executed and ensures that there is no discontent as far as costs are concerned.

Project Billing, by definition, is the process of management of bills and invoices generated to seek payment from the sponsors or the financial backers of a project. They are prepared at every stage of the project and contains the details of the completed work and expenses until that phase of the project.

Project Billing is essential to ensure that the financial side of the project is always bright and the project can go on smoothly.

Project Billing –  In Depth Analysis

The type of billing applicable to a project is dependent on the terms of the contract signed and the billing preferences of the client.

There are five types of project billing.

Fixed Price

Here, the contract of the project specifies the TOTAL amount that the client allocates to carry out the project.

The client and the associated parties discuss and decide the fixed fee. It is expected that the invoice or the billing/costing report will not include any time or expense details though it may be mentioned to highlight the work done.

The fixed fee is divided on a milestone-based approach for better project management and client satisfaction. For each phase or each milestone, there will be details like the amount of money spent so far, percentage work completed, and the current dues in the invoice.

Each invoice generated by the vendor to request payment should have an amount specified in it corresponding to the percentage of work done, and the total expense throughout the progress of the project cannot exceed the fixed fee approved at the start of the project.

This demands the significant application of the Project Management Tools which can allocate a fixed budget to the different phases of the project and help in streamlining the billing process.

As the Fixed price cannot be changed, any breach of the deadline is a loss for the vendor engaged in the project.

Time and Materials

This is the traditional billing method in the Consulting world. The amount billed to the client will have to have information regarding employee details, amount of work done, amount of time worked, resources used, and so on.

The client pays for the total number of hours based on a pre-decided billing rate according to the invoice generated and put forward by the vendor. There is no maximum specified in this case.

However, the total number of hours and the billing rate is always fixed at the start of the project. The provision for deviation is minimal and mostly not appreciated by the client. In some cases, there is a clause in the SOW which takes into account variations and the agreed approach to mitigate the same.

Time and Materials – Not To Exceed Hours

A lot of clients feel the T and M model be a blank check and try to impose a T and M NTE model. The idea behind this is that the vendor should know the amount of time required to achieve the project outcome. Anything logged more than what’s decided at the beginning is not liable to be paid and is a loss for the vendor.

This is somewhat complicated and there have been instances of low-quality deliverables by vendors, staffing of low-value resources to protect margin and other such problems.

Manual execution of this billing model is cumbersome and vulnerable to errors. A robust project management software would come to your rescue if you execute a project using this model.

The effective use of project management tools can help a vendor to overcome the complexities involved in this billing model and ensure customer satisfaction.

Time and Materials – Not To Exceed Price

This is another complicated variant of the T and M NTE model where the vendor cannot exceed a price decided and approved at the start of the project.

Effective planning, resource alignment, timeline, and most importantly overall project management plays a crucial role in the successful delivery of such projects.

This can be achieved by project management platforms which have proven project management capabilities. Investment in such project management software ensures profitability and good ROI.

Retainer Billing 

Retainer Billing is a sort of fixed preemptive payment. The retainer is usually a set flat rate, and can also be a recurring payment at regular intervals. The client sanctions a prepayment before the project team starts a phase of the project and hence this acts as a payment to “reserve” the services of a vendor. This settlement adds a certain amount of liability or pressure on the vendor to commit to the project.

The primary advantage of this type of billing is that it is beneficial for both the client and the vendor. When the client pays the vendor beforehand and commits for an investment, they reserve the assets to carry out that phase of the project which they are expected to finish. Also, in some cases, they get a better price from the vendor. The client now has a vendor who have received payment and is now contractually and morally obliged to produce the best results and finish the project on time.

For the vendor, this ensures predictability of cashflow which is vital in any business.

There are good project management tools available to ensure the smooth execution of this model.

The Importance of Project Management Tools in Project Billing And Execution

Many projects use various forms of Project Billing in which there is an upper limit or a maximum amount which they can bill to the clients. Finishing the project within this budgetand within the stipulated time is of utmost importance.

When there is only a fixed amount of money and assets at our disposal, we mustuse them in such a way that the money and the resources get distributed to each phase of the project as per requirement.

When you do it manually, this involves a lot of calculation and even guesswork which can lead to errors. These errors will hamper the continuity of the project and the quality of the deliverables.

However, leaving this job to the Project Management Software can benefit all parties. These benefits are more than enough to make them the preferred agents for Project Billing.

  1. The apps come with individual deep learning capabilities and complex algorithms which enable them to do the proper math. They can evaluate the number of resources and the workforce needed to carry out the project from the project plan and equate them to the capital involved. They can provide an accurate estimate of the proper distribution of budget in each phase along with the necessary details of how much the team spends and on what.
  1. The same applies to retainer billing. When the client pays the money beforehand to the vendor, that amount must be enough for the vendor to complete the phase of the project that they are expected to finish. The lump sum must be coherent with the estimated expense that the team will face during this phase. These estimations require many calculations and contain many variables. These are more accurate and yield better results when performed using a Project Management Software.
  1. During the project work phase, the same software can help track real-time progress and manage bills. At every step, these project management apps can track the progress and compare them with the initial plan. Live Progress Tracking will make overall project management much more manageable.
  1. Project billing software can also be used to generate and circulate invoices. The data related to the spending can be input to the software to create bills and send them to the client. This data processing capability speeds up the process of Project Billing a lot and provides safe storage for all related evidence.

So, make an informed decision and get amazing ROI!

About TetraNoodle

TetraNoodle provides technology consulting services in most of the cutting-edge technologies. We offer Fractional CTO Services, where we offer a wide spectrum of Software and Cloud Computing Consulting Services; Business-Technology Consulting, Internet and E-Business Consulting, System Integration, Custom Application Development, training & workshops from global software experts and application re-engineering. With a single-minded focus on bringing success to your product, we work collaboratively with you throughout your product’s lifecycle. Our expertise, experience & skills ensure that your idea or product would be validated, developed, tested & delivered to be an investor and market ready.

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