Projects run off course, take longer than expected, go over budget and fall short for a variety of reasons. Tasks get deprioritized. Team members get busy. Clients take long to respond. We’ve all experienced projects not running seamlessly. That’s the nature of client work.
And if you’ve been a project manager or on a project team, you’ve dealt with the headache and frustration of trying to corral everyone, track down progress statuses and get deliverables. Throughout every project and post-mortem, there are key performance indicators, or KPIs, that you should be monitoring and reviewing for the health and success of your business.
The impact of tracking effective KPIs shouldn’t be underestimated. Having reporting in place can not only make current projects run much smoother but can break you out of the hamster wheel of chaotic project management. Knowing your KPIs can give insight into areas for process improvement and maybe even more valuable — tell you where you should be spending the most time and with which clients for greater efficiency.
Let’s review some KPIs for project management and figure out how each can help productivity and profitability.
When it comes to project management, tracking time is essential. You need to know how much time is spent total on a project, but more granularly, you should know how much time is spent by project type, on each task and by each team member. Important KPIs include:
Planned Hours vs. Time Spent: How much time you allocated for a project compared to the actual hours used to complete a project. This lets you know if you over- or underestimated project time and helps you better allocate resources and set accurate budgets in the future.
Cycle Time: The time to complete a specific task or activity. This is helpful for allocating the right amount of time for repeated project tasks and setting accurate timelines.
Time Spent by Employee: The amount of time spent by each team member on a project. This helps better manage employee time and identify over- or underutilization by showing how much time each individual is contributing.
Resource Capacity: The number of people you have and the amount of time that they have available to work. This helps properly allocate resources, determine availability for projects, set accurate timelines and possibly identify hiring needs.
On-Time Completion Rate: The percentage of projects completed on time. This helps to determine if allocated time budgets are accurate. If this rate is lower than expected, you should drill down into individual project schedules and determine schedule variance.
Knowing project costs is crucial for profitability. You probably have a good idea or a range of how much each project costs but tracking the actual costs can make a significant impact, enabling more accurate billing and preventing any expenses from slipping through the cracks. Important KPIs for costs and cost performance include:
Average Cost per Hour: The total hourly cost for a project, including things like employee salaries, benefits and overhead. This helps you set more accurate pricing, bill accordingly and determine if your employees’ time is being used effectively.
Employee Cost per Hour: The total hourly cost for each employee with respect to pay rate, benefits and administration. This is used to determine each employee’s billable rate for accurate billing and profitability.
Cost Variance: The planned project budget compared to the actual costs. This helps you determine if the estimated project cost is above or below the planned baseline, enabling you to see when you are outside approved budgets.
Cost Performance Index: The budgeted cost of a project compared to the actual amount spent. This shows you if you’re efficiently using the actual budget and helps you forecast and better allocate funds in the future.
Cost of Revenue: The cost of the total time spent divided by revenue. This helps you understand the direct cost of all of your efforts and services to measure effectiveness.
Rate is an important factor in client work, whether it be the rate that you charge per hour or the rate at which employees are working. Capturing the right data to properly calculate these figures can lead to more profitable projects and greater revenue. Ultimately, you want to know that you are charging appropriately and reasonably to offset costs and turn a profit. Important KPIs for rate and return on investment include:
Utilization Rate per Employee: The ratio of billable hours and actual total hours logged by an employee. This helps give you a clear idea about the profitable work that a team member has done with respect to their internal cost.
Employee Cost Rate: The hourly rate to bill a client based on the individual rate of employees. This ensures accurate billing using employee cost and utilization on projects, tasks and tickets. Important note: You should have clear distinction between billable and non-billable hours and, ideally, time-tracking software that allows you to distinguish.
Return on Investment (ROI): The calculation of the profitability of a project in relation to its costs. ROI is a crucial KPI because it lets you know if your projects are having positive payback and at what level or if your projects are costing you. This metric is important to understand the financial value of each project, which projects yield a higher return and the value of potential projects. Knowing which projects to initiate and where to spend your time for the greatest return is what will lead to the greatest profitability.
In professional services, your business centers on your clients and their satisfaction. You want happy clients not only for retention and repeat business but to preserve your company reputation and potentially even generate referrals. Measuring client satisfaction can be a bit tricky and is best done by leaning on project performance metrics. Important KPIs for customer satisfaction include:
Customer Satisfaction: The measurement of how satisfied customers are with your services. This information is typically obtained through a survey or interviews. You should have a system in place to regularly monitor and track customer satisfaction, whether it be an automated survey at project completion or quick surveys throughout milestones.
Customer Churn Rate: The number of clients at the beginning of a period (such as 30 days, 90 days or annually) compared to the number of clients lost during that period. This can be a reflection of low satisfaction with your services. It’s important to gain as much insight as possible when a client leaves. When possible, gather and record this qualitative data and store it on the client record within your CRM.
Response Time: The measurement between the time a client reaches out or submits a ticket and the time they receive a response. Responding promptly and adhering to any SLAs helps to ensure that you’re meeting client expectations. Long response times can be a main factor in client dissatisfaction and complaints.
Percent of Clients on Retainer: The ratio of your clients on retainer contracts to the total number of clients. This can be an indicator that clients find enough value in your services to agree to recurring work. If you are on retainer for clients, you should also be tracking retainer types and value of retainers.
You know KPIs are important for your project-based business. That’s a given. But you might not know which KPIs to give the heaviest weight. KPIs are only useful if you are identifying the right ones and then using the data to make strategic business decisions. It’s also imperative that your organization has a single point of truth across the business so that everyone is receiving and acting on the same information.
To get started developing your KPIs and reporting, begin with:
Having accurate and accessible KPIs will allow you to turn out more successful projects and develop a stronger business. Your best bet is to get a system in place that automatically reports on your most important KPIs in real-time.
Software exists to make reporting on KPIs much easier. Most likely, you already have a few systems and software platforms in place and might not want to add another to a mix, but there could be an opportunity to consolidate.
If you work in professional services, Accelo offers a complete client work management platform that allows you to manage all components of your client work in one place. That means everything from your CRM, invoicing and billing to project management and retainers. Plus, the platform provides essential reporting on all of your most valuable KPIs. Try a free trial today.