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Recharging project expenses and profitability

Knowing the true costs and profitability of each project is key to making optimal decisions and increasing profits. A well-organized record of project expenditures and the integration of indirect costs into projects are required. An integrated approach to projects, with project expenses and internal employee costs, allows profitability to be tracked per project. Invoicing integration allows project expenses to be recorded and rebilled on contracts.

Recharging project expenses and profitability
Table of contents
  1. What are project expenses?
  2. Direct vs indirect costs of the project
  3. Direct expenses of the project
  4. Indirect expenses of the project
  5. The Oraroo approach
  6. The Oraroo advantage
1. What are project expenses?

Do you know which of the most recent projects generated the highest profit after expenses? Did you know that each project not only generated revenue, but also covered its part of general expenses?

A clear and well-organized record of project expenses is essential when you want to lead your business towards more profitable sales and avoid costly mistakes. Knowing the real costs and profitability of each project is the key to making optimal decisions and increasing profits.

Project expenses include all expenses that need to be covered while your team is working on the project. For example, the travel expenses of an engineer in the team for a specific project.

But each project must also cover a portion of rent, utilities, support staff salaries, software subscriptions, marketing costs, and other ongoing expenses. These costs must be taken into account in tracking the real expenses related to the projects. That way you will have the necessary information to run the business successfully.

A suitable tracking system is required which:

  • keep track of billable expenses to be invoiced to a customer
  • highlight when a project tends to go over budget

Plus, when you know which projects bring in the most profit, you'll know how to focus your sales efforts to maximize the potential of your business going forward.

2. Direct vs indirect costs of the project

Costs are classified according to the fact that the respective expense is directly related to the project or not.

2.1 Direct expenses of the project

This is the most obvious category of expenses for the project. They are made only for one project.

For example, you may need to travel to meet with the client, purchase special software, or hire an outside resource to complete the project.

Some direct project costs may be passed on to the client as expenses, while others are included in the price of the service.

2.2 Indirect expenses of the project

The direct expenses of the projects are quite simple to identify. Indirect costs are costs that are not related to a specific project, but must be paid.

These are sometimes overlooked when a business is setting rates or creating offers for projects. This can lead to unprofitable sales or even unexpected losses.

Examples of indirect costs include: rent, utilities, stationery, salaries of support staff, professional fees (accountant, lawyer), advertising and promotion, software licenses, etc.

These costs are not directly associated with a project, but must be paid from project revenues.

If your business averages two projects per month, each project must cover its own direct expenses, plus at least half of the indirect costs of running your business for that month.

In order to cover these costs from the project revenues, a way of allocating them at the project level and considering them in the sales price of the projects is necessary.

4. The Oraroo advantage

The integrated approach of the operational aspects of the project with the commercial ones offers very good traceability of the expenses on the project and at the level of the contracts.

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Oraroo allows re-invoicing of expenses per project. Press the "reinvoicing" button, manually select the expenses to be reinvoiced and create the invoice.

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This then follows the review flow. The generated invoice can be viewed in contract details.

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3. The Oraroo approach

Oraroo provides functionality for uploading expenses in electronic format, along with other details such as category, type of expense, description/motivation, value, etc.

Next comes the selection of expenses from a expense report and sending it to the internal approval flow. The functionality is valid for the management of expenses report flows for all company purposes.

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For direct expenses related to projects in Oraroo, you can select at the expense report level (and at the expense level if necessary) the project, the client and even the contract to which the respective expenses in the expense report refer.

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Once the expenses are uploaded to Oraroo, they can be viewed at the individual project level.

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To reflect the indirect costs in the profitability of the projects, Oraroo offers the possibility of registering an hourly cost at the level of each resource (employee/external). That cost represents the actual cost paid for an external resource. For employees above the salary costs, it is customary to add a part of the company's administrative expenses.

Oraroo allows maintaining a history of these costs and the periods when they are valid. It is useful in the context of a certain dynamism over time of salaries and administrative costs.

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The entered values are taken into the calculation of project costs, depending on the time worked. Along with the direct expenses, these costs are collected at the project level and provide a consolidated vision of the project's profitability.

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The results of the profitability calculations can be viewed and compared to the other projects, within an interactive dashboard.

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