Presentation is loading. Please wait.

Presentation is loading. Please wait.

1 Design Firm Financial Planning and Control  Copyright 2012 S3PS, Inc. All Rights Reserved By John M. Burson

Similar presentations


Presentation on theme: "1 Design Firm Financial Planning and Control  Copyright 2012 S3PS, Inc. All Rights Reserved By John M. Burson"— Presentation transcript:

1 1 Design Firm Financial Planning and Control  Copyright 2012 S3PS, Inc. All Rights Reserved By John M. Burson www.jmburson.com Email jmburson41@gmail.comjmburson41@gmail.com

2 2 Parkinson’s Law... “Work expands to fill the time available for its completion…” Copyright © renewed 1985 by C. Northcote Parkinson PARKINSON: THE LAW by C. Northcote Parkinson Reprinted by permission of Houghton Mifflin Company All rights reserved.

3 3 “Start? Start what? I thought you said you hired me to take care of the books” Controller The Controller

4 4 Business Plan Elements Project Delivery Plan Marketing Plan Personnel Plan Profit Plan Goals: Measurable specific values Objectives: Milestones to goal Strategies: Establish plan - measure & evaluate Tactics: Actions taken to implement strategy

5 5 Profit Plan Elements Overhead Revenue Projection Labor Budget Profit Plan Top-down Bottom-up Balance

6 6 Labor is the Focus of Financial Control  The business of a professional service firm is the provision of an hour of labor.  Labor constitutes 75% of most professional service firm’s expense and is the most readily adjustable segment of the firm’s expenses.  Available direct labor hours determine the capacity of a professional service firm to generate revenue.  Labor-related ratios and multipliers are the key indicators of financial performance.  Labor-related ratios and multipliers are the focus of financial control. Labor-related ratios and multipliers are the focus of financial control

7 7 Bottom-Up Profit Plan Structure Profit Plan Revenue Projection Profit Plan Monitor Labor Budget Project Budget Progress Report Executive Summary Analysis of Operations Project Budget Cash Plan

8 Financial Components Profit Plan and Project Total Revenue $734,091 = 150% Net Revenue $489,394 Net Revenue 100% Net Multiplier 3.23 $75.38/hr $200,652 Consultants 41% $44,045 Expenses 9% DirectReimb DirectReimb Cost Mark-up Cost Mark-up $151,515 Direct Labor 1.00 $23.31/hr $196,970 Overhead 1.30 $30.20/hr $140,909 Profit.93 $21.87/hr Total Profit Focus of Profit Plan 6,500 Direct Hours $222,424 Total Labor

9 Labor and Time Analysis

10 Formula Variables

11 Operating Profit Target

12 Profit Plan Analysis

13 Profit Plan Revenue and Manpower Requirement in FTE’s (Full-time-equivalents) Year Month a) Net Revenue (plan)$489,394$40,783 b) Divided by ave. billing rate $75.38 $75.38 c) Hours required to produce revenue 6,500 542 d) Available hours (net paid-time-off) 2,080 173 e) Utilization rate 68.12% 68.12% f) Available hours for production 1,417 118 g) FTE required (c/f) 4.59 4.59 h) FTE available from labor budget 4.59 4.59 I) FTE (over) short 0.00 0.00

14 14 Net Multiplier Target (budget) Effective Multiplier (actual) Net Revenue / Direct Labor $489,394 / $151,515 = 3.23 Components of Net Multiplier: 1.00 Direct labor multiplier 1.30 Overhead multiplier 0.93 Profit multiplier 3.23 Net multiplier

15 15 Utilization Rate Chargeable Ratio  The percentage of total staff time or dollars spent or charged to projects, based on hours or dollars.  Direct Labor Dollars / Total Labor Dollars $151,515 / $222,424 = 68.12%  Best measure is based on dollars.  Profit plan is based on 2080 ‘standard hours’ (Do not include overtime in budget).

16 16 Revenue Factor Net Payroll Multiplier Net Revenue / Total Labor = Revenue Factor $390,000 / $200,000 = 1.95 Net Multiplier X Utilization Rate = Revenue Factor 3.00 x 65% = 1.95  Better indicator of a firm’s efficiency than the net multiplier or utilization rate alone.  The higher the revenue factor, the better the firm is at generating more revenue from less labor. Inverse Relationship: Budget Over Under – Net Multiplier3.233.143.38 –Utilization Rate.68.70.65 –Revenue Factor2.202.202.20

17 17 Revenue Factor for Net Revenue Target Multiplying total labor expense by profit plan revenue factor shows what net revenue should be. Total Labor (actual) $ 222,424 Revenue Factor (plan) X 2.20 Net Revenue (target) 489,324 Net Revenue (actual) 433,727 Net Revenue (shortage) 55,597

18 18 Revenue Factor for Total Labor Budget Dividing net revenue by revenue factor shows how much total labor (not just direct labor) the firm should have to produce that much net revenue. Net Revenue (actual) $ 489,394 Revenue Factor (plan) 2.20 Total Labor (budget) $ 222,424 Total Labor (actual) 250,971 Excess Labor $ 28,547-

19 19 Overhead Rate Component of net multiplier  Overhead = All costs not chargeable to specific project (rent, utilities, insurance)  Overhead / Direct Labor = Overhead Rate  $196,970 / $151,515 = 1.30 or 130% of direct labor

20 20 Break-even Rate & Multiplier Rate:  Direct Labor + Overhead/Direct Labor Hours  $23.31 + $30.20 = $53.51 Break-even Rate Multiplier:  Overhead Rate +1.00  1.30 + 1.00 = 2.30 Break-even Multiplier

21 21 Operating Profit Multiplier Component of Net Multiplier  Measured as multiple of direct labor.  Operating Profit / Direct Labor  $140,909 / $151,515 = 0.93  Operating Profit measured as percentage of net revenue is more comparable firm to firm.  Operating Profit / Net Revenue x 100  $140,909 / $489,394 =.2902 x 100 = 29.02%  Operating Profit / Total Revenue x 100  $140,909 / $734,091 =.1919 x 100 = 19.19%

22 22 Billing Rate Methods Dir. Pers. Exp. Vs. Dir. Sal. Exp. Total benefits / Total wages for hours worked = Benefits factor $1,264,062 / $3,364,113 =.3757 Labor 1.0000 Plus benefits factor 0.3757 Labor + Benefits 1.3757 Net Revenue Multiplier / Benefits Factor = Multiple of DPE 3.23 / 1.3757 = 2.3478 Mult. of DPE Raw labor $23.31 x 1.3757 = $32.06756 Direct Personnel Expense DPE $32.06756 x Multiple of DPE 2.3478 = Billing Rate $75.38 Raw labor $23.31 x Net Multiplier 3.23 = Billing Rate $75.38

23 Benefits Factor for Multiple of DPE

24 24 Profit Plan & Report Cover Double-click links above to view Profit Plan Spreadsheet Workbook & Report Cover Labor Formula Variables Profit Target Profit Plan Plan Analysis Time Analysis Multiple of Direct Personnel Expense Prior Year’s Key Indicators of Financial Performance Project Budget Rates and Multipliers Labor Summary Cash Flow Plan Income Tax Provision Full-Time-Equivalents Required Calculator Labor Category

25 25 Operations Analysis with Ratios and Graphic Charts of Key Indicators… Double-Click here to view Excel Spreadsheet  requires comparison and is most useful when relating current experience to prior performance and to a budget.  must recognize time.  is more useful when studied over several reporting periods to establish patterns.  is meaningful only if the manager understands the basis, limitations and values of each ratio.  enhances the meaning and understanding of the values when used on a continuing basis.

26 Executive Summary Analysis of Operations Double-Click here to view Automated Executive Summary Report  Utilization  Full-time-equivalents  Overtime  Total revenue  Net revenue-Net multiplier  Revenue factor  Direct labor  Overhead & Overhead rate  Break-even multiplier & rate  Operating Profit  Cash & Accounts Receivable

27 Price/Volume Variance Analysis

28 Project Budget: Bottom-Up (Scope First - Fee Last) = Total Fixed Fee $734,091 + Contingency + Outside Consultants $200,652 + Other Direct Expense $44,045 + Profit $151,515 x 0.93 = $140,909 x Average Direct Labor Rate $23.31/hr = $151,515 Direct Labor = Estimated Hours Required 6,500 + Overhead $151,515 x 1.30 = $196,970 = Net Fee $489,394 Scope of Services

29 Project Budget: Top-down (Fee First - Scope Last) Fixed Fee $734,091 Less outside consultants $200,652 & other dir exp $44,045 & Contingency Divided by Profit Plan Net Multiplier of 3.23 Divided by Average Direct Labor Rate of $23.31 = Maximum Hours Available for Required Tasks 6,500 = Maximum Amount of Direct Labor $151,515 = Net Fee $489,394 = Available Scope of Services at Profit Plan Rates and Multipliers

30 Revenue Projection Backlog and Manpower Requirement in FTE’s Year Month a) Net Revenue (Backlog)$538,967$44,926 b) Divided by ave. billing rate $75.38 $75.38 c) Hours required to produce revenue 7,150 596 d) Available hours 2080 173 e) Utilization rate 68.12% 68.12% f) Available hours for production 1,417 118 g) FTE required (c/f) 5.04 5.04 h) FTE available from labor budget 4.59 4.59 I) FTE (over) short 0.45 0.45

31 31 The End E-mail: jmburson41@gmail.comjmburson41@gmail.com You may view this slideshow & notes and download CAPP spreadsheet templates on the internet at URL www.S3PSinc.com Blog: www.jmburson.comwww.jmburson.com


Download ppt "1 Design Firm Financial Planning and Control  Copyright 2012 S3PS, Inc. All Rights Reserved By John M. Burson"

Similar presentations


Ads by Google