Project Burn Rate: How to Effectively Gauge Your Project Progress

Even the most experienced professional services businesses can have trouble tracking project costs without a reliable system. Thankfully, there is a reliable process for gauging financial progress so that project managers can make effective decisions before issues arise – project burn rate.

If you think of your project like a candle wick, burning from one end at the start and having burned through the entire thread by the time the project is over, then burn rate measures just how fast the flame goes through your candle. But if you are burning through your wick faster than you expected, then that’s when the project problems start.

How Burn Rates Are Calculated

Burn rates are focused on financial consumption for a business, so while it can be applied to a company as a whole, calculating burn rates for individual projects can help you improve your daily processes.

To calculate project burn rate, take the amount of time you wish to measure burn over, then subtract your ending cash from your starting cash for that period. Divide the difference by the amount of time you are measuring, such as months, weeks, or days, this will provide you with the rate at which you are spending your money over that given period of time.

(Starting Project Cash – Ending Project Cash) / Time Period = Project Burn Rate

In the case of a project, your company should have a defined start and end date as well as the amount of money that a client has agreed to pay for your project. The proposed burn rate will be the pace at which you expect to spend the money being paid to you across the project lifespan. Ideally, this will leave your business with a strong profit margin so that you can remain financially viable and able to grow from the work completed. These burn rates take into account everything that could cost money, including salary for full-time employees working on the project, payment to contract workers, expenses for any type of resource bought to complete the project, and the various incremental expenses created during work. However, all of these can change during the actual completion of the project, which can cause your burn rate to increase and margins to quickly shrink.

Today’s top professional services software solutions can help project managers bypass the massive amount of work needed to calculate burn rates accurately through intuitive processes powered by robust business intelligence (BI) tools. With reliable data at the center, today’s software solutions can empower managers with up-to-the-minute burn rates.

Good vs Bad Burn Rates

A burn rate is not necessarily good or bad, it’s simply a fact of doing business. Good burn rates fall in line with company expectations, don’t suddenly change in the middle of a project, and result in a healthy profit margin.A bad burn rate is unpredictable and out of control, leading to increased spending and erratic changes in how much is being spent to complete work from month to month or even day to day. In the worst case scenario, bad project burn rates cause companies to lose money by the end of their work.

How Burn Rates Can Change

Accurate burn rates provide a clear picture of a project, but they aren’t set in stone. Like any calculation of in-progress work, burn rates can change, both due to actions taken by teams as well as due to inaction.

Are you looking to change your project’s burn rate? Here are several actions that can make a major difference:

• Increase your billing rates to offset your expenses and to account for increases in cost due to raises and inflation.
• Calculate all of your project expenses and determine which can be reduced and/or cut from your budget.
• Create and stick to a scope of work (SOW) for your project, which will define all billable work and prevent scope creep from affecting your project.
• Use stronger financial management systems that will keep your management team up to date and informed of your spending habits for better adjustments.

Over time, understanding burn rates and making crucial adjustments to how your projects are executed will mean that they can be on the right path from the start, meaning less in-progress adjustments and stronger projects that can be replicated for continued success.

Know and Control Your Burn

The combination of both understanding your project burn rates and being able to make effective decisions that keep your projects financially viable changes the entire future of a business. The Kantata Professional Services Cloud provides professional services organizations with real-time insights into their burn rates and gives them the ability to make fast, data-driven, and effective decisions that keep projects – and client and business outcomes – on track.