This article is an extract from the book 'Everything you need to know about Xero Practice Manager'
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Reporting on job performance is split into two defined categories:
- Jobs that are in progress
- Jobs that are completed.
Our jobs that are in progress can also be called open jobs. We split our jobs into these two categories because we make different decisions depending on what jobs we are looking at. Our open jobs are changing daily with every time sheet, cost or invoice, whereas our closed jobs are static.
We should be reviewing our open jobs as frequently as possible as they give the best insight into how jobs are progressing. Our open jobs tell us what is happening right now, and can also give us insight into the future profitability of a job. If we keep a close eye on our open jobs and address issues as they arise, we will be running a much more efficient and profitable practice. We ultimately want to understand two things about our open jobs:
- Are we going to go over budget?
- Are we going to miss a deadline?
We want to answer these two questions for all our open jobs, as easily as possible. Doing this allows us to easily identify issues early so we can address them before they get out of control. We want to catch our potential write-offs while the job is open, rather than finding out once it is completed with an enormous write-off.
Open jobs tell us what is happening, whereas completed jobs tell us what has happened. If we look at what is happening, we can take quick and decisive action when we identify risks. When we look at what has happened, we can understand our mistakes and make changes for the future.
We manage our open jobs by exception. We look for indicators that suggest our job might go over budget, or miss a deadline. As long as those two events do not occur, our workflow moves smoothly like a well-oiled machine.
If we are not monitoring these indicators throughout the year, we may find ourselves eight weeks from financial year end with only half our tax returns filed, resulting in the team working evenings and weekends to catch up. What happens next? A third of your team say to themselves ‘never again’, and hand in their resignations. You are then scrambling to replace them while creating the exact environment to repeat the cycle.
There are three indicators you can use to see if a job is likely to go over budget:
- Remaining time
- Remaining budget
- Projected write-offs.
The best indicator that a job is at risk is your projected write-offs. This is your crystal ball. Unlike the remaining budget, it looks at the tasks within the job, rather than just looking at a job's total. If a task goes over budget, the overrun will count towards the projected write-off. When the task is completed, the under or over will count towards the projected write-off. Each task is then rolled up to a job level to provide the overall projected write-off on the job.
Let’s look at an example.
Say we have a job that has a $5,000 budget. We have six GST returns and an annual accounts task to do. Each GST return has a $300 budget, and the annual accounts task has a $3,200 budget. If we put $500 of time to the first GST task, our remaining budget for the job is $4,500. Our projected write-off on the job, however, is $200. This is because we have gone $200 over budget on the first GST task.
Now let’s say we put $150 of time to our next GST task. As this task has not gone over budget, it does not affect our projected write-off so this remains at $200 for the job. If we complete the task, however, we are saying we will not put any more time to the task. We will therefore recognise the $150 of unused budget as a projected write-up. So our projected write-off on the job is now just $50. This is because we had a $200 projected write-off on the first GST task, and a $150 projected write-up on the second GST task.
Projected write-offs allow us to see what is happening on the job at a task level, rather than waiting for the job to be almost finished before we see warning signs. Following on from the example above, if we went $200 over budget on all six GST tasks, we would be showing a projected write-off of $1,200 on the job. This allows us to identify this job as a risk early on. If we were just looking at the remaining budget, however, we’d still be showing $2,000 of the budget remaining because 6 x $500 = $3,000 in billable time. This leaves us with $2,000 of budget remaining to complete the annual accounts task, but in reality, we need $3,200 for this task so we have a projected write-off of $1,200. If we are just looking at the remaining budget, we would have no idea this job is at risk.
Projected write-offs are one of the key metrics available in the Open Job report in Link Reporting. Remaining time and remaining budget are also in the report. The Open Job report shows a list of all open jobs in XPM, and can be grouped and subtotalled by the grouping you select. Examples of groupings are job manager, partner, client, client group, job state, job category, plus many others available. This allows you to see projected write-offs by the job manager, then expand this to see all the jobs that make up the total. You can then expand the jobs to see the tasks, costs and invoices within each job.
The easiest way to keep track of jobs to ensure they don’t go over budget is to use the Open Job report, then sort projected write-ups from low to high. This will allow you to see your highest risk jobs very quickly. This report should be run on a weekly basis at a minimum, so you can identify jobs that are at risk and have the necessary conversations with our team. You can help your team succeed by providing them the information they need at www.linkreporting.com
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