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To learn how to forecast margin on a fixed fee implementation project, start with expected revenue and expected final cost. Forecast margin is the expected profit as a percentage of that revenue.
For a fixed fee implementation, use four main inputs: the signed fee, approved scope changes, actual cost, and estimate to complete. The estimate to complete is the expected cost of all remaining work.
This method goes beyond simple budget monitoring but stops short of formal earned value management. It gives an IT services team a commercial forecast. It does not assume that cost spent equals work completed.
A fixed-fee margin forecast answers one question. If the project finishes on the current plan, what margin will you make?
Use these formulas:
Estimate at completion, or EAC, means the expected final project cost. The Project Management Institute defines estimate to complete as the estimated cost of the remaining activities. It defines EAC as the estimated final cost.
Keep revenue and cost separate. A $12,000 approved change can add $12,000 to forecast revenue. It can also add delivery cost. Record both effects rather than treating the full change price as profit.
This is different from the final margin after variations. A final calculation explains the completed job. A forecast gives you time to change the result.
Budget consumed compares actual cost with the original cost budget. It tells you where the project has been, not where it will finish.
Suppose your original cost budget is $135,000. Actual cost is now $82,000. Subtraction leaves $53,000, so the position can look safe.
The delivery leads then estimate that the remaining work will cost $96,000. The expected final cost is now $178,000. The original cost budget no longer shows what the completed project will cost.
Fixed pricing makes this gap a commercial issue. In US federal procurement, firm-fixed-price contracts place cost and profit risk on the contractor. Your commercial agreement can differ. Check its change terms before you add revenue to the forecast.
Use the margin and profitability guides when you review profit. Keep revenue separate from cost.
Continue to track actual costs against the fixed-price SOW. Then add a forward view. Actual cost is evidence. The estimate to complete is a decision about the work still required.
Copy the worksheet below into a spreadsheet. Use one row for the project total and supporting rows for each workstream.
This is a worked example, not a customer result.
| Worksheet line | Source | Example |
|---|---|---|
| A. Signed fixed fee | Signed SOW | $180,000 |
| B. Approved billable changes | Approved change log | $24,000 |
| C. Forecast revenue | A + B | $204,000 |
| D. Actual labour cost | Approved time entries at cost rate | $68,000 |
| E. Actual external cost | Posted expenses and supplier cost | $14,000 |
| F. Total actual cost | D + E | $82,000 |
| G. Remaining labour cost | Workstream estimate to complete | $78,000 |
| H. Remaining external cost | Open commitments and fresh quotes | $18,000 |
| I. Estimate to complete | G + H | $96,000 |
| J. Estimate at completion | F + I | $178,000 |
| K. Forecast profit | C - J | $26,000 |
| L. Forecast margin | K / C × 100 | 12.75% |
The original plan had a $180,000 fee and a $135,000 cost budget. Its planned profit was $45,000, which gave a 25% planned margin.
Two approved changes add $24,000 of revenue. Current actual cost is $82,000. The implementation team now expects $96,000 of further cost. This gives forecast revenue of $204,000 and forecast cost of $178,000.
The expected profit is $26,000. Divide that profit by $204,000 of forecast revenue. The forecast margin is 12.75% when rounded to two decimal places.
The extra revenue has not restored the planned margin. The project has more revenue, but it also has more cost. That result requires a decision.
Add a change to revenue only after the authorised client representative approves its price. Keep requested or drafted changes outside forecast revenue.
Keep the change's likely cost in the forecast. If the team has started the work, actual cost already includes part of it. Put the cost of unfinished change work in the estimate to complete.
Maintain a small change bridge beside the worksheet:
| Change | Status | Revenue in forecast | Cost in forecast |
|---|---|---|---|
| Identity provider extension | Approved | $15,000 | $11,000 |
| Extra migration rehearsal | Approved | $9,000 | $7,000 |
| New reporting connector | Awaiting approval | $0 | $0 before work starts |
The two approved changes explain the $24,000 revenue increase and $18,000 of forecast cost. In this example, the pending connector has no work or cost commitments. Pause it until the decision is clear.
Use a consistent change request process for a fixed-price implementation. Record the added scope, revenue, cost, schedule effect, and approval.
Also separate billable and non-billable changes. An internal correction can increase the estimate to complete without increasing the fee. It belongs in the forecast because the cost is still real.
Ask each workstream lead to estimate the work that remains. Do not calculate the estimate to complete as original budget minus actual cost. That only repeats the old estimate.
Start with unfinished deliverables. For each one, list the remaining roles, hours, cost rates, supplier commitments, licences, environments, travel, and other direct costs. Remove completed work. Add known rework.
Then test four implementation risks:
Do not add an arbitrary percentage for every concern. Add cost when you can name the remaining work. If you cannot estimate an item reliably, show it as a scenario.
For example, show a base case without the pending reporting connector. Then show an approved-change case after the client signs it. Do not put possible revenue in the base case to hide a weak margin.
Review cost rates too. Actual time must use the delivery cost of the person who did the work. Remaining time must use the expected delivery team. A planned senior consultant replaced by a more expensive specialist changes the estimate to complete.
The worksheet does not measure how much planned work the team has earned. It forecasts money from a fresh view of remaining work.
Formal earned value management uses planned value, earned value, and actual cost. Earned value assigns budget value to completed work. PMI states that cost performance compares earned value with actual cost. Schedule performance compares earned value with planned value.
Define work packages and completion rules before you use earned value measures. Record progress against those rules. Do not invent a completion percentage to make the formula work.
Use the worksheet when you can identify remaining deliverables and estimate their cost directly. Add earned value controls when the programme needs formal cost and schedule performance measures.
The two approaches share one useful principle: actual spend alone is not progress. A team can spend half the cost budget while most of the difficult integration work remains.
Update actual cost from approved time and expenses. Ask workstream leads only for material changes to the remaining plan. Reconcile every newly approved scope change.
Keep the prior forecast beside the new one. Explain movement through a short bridge:
Give each adverse movement an owner and an action. You can change staffing, stop unapproved work, reduce rework, seek a scope decision, or replan a deliverable. A margin figure without a decision is only reporting.
The weekly project margin review gives you a meeting structure for this control. Keep the worksheet as its forecast record.
Start with one active implementation. Enter the signed fee, approved changes, actual cost, and a workstream estimate to complete. Recalculate the margin before the next client request becomes delivery work.
Start a free Korrel trial to carry estimates into delivery and compare project costs, hours, and margin while the implementation is active.
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