The Firm Behind the Fee

The $70 of overhead on every hour is arithmetic. Utilization is that arithmetic.

Utilization is measured in dollars, not hours: direct labor ÷ total labor, the share of the firm’s payroll charged to projects under contract. At the enterprise level, Grace runs at 62.5%. Read it against two individual seats before drawing a conclusion:

The last two tiles carry the first rule: utilization is not one number with one passing grade. A junior architect runs above 90%. A principal splits between projects, pursuits, and reviews. The C-suite sits almost entirely in overhead, by design. Every seat has its own target, and every seat can be healthy at a very different number. Comparing one utilization figure to another, or to the enterprise 62.5%, carries almost no information.

The enterprise number does mark where the economic model stands: only 62.5¢ of every payroll dollar lands on project work. The other 37.5¢, covering the proposals the firm chased, the QA reviews that protect the stamp, and the mentoring that builds the next generation, plus rent, software, and insurance, all rides on the direct work. That is where the 1.75 overhead factor comes from, and why there are no forty-dollar hours.

What a PM controls about utilization

• 1Staff people on funded work. Holding someone “just in case” between tasks converts their week from billable to overhead. Treat it as a utilization decision.
• 2Keep decisions moving. A team idling around an open decision burns billable capacity without earning value. The same failure to Control Advancement that opens the Margin Gap also drags utilization.
• 3Charge time where it belongs. Work for a project not under contract needs its own project number and the correct phase. Never bury it in another project’s budget to keep a report tidy.
• 4Release people you cannot keep busy. Another PM has funded work waiting. Hoarding capacity buys convenience at the firm’s expense.

The firm’s year is every project’s scorecard, added up. Firm finance and project finance are the same arithmetic at different scale.

Module 2 set out the chain: overhead factor 1.75 → cost multiplier 2.75 → target net multiplier 3.23 to 3.44 → target margin 15 to 20%. The chain is really two levers: how much of the payroll lands on projects (utilization), and how much revenue each direct dollar earns (the multiplier). Either lever read alone gives a false reading. A team can post a strong multiplier while half its people sit between assignments. Another can be fully loaded on work priced too thin to matter. Multiply the two levers together and both distortions cancel:

Every $1.00 Grace spends on payroll, billable or not, should return about $2.00 of net revenue. Both levers sit inside it, which makes Revenue Factor the master metric for a group of people. The rule that follows: use the right metric at the right altitude.

Trace the multiplier lever on Oakhaven, at project altitude, where it becomes profitability. Grace’s $1.4M of net revenue should ride on roughly $420k of raw wage labor, an NLM of about 3.3, on plan. Now apply the Margin Gap snapshot: $700k spent to earn $600k. That $700k of loaded effort is about $255k of raw wages ($700k ÷ 2.75). $600k earned on $255k of labor is an NLM of roughly 2.35. No rate changed. No budget was exceeded. The multiplier collapsed because effort ran ahead of earned value.

The scorecard reports the current position. The forecast answers a second question: where will the phase land if nothing changes?

Two definitions carry the forecast: ETC (estimate to complete) is the cost of the work remaining. EAC (estimate at completion) is what the phase will have cost when it is done: EAC = spent to date + ETC. The Profit column ⑥ on the BST scorecard is exactly this: the fee minus the EAC, projected at today’s pace.

Two ways to get the ETC: use both

Run the pace-holds math on Oakhaven’s CD phase, the red row on the scorecard. CD carries $490k of the fee. Mid-flight it has earned $300k and spent $400k. If the pace holds: $400k ÷ ($300k/$490k) ≈ $653k at completion, a projected −$163k on a phase priced to make ~$90k. That figure sits in the Profit column while the project total still reports on target.

When to re-forecast

• 1Variance ④ runs negative two reviews in a row. One bad week is noise. Two is a trend with a cause.
• 2A phase review, a priced scope change, or a staffing change. The plan changed, so the forecast is stale by definition.
• 3Percent-complete gets re-based. QA review reveals the “80% done” set is 60% done. The honest number resets the whole projection.

The recovery levers, in order

• 1Close the open decision. Most gaps trace to a Control Advancement failure that surfaces as a financial number. Close the decision and the burn stops feeding rework.
• 2Restaff to the rate. Move the $170 person off production the $110 person can carry. The realized rate recovers immediately.
• 3Re-scope the remaining work to the remaining fee. Decide deliberately what the leftover dollars fund, before the hours decide it.
• 4Price what changed. If the gap traces to scope the client added, it belongs in a priced change, not in the margin.

Everything above assumes a fixed fee. Hourly and T&M work runs on the identical scorecard, with one input that someone has to enter.

Every project, lump sum or hourly, needs an Effort Projection, the planned value of the work, in dollars, before it starts. Variance, EAC, and percent complete all measure against it. On a fixed fee, the Effort Projection already exists: it is the fee. On hourly work, no one enters it unless a PM builds it, and Budget Effort reads zero and Variance reads meaningless. That is a missing input, not a limit of the tool.

On your throughline project, this week:

• 1Run the pace-holds EAC on your busiest phase: spent ÷ percent truly complete. Write the projected landing next to the fee.
• 2If the projected margin is under target, name the open decision behind it, and pick your first recovery lever.
• 3Check one week of your team’s time: is anyone parked between tasks, and is every hour charged to the phase where the work actually happened? That is your team’s utilization and Revenue Factor, one week at a time.
• 4Bring your EAC and your chosen lever to the live session.