Grace Design Studios · Module 2 of 12

The Economic Model

Project Finance, Part 1 · Companion Reference Guide

The waterfallThe metricsEffort vs. earned value The four archetypesOne week after Module 1

Module Home  ›  Quick Reference

Job aid. Keep it open while working. Calculators, the BST scorecard read, and quick drills. Watch the videos and read the Overview first.

Project Finance 1: What You Need to Know

Every hour is a financial decision. Every staffing call is a margin decision. Manage net revenue, staff to the rate, and watch earned value, not the budget alone.

On a live project

✓ What to do
  • Manage net service revenue, not the headline fee.
  • Staff to the rate: match the cost of the person to the value of the task.
  • Treat every hour as the ~$110 hour (≈2.75× the wage).
  • Compare earned value to effort weekly. Catch the Margin Gap early.
⚠ What to watch for
  • A green budget hiding a leaking margin.
  • Effort running ahead of earned value. Margin is leaving.
  • Over-qualified people on routine tasks.
  • Optimistic percent-complete: ‘40% done’ that is not.
✕ What to avoid
  • Thinking in ‘$40 hours’. There are none.
  • Refining past what the fee funded.
  • Staffing to the wage instead of the rate.
  • Using the budget report as a margin dashboard.

Grace process anchors

Measure

Effort vs. earned valuehours × ~$110 vs. %-complete × fee

The one question

“How much value have we truly earned?”Ask it weekly, not at closeout

When effort is ahead

Name the decision that opened the gap, then close itopen question · staffing · absorbed scope

Archetype quick-tells

Competent CoordinatorWatches spend, not value → track earned value every week.
Obsessed DesignerHigh-cost staff on production → staff to the rate. Stop at the earned-value line.
People PleaserAbsorbs the change → price it and offer a choice.
Accountable OwnerEvery hour a decision → staffs to the rate, watches earned value, prices change.

The numbers (locked model)

Per net dollar~30¢ direct labor · ~50¢ overhead · 15 to 20¢ profit
Overhead factor / cost multiplier1.75 → 2.75× the wage
The hour ($40 wage example)+$70 OH = ~$110 break-even → $129 to $138 target
Oakhaven · Grace’s fee ($2.8M total)$1.4M net service revenue (the number to manage)
Grace’s $1.4M, priced right~$1.1M cost / ~$300k profit / ~20%
Margin Gap snapshot$600k earned / $700k spent → $100k Margin Gap
Utilization & Revenue FactorUtilization = direct labor $ ÷ total labor $ = 62.5% enterprise (targets vary by seat) · Revenue Factor = util × net mult ≈ 2.0 · FY26: net mult 3.23 · EBITDA 22.5%
Forecast (EAC)EAC = spent ÷ % truly complete · Profit ⑥ = fee − EAC · Oakhaven CD → −$163k if the pace holds

Building & defending the fee

Build it, do not just accept it

Fee = cost ÷ (1 − margin)Grace’s Oakhaven: $1.1M ÷ 0.80 = $1.4M. Build up to the fee. The fee is the output of the hours, not the input.
Markup ≠ margin$1.1M × 1.20 = $1.32M = only ~16.7% margin. To keep 20%, divide, do not add.
Cross-check (3.3×)Net revenue ≈ 3.23 to 3.44× raw wage labor. ~$420k wage × 3.3 ≈ $1.4M. Both methods return the same number.
“Can you do it for $1.2M?”Three ways: (1) cut scope, (2) thinner margin on purpose, (3) find real efficiency. Then hold the line and defend the build. Dropping to $1.2M on $1.1M cost = only ~8% margin. Only a number that has been built can be negotiated.
Phasing (illustrative, confirm per contract)SD ~20 · DD ~20 · CD ~35 · Bid ~5 · CA ~20. Of $1.4M: CD ≈ $490k fee / ~$400k cost. Phase to effort, not the calendar. Even splits turn the earned-value signal into noise.
Every estimate is a prediction about the future: a design that does not exist yet, a client who will change their mind, a permit that may reopen. A prediction is a risk decision, which makes pricing a leadership call, not arithmetic.
Running five little projects. Each phase carries its own scope, hours, budget, earned value, and margin. Manage five phases, not one project. Any single phase can run negative while the project total reads positive. The fee curve records how the fee was planned to be earned.

Phase cost estimates: carry the range, not a naked number

OPCC ≠ fee: what each number means

OPCC ≠ feeThe fee is what Grace earns ($1.4M on Oakhaven). The Opinion of Probable Construction Cost is what the building costs (~$40M). Never blur them.
Bands tighten with design (illustrative, confirm Grace’s house bands)SD −10/+20% · DD −5/+15% · CD −5/+10% · Bid = market. Carry the whole band, not a naked number, and name the phase.
Two contingenciesDesign contingency (~15→10→5%, shrinks to ~0 by bid) covers what is undrawn. Owner’s construction contingency (~5%) covers change during CA. Keep separate.
Disclaim every number, in writing“Opinion of Probable Construction Cost: professional judgment at this phase, not a guarantee of bids.” Recommend an independent estimator on complex work.
Reconcile at every phase reviewOver budget? VE / redesign now, while it is cheap. Put the gap on the risk register with an owner + review date. A surprise at bid is a management failure. A gap managed since SD is competence.
An early estimate is a promise about the process, not the price. Narrow it, disclaim it, and reconcile it at every phase review.

Reading the BST scorecard

BST column → what it really is

① Budget EffortThe fee, the phase’s slice of the $1.4M (Planned Value).
② RevenueEarned value, the fee actually earned to date.
③ EffortActual cost to date, what has been spent (labor at rate + expense).
④ VarianceRevenue − Effort = the live margin. Negative = the Margin Gap.
⑤ NLMNet Labor Multiplier: revenue earned per $1 of raw labor (target 3.2 to 3.4).
⑥ ProfitProjected profit at completion: where the phase lands if today’s pace holds.
⑦ Sched / Receivable / Unbilled DaysDays ahead/behind schedule, and days cash sits unbilled or uncollected. The basis for billing & collection realization targets.
The Margin Gap is column ④ (Variance). A budget report shows only Effort ③ (spent). BST sets Revenue ② (earned value) beside it and prints the gap as Variance ④. A single phase can read red while the project total reads green.

Try the model: build the hour, then run the phase

Two calculators from the videos. Move the sliders to test the model with different inputs.

ToolBuild the hour: what an hour really costs

The script’s “$110 hour” is the model, not a Grace number. Move the wage and overhead and watch the burdened cost and billing rate move with it.

Overhead / hr
$70
Break-even hour
$110
Cost multiplier
2.75×
Target billing rate
$138

ToolRun the phase: find the Margin Gap

Grace’s $1.4M Oakhaven fee from the video. Set how far along the work truly is and how much has been spent, then watch effort run ahead of earned value.

Earned value (% complete × fee)$600k
Effort spent$700k
Margin Gap
$100k
Projected end margin
−17%
Effort is ahead of earned value. Margin is leaving the project.

Projected end margin assumes the current pace holds. Caught early, at a small gap, the phase can still land on target.

Quick drills: spot it

A phase is 40% complete and 40% of the fee is spent. Percent-complete is usually optimistic. Healthy?

Not enough information. ‘40% complete’ is only real if that work is truly finished. If it is really 30% done, the phase carries a hidden Margin Gap.

Same 10-hour task, two people: one loaded at $170, one at $110, same budget line. Does the staffing choice matter?

Yes. $170 vs $110 across 10 hours is ~$600 more, straight out of the 15 to 20¢ profit slice. ‘Budget not blown’ and ‘margin protected’ are different things.

A client asks to cut a $1.4M fee (~$1.1M cost) to $1.2M. Best first move?

Name the trade. $1.2M on $1.1M cost is only ~8% margin. Three moves exist: cut scope, take a thinner margin on purpose, or find real efficiency, then hold the line and defend the build. Dropping $200k leaves roughly 8% margin, not 20%.

A $1.4M fee arrives with no buildup behind it. First move?

Rebuild it backward. Estimate the hours and cost independently and back out the margin behind the fee. A fee that cannot be reconstructed cannot be defended, cannot be used to price a change order, and gives no warning when the margin goes thin.

The fee is split evenly, 20% to each of five phases. Good idea?

No. The fee follows the work, not the calendar. CD alone is ~35%, the heaviest slice. Even splits mislabel earned value. The light phases read ahead, the heavy phases read behind, and the Margin Gap signal becomes noise.

A CD phase shows a −$100k variance at 60% earned, two reviews in a row. The client review is in three weeks. Next move?

Re-forecast. Two reviews negative is a trend, not noise. EAC = spent ÷ % truly complete. At this pace the phase lands at a significant loss. Close the open decision, restaff to the rate, or price what changed. The firm can absorb a known number mid-phase. The firm cannot absorb a surprise at closeout.