Tab-22 Profit Plan: Page 35-42. The Profit Plan establishes the billing rates and profit multipliers used in the coming year. The key indicators of financial performance and milestones used to measure and control the progress toward the profit plan goal are established for the coming year. This bottom-up budgeting process begins with the Tab-20 Operating Profit Target. The Profit Plan establishes the profit target and required revenue and level of expense necessary to support the labor budget and meet the Profit Plan target. The required profit plan revenue to support the staff included in the Tab-21 Labor Budget is calculated as follows:
- Operating Profit Target (Tab-20)
- + Indirect Expense (includes indirect labor and labor-related benefits from Tab-21)
- + Direct Labor (from Tab-21 Labor Budget)
- = Net Revenue
- + other direct and reimbursable expense (estimated as percentage of net revenue based on prior years’ experience from values entered in Tab-22 column E)
- = Required revenue to support current staff level at desired operating profit
Classify revenue by type. This facilitates revenue projection when DPE/Hourly and extra service revenue is estimated as a percentage of fixed-fee revenue. Profit Plan Direct and Reimbursable Revenue are calculated as a percentage of prior year’s net revenue using the percentage analysis in Column I.
Typical revenue types are:
- Fixed fee
- DPE, Hourly
- Extra Service (DPE, Hourly)
- Other operating income
- Reimbursable expense revenue
- Unbilled services revenue
Enter the prior year’s actual final Income Statement values in the Tab-22 reference budget column E. All Profit Plan labor and labor-related expenses are copied from the Tab-21 Labor Budget with a formula link to those values. The bottom-up Tab-20 Operating Profit target values are copied to the Profit Plan by formulas linked to Tab-20. To complete the Profit Plan, enter the other indirect expense budget values in column C using the prior year’s actual values in the budget reference column E as a guide to estimate the value. When the data entry into the Tab-22 Profit Plan is complete, the calculation of the key indicators of financial performance is updated in Tab-23 Profit Plan Analysis below.