DPM Podcast

DPM Podcast: Managing Project Budgets and Profitability (with Tomislav Car)

By 22/07/2019 July 26th, 2019 No Comments

This podcast is brought to you by Productive, a tool for running a profitable agency.

Learn more at productive.io

Ben Aston:

Welcome to the DPM podcast where we go beyond theory to give tips and tricks that work for leading better digital projects. Thanks for tuning in. I’m Ben Aston, founder of The Digital Project Manager. So I wonder are your projects on budget and do you know if they’re on budget? Are they profitable? Do you know how profitable they are and are you sure that they’re profitable? I wonder if it would make a difference to the way that you plan and prioritize and execute your projects if you knew exactly where things were at.

Well, keep listening to this podcast, sponsored by Productive to understand how you can run a more profitable agency and keep your projects on budget. Today I’m joined by Tom Car. He’s a 30 year old entrepreneur and the interesting thing about him is that he’s never had a real job. He’s the CEO at Infinum, an independent software design and development agency, and Productive, a tool for running a profitable agency. So hi, Tom.

Tom Car:

Hi there.

Ben Aston:

So let’s start with this curious fact about never having a proper job. How is it that you’ve gone through that much life without having worked properly or at least had a proper job?

Tom Car:

Yeah, I mean, it’s a joke. That’s how I say it, that I’ve never had an actual job because when I finished high school and I was like 18 years old, I started my own business with a partner and I’ve always been working for myself. I’ve always been running businesses, so I’ve never actually kind of worked anywhere. So that’s the way I say it. I’ve never actually had a job.

Ben Aston:

Yeah. Nice. Did you start Infinum then when you were at university or how did that happen?

Tom Car:

Yeah, so I finished high school and we were kids basically doing coding and we wanted to do something more than that. We wanted to start a business. And at the same time we were starting university, but we had some good ideas, some good opportunities and we just started the company. And for the first five years, five or six years, it was just the two of us. We were running the business part time whilst also studying computer science.

So the first six years it was going well. You can imagine, you’re a kid going to university, but you’re also making some money on the side from a business. In some way, it’s the easiest money I’ve ever made. Afterwards it got a lot harder in terms of you had to hire employees, you had to grow the business, you had to do all these other things. And in the beginning it was mostly just the two of us and just working at, Matej, who was my partner, at his house in his kitchen. In the US it’s always like garage startups, kitchen startup. And after that, we started growing, hiring people, and Infinum right now is over 200 people, something like that.

Ben Aston:

Cool. So Infinum is the same company that you started while you were at university?

Tom Car:

Yes, exactly the same company.

Ben Aston:

That’s cool. And so you’ve got 200 people and that’s spread across Croatia and the US, is that right?

Tom Car:

Yeah, so mostly US is where most of our clients are. Croatia is where most of our team is, but it’s kind of gotten more and more distributed today. So it’s not just Croatia, it’s all across Europe and in the US. In general, that’s how, with everything digital today, people can work from anywhere and that’s how basically we do our job right now.

Ben Aston:

Okay. So tell me about the transition then from growing from a small two person shop to growing to 200 people. Can you tell me a bit about some of the challenges that you’re dealing with now and how they compare with the challenges that you were dealing with when you were maybe a 10 person shop or 20 person shop? How do the challenges change?

Tom Car:

Yeah, so the main difference right now is that, when you’re smaller, when you’re like five people, you’re very involved in all of the projects and everything you’re doing for your clients. So if you’re a programmer or a designer, you’re probably doing the billable stuff that you’re delivering to your clients. And as time grows and if you want your company to grow, you kind of transition into managing, either by project managing or managing the team or mostly it’s kind of in between all that, and afterwards you design your own company, right? There’s some stepping stones. So I think around 10 people you need to do some changes usually. You have to reorganize, you have to figure something else. Then maybe 30 people is another stepping stone where things happen.

And then we felt that at around 80 people we had to change, build some sort of hierarchy in the company, figure out some processes. And then that held us for a while. Even today at 200, we’re very similarly organized as we were at 80, but it varies depending on the way that you’re set up and your company’s set up. And the main changes are basically everything grows, people don’t know each other anymore very well, so you have to work on communication inside the company. You have to formalize a lot of the stuff a little bit more. But if you’re good at it, you can still bring the same culture that you started the company with you, even if you’re like 200 people.

Ben Aston:

Yeah. And so as you’re going through that, where do you find inspiration and who do you feel like you learn from as you’ve kind of evolved from managing a two person shop to a 200 person? Where’d you get your inspiration from?

Tom Car:

I think I get most of it from Twitter. So over the years, I’ve been using Twitter for a long time, and over the years I’ve kind of built a very curated list of people, companies, brands, whatever that I follow. So whenever I open up my Twitter feed, it’s never boring. It’s kind of like, “Oh, this is exactly the stuff that I want to know.” And it’s kind of like a mix of all things. Some people are from the agency world, some people are more from a product startup world. Some of it is just brands and stuff like that. So I get inspiration from different types of tech companies, I would say.

Ben Aston:

Yeah, cool. And is there anything that you’re working on this year maybe for your agency or maybe for yourself that you’re trying to get better at or you’re trying to specifically improve in your life or your company?

Tom Car:

Yeah, in my life, and it’s kind of interwoven my life and my business, I’ve gotten very big on productivity, but my personal productivity. So emails and tasks and all of this stuff, I think it’s very important to nail down right because it’s very … I don’t know about you, I get very anxious when I have over 20 emails in my inbox or something. So I think that’s one thing that I’m very passionate about.

Ben Aston:

So what’s your system?

Tom Car:

It’s a combination. So for all of the worklist stuff, so basically tasks, we do that all through Productive, so that just removes all that noise out of my inbox. Productive has its own inbox and it’s also like a zero inbox system. So basically I have all that there. And in general, just in my own inbox, it’s just kind of the four D’s system, if you know. So if you get an email, you should either delete it, delegate it, and there’s a couple of things you should do with it, do it right now, and I forgot what was the fourth D. Just kind of get it out there any way possible. Defer it, that’s the fourth one.

And I’m just very big on that. Sometimes I found that some of the emails I keep in my inbox for weeks and, “Oh, I need time to answer this.” And you don’t need that much time, you just need to make a decision. So I’m trying to get better at all this stuff. That’s my own personal goal for the next year maybe to get better and faster and delegate more stuff. I’ve delegated a bunch of things that I’ve done to people and I’m so much happier for it.

Ben Aston:

Yeah, definitely. So obviously, you’ve got your own tool, Productive, which is a complete workflow tool. But can you tell us a bit about how that came about? You’re an agency, not primarily a product shop, but how did it come about that you started deciding that none of the tools out there do what you want them to do, so let’s just build one of our own? How did that happen?

Tom Car:

It was a while back. The first version of Productive was just an internal thing that we built for ourselves. And there were time trackers out there, the first version was basically a time tracker. I don’t even remember. I think we did it just because we wanted to try it out, let’s build a quick time tracking tool, a type of project that you do on the weekend. Let’s do this, let’s use this for time tracking, and we started just using it. And after a while, we were a small company then and all the projects that we were doing, we had a feeling that they weren’t going very well. And after a while, I started doing calculations in Excel, basically taking our costs and our hours and how much our hours cost, the hours of our team and how much are we billing for this. And if it’s fixed price, then it’s harder to understand what’s going on.

And at one point I was like, “Let’s build a system around this. I want to manage this right. I want to have an overview of what’s going on on each project at any given time.” So we built that in, we put that into Productive and that was basically the first version. The first version was you log time in and it tells you are you profitable and how much. And what happens is you start every project with 100% if it’s a fixed price. So you’re 100% profitable if you haven’t logged in any hours, which is obvious because you haven’t worked any. You haven’t done any work. And it drops and it keeps dropping, dropping, dropping until it gets to zero, and then if you’ve blown your profitability, then you’re losing money if you get under zero. And then all of the pretty charts are red. You open up Productive, they’re red if you’re under zero, 0% margin.

So what happened the first time that we implemented this? We put it in there and we had a backlog of data for a couple of months and everything was red. So we were like, “So everything that we’re doing is either barely profitable or not profitable at all.” And after that, just started changing, just by the mere fact that you’re looking at this stuff and you’re looking at these charts, it keeps you on track. It’s like it makes you run this stuff better.

Ben Aston:

Cool. And so obviously Productive has evolved though from just a time-tracking and estimating and reconciliation, which is what you’re talking about, tracking time against the estimate. It’s evolved into a complete workflow tool. So how did that happen? What’s the tool got in it now?

Tom Car:

So when we started, then we started adding some features in there and we thought about which direction we want to take this. Because we’re in the agency world, we know a lot of companies there and we showed them the tool, “How do you like this?” And they’re like, “Great,” but the recurring theme was that they’re, “Oh, yeah, but I also use this for this thing and I also use this for that thing.” And everybody said the same thing, “I want to have this in one place.” The obvious reason is I don’t have to pay for five tools, but that’s not the main reason. The main reason is all your data is in these separate silos and the only way you can connect them and the only way anybody does that is Excel.

So they all export it, then run analysis, and then if you forget to do that or don’t have time, then you don’t have any analytics. And basically we were like, “Okay, but why don’t we make Productive this one place that all these companies can come into and get the profitability that we got, but also all this other stuff that they have working around in different tools?” And that’s how we got into the all in one vision of Productive, which is to help you run everything an agency needs. So that’s project management, invoicing, time-tracking that I mentioned, profitability, and CRM, so you have all your clients in there.

Ben Aston:

Cool. So what kind of agencies love the tool most? What kind of size or what kind of type of agencies have found it particularly good? Who are your best customers?

Tom Car:

So agencies in general, if you look at globally, agencies are typically between, I would say, 10 to 100 people. That’s your typical size. There are bigger ones, obviously. There are smaller ones, but this is the general range. And that’s also our range of customers. So we have some smaller ones, we have some bigger ones, but it kind of lands in between that 10 to 100. Their needs are obviously different. So the smaller agencies are more focused around the day to day stuff. I would call it micro-managing, but not in a bad way, but just managing all the minutiae, all the tasks that happen every day. While the bigger agencies, they’re more focused around reporting, they’re more focused around forecasting, which is very important, seeing into the future what’s going to happen. They’re more focused around these metrics. They want to see numbers.

I think our best customers are agencies that come to us because they want to work on their business, not just in their business. They want to improve it, they want to be better at it. They don’t just want to finish the work and that’s it. They want to grow and they want their life simpler. So they have some goals and it works great for them.

Ben Aston:

Yeah. And so tell us what’s on the roadmap for Productive. It’s a pretty complete workflow tool now. Is invoicing on that? Some of the tools have invoicing built in as well. Where’s the product going to go?

Tom Car:

Yeah, so we have invoicing in there. You can use a standalone invoicing that we offer and you can also, we have invoicing integrations. So what you can do is just use us for doing invoicing and then export that to an accounting tool of your choice. We have QuickBooks, Xero, so these actual accounting tools and then your accountant basically just takes that data and does the tax stuff.

Our biggest roadmap and what we’re focusing on in the next two quarters is around more flexibility. So one of the features that’s going in is, we call them custom fields. So basically most of the things that are in Productive, they’re the way that we imagined them, but we get a lot of requests, “Can I add this field on a budget? Can I add this type of field on a project because that’s the way that we run stuff?” And we don’t want to clutter the base experience with a bajillion features, so we want to do is make it flexible. And custom fields is already out there, it’s in beta, and based on that you can also do custom reporting. So that’s the next step and that’s what we’re working on right now.

Forecasting is a big thing for us in the next couple of months. So basically the way that we started this, you can see the past, you can see how profitable you are or how profitable you were. But what we want people to know is how profitable they will be in the future. If you plan out your project, if you plan out your people, and you can do that in Productive because we have all of that, you will know exactly how much money you’ll have when the project ends in four months. That’s a very, very big thing for everybody using it.

Ben Aston:

Yeah. And so this kind of touches on, possibly, artificial intelligence and the future of project management. I don’t know if you read the Gartner. Gartner wrote a claim or a report saying that, 80% of what project managers do will be obsolete effectively by, I don’t know what year they said, relatively soon because it can all be done by artificial intelligence. As tools become more intelligent, how do you see the role of project management evolving? I guess the second question really is, what’s your plan for integrating more artificial intelligence? Which is kind of what you’re talking about, I think, with using forecasting, using big data and as much as the data that you possibly have in your tools across anonymously different users. How do you see your product evolving and how do you see that impacting the role of the project manager?

Tom Car:

Well, I mean, the Gartner claim, I don’t buy it, to be honest. It’s their business model to, shout out these big grandiose claims that project managers are going to be replaced by computers. It’s just anybody who’s ever done project management for at least a week knows that that’s basically impossible for the next … I mean, computers need to get a lot smarter for them to be able to replace project managers. The part of project manager that it can replace and that we are actively trying to replace is all the number crunching and Excel juggling that people do. And that’s good because then project managers can do what they actually do, which is communication, which is where computers can’t replace people. AI can’t replace a good project manager that makes decisions, that talks to the client, that talks to their production team, that kind of stuff.

And that’s why the claim that Gartner says is ridiculous because you just can’t replace the human factor until computers get as smart as people. But yeah, I would say the thing that we’re working on is just eliminating all that number crunching and all that maybe even alerting. So we have budget alerts in Productive. You can set it up, remind me if this goes under this. All this kind of busy work, just to get you to actually do what you’re supposed to do, which is build something for a client or create a creative campaign or whatever you’re doing.

Ben Aston:

Yeah. Let’s talk about agency profitability because this is kind of at the heart of where Productive started. That was your own challenge. You weren’t being very profitable and you realized you needed to track things more carefully. But it’s more than just tracking it, right? So after you realized you had the data there, all of our projects are going over budget, how did you … Well, first of all, how did you actually measure that profitability? So for people who are like, “Hey, well, we just do projects and we charge the client fixed fee for them and it’s a wash at the end of the year. We make some money, we get paid, we go home, and we don’t really care.” Starting from the real basics, how do you measure profitability?

Tom Car:

Sure. So profitability, it’s like a typical way of measuring. So you have your revenue, you have your costs, and then what’s left is profit. Now the main problem is that typically you know your profitability if you’re at the end of the month or at the end of the quarter or the end of the year. So you would go to your accountant and then they would do a P&L statement and you would see how much money you’ve made. We kind of changed that in the way that I mentioned earlier, you’re burning your money. If you’re doing fixed price, you’re starting with a fixed amount of money and this is how much you have. And then what you need to do is figure out what kind of margin do you want. For agencies, a typical margin, what I’ve seen in the business, it’s around anywhere between 20 and 35%, 20 to 40% if you’re good. That’s kind of like-

Ben Aston:

I think that’s really high in my experience of agencies.

Tom Car:

Yeah. Yeah, could be. It depends on what kind. Software development agencies usually get better margins, maybe ad agencies have … It really depends on where you’re at. I’m just talking from experience, what I’ve seen. And then basically, if you land to that number, then you’re good. You burn it. So at any point in time, you know what’s going on and you can kind of direct it in any direction you feel like. So if you think, “Oh, we have enough margin here, let’s do some more work. Let’s figure out, let’s talk to the client, let’s explain the situation to them.”

The main problem with this type of work and why you have these problems on projects is because it’s very, very inaccurate and it’s not exact. But your client comes up to you and says, “Hey, how much is this going to cost?” And people fire out a number and the client’s like, “Okay, let’s do it.” But if you would invest doing detailed estimates for every client, then you just don’t have the time, most people don’t have the time to do it. So it’s a game. You’re trying to get the best score, basically.

Ben Aston:

Yeah. And so in terms of … Profitability is one metric and you’ve obviously got your costs and then you have the amount that you charge the client. Does Productive help you think through a cost per head? Because obviously the amount of salary you pay them, but then there’s the overheads, the cost of the building you’re in, healthcare, whatever else you might have to pay for, the fruit bowl. How do you help people work out the cost per head or per resource and is it all that granular or is it a bit more high level?

Tom Car:

It is like that. That’s I think one of the things that we are unique about is we have this module inside Productive. It’s called cost overheads, which is basically what you’re talking about. So everything that’s not directly related to salary, so we have salaries in there, but everything else, buildings, computers, cars, business trips, fancy dinners, whatever, all of that is basically overhead. Even non-billable people are overhead. So in my company, I’m overhead. Sales people are overhead in that sense that their time is not directly billable to clients.

What you want basically is you want to take that overhead and you want to disperse it across all the people that are actually working on billable time and kind of increase their base rate for that cost. And Productive does that automatically. That’s where I’m going with this. So you put in your facility costs, which is building and all that stuff I said before, and it also tracks internal hours. So sales is internal, HR is internal. Any kind of admin stuff, it’s internal hours. So if you track all your internal hours, it will also take that and factor that into the cost for your billable hours and that’s how we get the most precise profitability metrics.

Ben Aston:

Cool. And so obviously profitability is one important metric because if you’re not profitable, you’re going to go under, unless you’ve got some sugar daddy who keeps pouring money in. But what other metrics do you think are important for your own agency that you use to review your agency health?

Tom Car:

Yeah, there are a lot of stuff that you can get when you have all the data in one place, but I think utilization is important. So utilization is the amount of time, the percentage that you work on client stuff versus all your other stuff. And that basically tells you, if that’s too low, you’re not billing enough, you’re not going to make enough money. And the other part is if it’s too high, then you’re not investing really in your team. So they’re only crunching, they’re only doing for client stuff. They’re not researching, they’re not getting better. So your growth is going to be [crosstalk 00:24:59].

Ben Aston:

Do you have a utilization target, like a percentage target for your staff?

Tom Car:

I think a good utilization number is anywhere between like 75, 80%, something like that across the entire company. Which means some people are utilized 100% some of the time, but sometimes in some months they may be just working on something that’s internal or something like that or doing research or writing a blog post for your blog. So all of this is internal work. So I would say 75, 80. But also what’s even more important is future utilization and we call it availability. So that’s even you could have great utilization, but what’s going to happen in three months? And it’s kind of hard to get that number because you’re trying to predict the future. But that’s important because it can catch you really in a bad place.

I remember we had situations in the agency, a client maybe canceled on a project because it stopped on their end. You’re there with five people, 10 people who don’t have anything to work on and then you have to kind of scramble and see what you can do because you have to pay them. I don’t think it’s a good strategy to fire people in those situations because it’s very hard to find good people today. But if you can kind of predict that and know your availability and maybe proactively sell or hire people based on that, that’s good. And that’s one thing also that you get from us because we have this whole scheduling thing in there that helps you do that.

Ben Aston:

Cool. Let’s move on to talk about … We’ve talked about agency profitability, but in terms of budget management and project profitability, when you were in that place where you noticed that you created this system, people were putting their time in and you realized you’re going over budget on everything, therefore you weren’t being profitable, I guess I’m keen to understand, and I think the PMs listening would be as well, what were the key reasons why your projects were going over budget? Was it because they weren’t estimated properly at the beginning? Were you kind of gold plating internally from a scope perspective or was it scope creep from the client? What were the main reasons then that you were going over budget and now that you go over budget and what can we do to stop it?

Tom Car:

I think scope creep is usually one of the bigger ones because being a PM is very hard because you’re in this situation where you have this client that’s paying you and you want to make them happy, so the easiest way to make them happy to just say yes to everything. [inaudible 00:27:47] And in general, people like saying yes. They don’t like saying no. So from that perspective, it’s very hard. And I think one of the main reasons we had was just scope creep, but on the other hand, if you know how much budget you still have, then you can work around that scope creep or you can have discussions. Talk to the client, ask them, “This is our situation. This is the amount of budget we’ve spent on this.”

Clients usually understand. They know when they’re doing scope creep. Then you can at least improve that situation. And I think also learning is very important because if you can go into past projects and see situations, you start to see patterns. Oh, yeah, this is that type of client and that’s why we went overboard because … You just see patterns. And what’s great, if you have multiple PMs in there, they can go into other people’s projects and just learn from that, see how they structured estimates, see how they’ve worked out a project, so that’s also very good. But I would say scope creep is the biggest enemy.

Ben Aston:

The reality is, as you said, that for PMs, the easiest option is just to say yes when a client asks for something. What advice do you give to your PMs to help prevent that scope creep from happening?

Tom Car:

The first thing is to define a good scope at the beginning, which is hard. So my advice would be, typically what agencies do is they fire out an estimate and then the client says yes, and then they start based on very limited knowledge of everything. And I understand why you do that. You have to do it because, in the sales phase, you can’t invest too much time. But what my advice usually is, even though the client said yes, do another round of … Yeah, the client said yes, great. Then just invest more time and go over everything and do a better scope definition and ask the client again. And then if the client says yes to that, then that’s a much more detailed scope than the first one that you gave them. And that will help you weeks or months later with the budget and with everything.

Ben Aston:

Yeah, yeah, definitely. I’m definitely a big advocate of the do a ballpark estimate at the beginning to get a sense of whether or not the client can afford to do the project and then do a budget estimate in order to refine that ballpark number and be a bit more detailed. And then finally, to do that statement of work estimate, which is where you’re getting way more granular. And yeah, it’s going to cost you way more money to produce and it’s going to take more time, but then you’ll think about things that you’d never thought about at that ballpark estimate phase as you start going through the different requirements and pieces of functionality. So I think that’s really, really solid advice.

Tom Car:

Yeah, exactly. And the point is that, as time goes by, you learn more and then you just refine more. And you’re not investing all of your time upfront, you’re investing it also along with the client because they’re with you in this whole process. So it’s kind of like a two way process.

Ben Aston:

Cool. Well, Tom, thanks so much for joining us. It’s been great having you with us.

Tom Car:

No problem. Thank you.

Ben Aston:

And I wonder what you think. How are you keeping your projects on budget and how profitable are your projects looking? I wonder if you’ve tried Productive, if you have, tell us what you think and comment on the post and head to thedigitalprojectmanager.com to join our Slack team and you’ll find all kinds of interesting conversations going on there about project delivery and profitability. So come and join us. And if you enjoyed today’s podcast, please subscribe and take a couple of minutes to leave an honest review. Tell us you love us or why you hate us. It’s greatly appreciated. But until next time, thanks for listening.

Ben Aston

Ben Aston

I’m Ben Aston, a digital project manager. I've been in the industry for more than 10 years working in the UK at London’s top digital agencies including Dare, Wunderman, Lowe and DDB. I’ve delivered everything from video virals to CMS’, flash games to banner ads and eCRM to eCommerce sites. I’ve been fortunate enough to work across a wide range of great clients; automotive brands including Land Rover, Volkswagen and Honda; Utility brands including BT, British Gas and Exxon, FMCG brands such as Unilever, and consumer electronics brands including Sony.

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