If you’re wondering what resource forecasting is and how it can help your IT company grow, this article is for you.
This guide includes the answers to all the questions I keep getting from product portfolio managers, COOs, and other people in charge of running IT companies.
Why is project management forecasting important?
Resource forecasting brings you several benefits that are hard to:
It ensures that you have the right people for every task in the project
This approach helps you align project tasks with your workforce: full-time employees, part-time employees, and freelance contractors.
That’s how you match the project workload with employee availability and skillsets to make sure that all the tasks are properly covered.
It provides insights into potential resource gaps
Another key benefit of forecasting is that it gives you an opportunity to identify the places in your project timeline where you might encounter a resource gap.
You will see this problem ahead of time and avoid the risk of project delays that may affect the entire resource allocation schedule of a company like yours.
It helps to keep projects within budget
To estimate how much the project will cost over time, you need to evaluate all of its components - from the hourly rates of people involved in it to your organizational overhead costs.
Fortunately, smart forecasting solutions help here. They calculate it all to show you how much revenue this project is going to bring your company in the future. That can be a month from now, six months from now, or even years!
You can also see how the project will impact your future cash flow so you can plan with more confidence.
It gives you accurate information you can pass to the leadership
If you’re looking to get your project approved faster, you need to bump up the level of transparency with all the stakeholders.
If you show them the exact cost and revenue analysis together with a timeline of how long the project will take and how many people it will involve, getting a green light will be easier.
A quick guide to forecasting - project management essentials
Forecasting is based on making predictions of what is going to happen in the future based on evidence like historical data combined with your assumptions.
In project management, forecasting refers to the process of analyzing the current status information and understanding what the performance will be when the project ends.
It might seem like forecasting is about making wild guesses. But trust me, it’s more accurate than that.
Proper forecasts are estimates or predictions based on the careful evaluation of all the historical data available. They’re updated as the project progresses, so you get maximum benefits from comparing plans to reality.
How do top IT companies do project management forecasting?
They know which factors affect resource forecasting in project management
Things change fast in product management, and smart IT companies know many different factors may affect their forecasts.
Here are the most important factors you need to take into account during forecasting:
- The type and scope of your project,
- The number of FTE, relevant skills, and existing projects at hand,
- The volume of part-time workers and freelancers at your company,
- All the unplanned and planned days off (whether vacations or sick leaves).
- Level of effort (LOE),
- Project budget.
Once you pay attention to all of these elements every time you sit down to forecast a project, your estimations will be more accurate and prepare you for what lies ahead.
They have a thorough understanding of the skills needed for the project
Knowing which people should be assigned to a project that has just landed on your doorstep requires a lot of experience and know-how. But it can be data-driven as well.
If you implement a resource forecasting solution that includes all the data about your current employees and their skills, finding the right people for the job will become much easier.
When planning, you can also use this opportunity to check what their hourly rates are and how they will affect the total profit margin of your project.
Taking employee overhead costs and organizational expenses into account at this stage is smart.
By combining insights about employee skills with project financials, you’ll pick a successful mix of senior, mid-level, junior resources every single time.
They analyze past projects to learn where resources were under- or overutilized
Another important insight historical data about past projects can give you is whether any of your recent employees were over utilized or underutilized in the past.
A resource forecasting tool usually provides you with data like employee utilization rate. For example, if you discover that your DevOps engineers are constantly overutilized across projects, it’s clear that your HR department should start looking for new DevOps experts.
Underutilizing employees has a detrimental effect on their motivation, so if you spot this trend in your historical project data, you need to take action.
You can either have your sales team find projects matching the skills of underutilized employees or invest in their professional development so they gain additional skills.
They don’t scramble for last-minute hires
By forecasting projects accurately, you will know what kind of skills your company will need a month, three months. or even half a year in advance.
This will give you enough time to communicate this need to your HR department so they can start looking for a viable candidate. And trust me, the sooner you get to this, the better.
Hiring tech experts is often time-consuming. Recruiting a DevOps engineer takes even two months.
And what if you sign a project where you need DevOps expertise? You will either scramble at the last minute to hire someone or take people away from other projects, risking overtime and quality issues.
They use project management forecasting software
Smart IT service companies know that forecasting is an essential part of project planning.
Instead of relying on Excel spreadsheets where data has to be entered manually, they use resource forecasting software that brings all of the key data together. This helps them understand how the capacity of their employees translates into their revenue and profit margin.
By implementing a forecasting tool, you’ll get access to a broad spectrum of factors to consider when forecasting your revenue, costs, available capacity, and more.
Moreover, a forecasting solution can become a single source of truth for the entire company. It will serve as a powerful reference point for all your employees as your company grows.
When should I implement project management forecasting software?
You’re probably asking yourself this right now: does investing in a resource forecasting tool make sense for my company at this stage?
Adding this solution to your arsenal is better done sooner than later. But it’s also better than later than never. So, it’s never too late to get interested in forecasting.
Running a larger IT service company is more painful when you don’t have a forecasting system in place and don’t have accurate estimations of your future revenue, costs, or capacity.
This pain catches up with you when departments like HR or finance start complaining about the lack of a long-term forecast.
But even if you’re running a smaller IT company, you’re going to grow one day, and if you find yourself without any forecasting capabilities, you’ll be in trouble.
If you don’t have forecasting software yet, make sure to plan your implementation at the right moment (not when you’re in the middle of putting out fires).
Doing all of that is worth it because once you add forecasting software to your team, you’ll build a recruiting pipeline, never lack specialists when needed, and keep your profit margin in check.
If you’d like to see how a resource forecasting solution works in real life, book a demo with me. I’ll show you all of the features we created at Primetric to help people like you get better at predicting the future.