What the fixed-fee project calculator does
The calculator compares an agreed project fee with actual hours, forecast remaining hours, loaded labor cost, and non-labor delivery cost. It shows the margin the project is currently expected to produce—not just whether recorded hours are below the original budget today.
Use the entered fee as an operating forecast only when it is expected to be earned under the engagement. Apply the firm’s accounting revenue-recognition policy separately.
How fixed-fee profitability is calculated
Forecast total hours equal actual hours plus forecast remaining hours. Forecast labor cost multiplies total hours by the loaded labor cost; the simplified model assumes one blended rate. Forecast project profit subtracts labor and non-labor delivery cost from the fee.
The target-margin hour capacity solves for the total delivery hours the project can consume while retaining the entered target margin. The difference between that capacity and forecast total hours shows the remaining margin buffer or expected overrun against the target.
- Forecast total hours = actual hours + forecast remaining hours
- Forecast total cost = forecast hours × loaded labor cost + non-labor cost
- Forecast profit = fixed fee − forecast total cost
- Forecast margin = forecast profit ÷ fixed fee × 100
- Effective hourly rate = fixed fee ÷ forecast total hours
- Target-margin hour capacity = (fee × (1 − target margin) − non-labor cost) ÷ loaded labor cost
Worked fixed-fee example
Assume a $60,000 fixed fee, a 320-hour budget, 250 actual hours, 100 forecast remaining hours, a $75 loaded labor cost and $5,000 of non-labor delivery cost. Forecast total effort is 350 hours—30 hours over the original budget.
Forecast total cost is $31,250, profit is $28,750, margin is approximately 47.9 percent and effective hourly rate is about $171.40. At a 40 percent target margin, the simplified project can consume approximately 413.3 hours, leaving about 63.3 hours of target-margin capacity beyond the current forecast.
Record actual time even when the budget is gone
The customer fee may be fixed, but the internal record should still capture the work performed. Moving over-budget time to overhead or stopping time entry makes the current project look better and the next estimate worse.
Separate underestimation, approved scope change, unapproved scope creep, rework and role-mix variance. Each cause needs a different management response.
Use the result before the commercial decision disappears
Refresh remaining hours at a fixed cadence and after a material scope, staffing or technical change. Route a forecast overrun to the project and account owners while there is time to revise scope, approve a change, alter staffing, or make a deliberate write-off decision.
Retain the original budget, current approved budget, actual hours, forecast, scope changes and decision. Do not erase the baseline to make the final variance disappear.
Frequently asked questions
Should I enter the full fixed fee as revenue?
Use the full fee only for a clearly labeled full-project operating forecast when the amount is expected to be earned. Period accounting and revenue recognition may require a different amount and qualified accounting judgment.
Why include forecast remaining hours?
Actual hours show what has happened. Profitability depends on the effort still required to finish. A project can look healthy today and be heading toward an overrun when difficult work remains.
Does an hours overrun always mean the project is unprofitable?
No. The project may retain an acceptable margin because the price, role mix or cost base provides capacity. Compare forecast cost and margin, then investigate the cause of the hours variance.
What if different roles have different cost rates?
Use a weighted blended rate only for a quick estimate. A management system should forecast remaining hours by role and apply the appropriate effective-dated cost rate to each group.