Fee forecasting for design and construction
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[edit] Introduction
Fee forecasting is crucial to running a business as it allows the future financial position to be assessed and it ensures that records are maintained of potential fees.
Fee income can be categorised as 'captive fees' or 'possible fees'.
[edit] Captive fees
Captive fees are fees which will be definitely be chargeable as they are covered by a contractual agreement. They are contractually agreed fees for current projects.
A captive fee forecast can be made and will highlight the fees which the practise plans to invoice. In addition it will give an indication of how busy the practise will be in the medium/long term, and in doing so, help assess resource allocation and provide a measure risk.
Some practices assess risk to the business on the basis that if captive fees will break-even for a period of approximately six months then the situation is satisfactory. If the captive fee forecast reveals that income will only break even for three months then it may be considered high risk and so it may be necessary to devote more time to seeking new jobs.
[edit] Possible fees
All future fees that a practice merely 'hopes' to earn, and are not ‘certain’ income, should be categorised as possible fees. This can include project bids, projects waiting for final sign-of from the client and so on.
Possible fees can be assessed by quantifying the probability that they will become captive fees. This allows for a possible fee forecast to be produced estimating likely future fee levels. This will help future planning, for example whether recruitment is necessary or how much time to devote to marketing to ensure that new work is in the pipeline.
By monitoring captive fees and possible fees a practice can obtain a good sense of short-medium term prospects for work that can be invoiced.
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