Forecasting Service Profitability

This paper describes ways to connect ledger cost behavior of a service delivery project with cost estimations derived at the time of contractual agreement. The purpose of this connection is to improve the management of the service life cycle, providing long range forecasting of the profitability of various service offerings. We emphasize cost, but our methods apply also to revenue, and consequently to profit. In a perfect financial world the connection between the cost estimate and the actual costs would be maintained in a tight feedback loop. The complex real world of multi-year and multi-country service delivery projects requires accommodation of (1) historical changes in accounting practices and (2) missing data. We describe the content of a cost case, the content of the ledger, and methods for forecasting profitability of parts of delivery projects using both the cost case and historical ledger experience of other similar projects. This paper reports a work in progress. We limit discussion of accuracy measurements to one benchmark, and we discuss potential improvements we have not yet implemented.