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When budgeting for a fixed fee project, it is important to consider that the treatment of expenses on Fixed Fee projects dictates how those expenses are also treated when budgeting for those projects:

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Non-billable expenses

It is assumed that the expense is covered by (or built into) the Fixed Fee amount, so the expenses are subtracted from the services revenue associated with billing milestones or rev rec ledger entries. Therefore, non-billable expenses will have both an expenses revenue event and an expenses cost event on Fixed Fee projects. To account for the expenses revenue, the services revenue is decremented by the amount of the non-billable expense.
  • For example, let’s assume that you have a $100K Fixed Fee project. If you had a $10K non-billable expense, the total revenue is still $100K, but it is comprised of $90K in services revenue and $10K in expenses revenue. So, even though that expense is non-billable, it counts as expenses revenue in that it is covered by the Fixed Fee amount. As such, when you create a Fixed Fee budget, non-billable expenses are treated as both revenue and cost. Your services revenue budget would need to be decremented to account for that. In the above example, your Services Revenue budget would be $90K (not $100K) and your non-billable expenses budget would be $10K - but you would see expenses revenue and cost show up in the Financial Budget Summary on the Budget tab. Your total Revenue budget would sum up to $100K.

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Billable expenses

These expenses do not impact Fixed Fee services revenue at all, because they are invoiced and treated as “additional” revenue, apart from the billing milestones on the Fixed Fee Billing Schedule. You would set them up on the budget just as you normally would and would see an additional amount of revenue reflected in the Financial Budget Summary. Once the Fixed Fee project has recognized revenue, you can track how these non-billable expenses are treated by consulting the export of the Performance by Project report. You would see the breakdown of Earned Revenue: Services Revenue, Expenses Revenue, and Other Items Revenue, as well as a breakdown of the costs: Services Cost and Expenses Cost.