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For the project manager, rate variances can result in retro-active indirect rate hikes that have a direct impact on billings, which can result in a depletion of backlog without any accomplishment of work. This will not make the customer happy, and it can lead to contract overruns that have a direct negative impact on profitability, since the job must still be completed, even if there are fewer funds than anticipated.
For the organization manager, the portfolio of projects that make up the operations of the organization must be managed in such a way as to minimize variations in the ratio of indirect to direct expenditures in each of the organization’s associated cost pools. Each project in the portfolio becomes a candidate for redirecting staff that may become uncovered due to incremental funding shortfalls or unrealized new backlog from high probability new work that does not materialize. In such cases, the organization manager must find additional funding opportunities, cut costs or come up with some combination of the two to preserve a level of operations that has been committed via the AOP or Outlook process. If this cannot be done, then the forward bidding and billing rates will not properly absorb company overhead and will lead to a loss of profitability.