What is project Profitability Trend and how it's calculated
Can't find an answer? Email us at support@harvest-dashboard.com
The profitability trend is a simplified indication of the direction in which your project's profitability is heading and how rapidly. It's not just an indication of past performance but a highly sophisticated statistical forecast. Read on to learn more!
The arrow shows the direction, and the number indicates the magnitude.
There are 3 types of Trends we are showing:
This means your project is forecasted to increase in profitability going forward.
This means your project is forecasted to decrease in profitability going forward.
This means you project has been fairly static when it comes to profitability.
The number we are showing is called Magnitude. This is not a change percentage but an indication of how rapidly the profitability is changing. A higher positive number indicates a more rapid increase of profitability historically and going forward. A lower negative number - a more rapid decrease in profitability.
Profitability trend analysis is another tool in your arsenal to continuously improve the profitability of your projects. Profitability numbers in isolation are just part of the equation, but seeing the velocity and direction of the change over time will help you focus on projects that need the most attention.
Given how the Harvest Dashboard calculates profitability trends, it allows you to quickly react to projects that are getting out of control. Let's look at the example below.
A project may have a 60% profit margin in one week, 57% in week 2, and 53% in week 3. Overall, it would be above the threshold of 50% (assuming that's what you've set in the Harvest Dashboard) and would show green for the duration of the first 2 weeks. However, with profitability trend analysis, it will highlight a strong downward trend (with a high magnitude number) as the project is likely to end up below the 50% mark by week 4.
This is where it gets interesting!
The profitability trend is a forecast of future profitability based on past project performance. The more data we have on the project (meaning the longer the Harvest Dashboard has been able to track the project), the more accurate the forecast will be.
When you've just signed up for Harvest Dashboard, you will see all projects showing "LEARNING":
This means that we don't yet have enough data to do any analysis
In the first 7 days, we are going to calculate the profitability trend using what's called linear regression.
Let's say we have the following profitability data for the project for the first 7 days:
D1: 23.45%
D2: 24.78%
D3: 23.98%
D4: 25.11%
D5: 26.01%
D6: 27.40%
D7: 27.55%
This will show you a positive magnitude of 0.7 as explained by the chart below:
As a comparison, let's say that the profitability for day 7 would be 28.15% and not 27.55%. This will change the projection in the following way:
.png)
Once we have been syncing the project for more that 7 days, we apply a more sophisticated statistical analysis model called ARIMA (AutoRegressive Integrated Moving Average). The ARIMA model predicts future values by looking at past data and identifying patterns. It adjusts for trends and past mistakes to make better forecasts.
When using ARIMA model, we predict values for the next 7 days and then apply linear regression on that forecast to show the magnitude.
Let's use the same example data set and assume we have profitability of 28.26% for day 8 (the same number our initial linear regression analysis given us). Using the ARIMA model, it will give us forecasted values for the next 7 days and a magnitude of 0.54.
.png)
The longer the project profitability is tracked with Harvest Dashboard, the more reliable the projections will be.
