What Is The Secret To Successful Project Control And Profitability?
All leaders in Professional Services organisations are striving to run successful, profitable businesses capable of growing and attracting the very best clients and projects.
Many Professional Service Firms (PS Firms) already believe that they have good project control in place and that they are able to deliver all of their projects profitably. But it is still common for project management teams to suffer the shock realisation that the projects they have been delivering are turning out to be unprofitable.
Does that sound familiar to you?
Or do you already have the necessary business insight needed to be able to predict your expected project result at any phase in your project lifecycle?
If you do, then you are one of the lucky ones who can foresee potential project risks and make changes in your execution before it is too late and your projects ends in disaster.
Many firms are still operating 'blind'
It might surprise you, but there are still a lot of PS Firms who are managing their business ‘blind’ because they lack the necessary insight needed to remain competitive in a modern business. For many PS firms, the only thing they have is retrospective data which is a couple of weeks old. But without having any foresight of what is ahead, it will always be too late before you are ready to make the necessary changes to turn a failing project from disaster to profit.
To increase profitability, understanding the Key Performance Indicators (KPIs) by which a Professional Services business should measure performance is key to success. Besides managing your clients and the people who execute your services, managing the projects your people deliver is the central success criteria in any Professional Service Organisation.
So how do you improve project control and profitability in a PS Firm?
Profitable projects are the cornerstone of every PS Firm. It is what will make or break your business. Project profitability represents the profit margin on your projects and is extremely important especially on fixed-price projects, where project overruns can hit your bottom-line directly. Similarly project write-offs will result in billable hours that are written off and not invoiced to the client – therefore resulting in loss for the company. Following Deltek’s annual survey of Architecture & Engineering Firms, we found that 61 % of all projects in the A&E Industry are based on fixed-prices. If this is how you are operating, then closely monitoring the margin of your fixed-price projects is crucial for your overall profitability.
A project-based ERP solution can help you to increase project profitability and decrease project write offs. How? By giving you actual real-time project control (not retrospective) and business insight allowing you to make important, fact based decisions that will positively impact your business.
My 4 tips to improve project control and profitability
The challenge for project managers is that often they need to search in different areas of the business to get a complete overview of the projects they are managing. The solution to this is to have one single workspace where project managers can monitor the different phases / processes of their project.
A project based ERP solution helps project managers with 4 key tasks:
1. Clarify your project baseline
Make sure the project is set up in a structured way – enabling you to manage the project effectively from the beginning. Ensure that the scope is set and reflected in a solid baseline budget for the project as your control point for costs.
All projects should include a baseline budget as this shows your estimate at the time of contracting. Advanced project managers might calculate with a separate working budget in addition to their baseline budget to handle the true expected costs instead of the contracted value only. Besides budget approval functionality, a project-based ERP provides revision history functionality to help you to keep track of changes that are made to the budget.
2. Keep your project cost under control
Throughout your project, you should track cost control against your baseline budget. Project control is all about controlling the actual cost against the estimated costs in the set baseline budget. You need to ensure that the right resources (with the right cost or billing rates) are available and lock them to the project. You also need to be able to have control over all project costs, e. g. working time, expenses and purchases, at an ongoing basis to ensure cost control. A major part of controlling project costs relates to hours spent, and it is a PM´s responsibility to ensure that hours spent working on the project are within the agreed budget.
You should also make sure that your client is invoiced on time so that you can positively impact your cash-flow and maximise the revenue being invoiced to the client by having complete and actual project entries.
3. Keep on top of scope tracking
It is the PM’s job to manage all change requests to prevent reduced project profitability. Everything you or your team do which was not part of the original scope (baseline budget) will lead to additional unplanned effort from your team for which you will not get paid in fixed price projects. The result of this is that you will negatively impact your project profitability. Proactive change management is important and having an up to date Estimation to Completion (ETC) will provide the foundation for change management and readily adapting to an evolved scope.
4. Be proactive with progress evaluation
You should regularly evaluate your projects progress in relation to the baseline budget to predict and prevent overruns and delays. By managing your projects upcoming costs using ETC and adding actual costs as they occur, you can get a total view of what your costs will be at project completion, which you can then compare to your baseline budget. Assessing the estimated time to completion in this way enables you to proactively adjust your project plans before it is too late. You can use a Resource Planning Solution to ensure that project managers update the resource plans on an ongoing basis, so that you can always see the latest estimate on ETC.
ERP that is purpose built for your industry will provide you with the necessary tools to easily manage and control each of your projects and your profitability. With the right business insight and KPI´s in place you will immediately see when projects start to miss profit expectations and be able to identify which changes are needed to get your project back on track.
Having better visibility over all of your projects will lead to smarter decisions being made. By using the right ERP system to manage your PS firm, you can ensure your results are always what you have expected.