8 Steps to More Profitable Projects
Focus on these 8 areas to help ensure your projects stay on track and come in at or above the profit margin projected by executive management.
CIO | by Brad Egeland
Profitable projects. It’s what we strive for. It’s what our management wants. It’s what our CFO requires (gently or firmly, depending on the project). Several years ago I led a government project — actually it was more like a very large program. A five-year contract. Every month my staff and I would run through the deliverables, the actuals from the previous month, and the project schedule and reforecast the entire project’s financial picture. It was the largest project and largest source of revenue for an already large IT organization. If I turned in a forecast that increased the projected profit margin, I had to meet with the CFO to explain. If I turned in one that lowered the project profit margin, I had to meet with the CFO to explain.
See where I’m going? Profit margins are huge issues at the executive level — especially if your project is big…and by that I mean very important to the organization’s bottom line. Stay on top of these eight areas and you are likely to get those most profit out of your project for those executives who are hoping for it and expecting it from you.
1. Let your project managers act as engagement managers. By using project managers as full on engagement managers some of the early issues with inaccurate task estimations, off target customer expectations, and product pricing that doesn’t match actual expenditures during the project can possibly be avoided. Why? Because your project managers are going to be your best source for high-level views of the tasks and efforts needed to complete a project. By including their input at the beginning of the sales effort rather than after the deal is already complete, some of the issues with poorly priced deliverables or even entire projects resulting in lower than hoped for profitability can potentially be avoided.
2. Reuse successful project plans from the end of projects. Why re-invent the wheel? Use project plans that worked before as starter templates for similar projects in the future. This way, you start with a realistic picture of what the effort on tasks actually will be — resulting in more accurate pricing helping you to realize the target profit margin.
3. Teach scope management 101. Managing scope is one of the most difficult — and unwanted — tasks faced by project managers. Solid education on documenting requirements, managing change and change orders, and how best to present those change orders to your customer base on projects will help project managers keep the “extra” work to a minimum and ensure that the organization is gaining revenue from those additional customer requests.
4. Educate staff on gold plating. Project team members work closely with the customer staff on many IT projects. Several “small” tweaks along the way can add up fast and cause cost overruns on specific project tasks and deliverables, resulting in lower than expected project profit margins. This gold plating can happen unknowingly because often team members are just trying to give the customer the best possible solution, potentially overlooking requirements and scope boundaries and performing work and tasks slightly outside of the boundaries of the project.
5. Get the CEO involved. Getting the CEO involved can result in two things: more visibility for the project and improved customer satisfaction. While not necessarily directly linked to increased project profitability, the increased visibility can make it easier to get critical needs addressed quickly resulting in less lost time making decisions and finding key resources. Raising customer satisfaction can help by smoothing the way for new change orders and additional work on the project beyond the original scope.
6. Educate the project team on sales behavior. Make the project team part of the sales team. By discussing “opportunities” for increased revenue on the project your team can act almost like sales reps on the project — offering new product features or other products offered by your organization as they see potential needs. This may not make the project more profitable, but it might and it can definitely increase revenue overall.
7. Reforecast the project budget all the time. Revise the project budget actuals and forecast weekly. By staying on top of the financials every week your project is less likely to experience big cost overruns and you may be able to find ways to keep costs down — resulting in more profitability.
8. Check the resource forecast weekly. Likewise, reforecasting resources every week will help the project manager stay on top of resource hours and usage — resulting in more efficient resource usage and greater profitability over the life of the project.
It’s all about profit margin
From the executive level standpoint, it’s all about profit margin. And profit margin is as difficult to realize as is project success. Stay on top of these eight areas before and during the project and you are likely to maintain and, hopefully increase, the target profit margin for your project.