Budgets are a reality of any project. Depending on the nature of your organization and the types of projects you are working on, profitability from the project may be the most important indicator of success. This is especially relevant when you are discussing delivery of some type of service to a customer with a fixed cost like certain construction projects, consulting projects or anything that doesn’t have an overrun provision built in.
As leaders in our organizations, it is important that we have a good grasp of the demands on our business, and probably the most important demand is profitability. This is true because the margins and profitability that we achieve really determine our ability to continue to fulfill the mission of our organization.
A discussion about margins and profitability is important for both for-profit endeavors and non-profits. To an extent, it even is applicable when we are dealing with projects that don’t have penalties for cost overruns, but especially when we are dealing with fixed cost projects like many of our municipal construction projects and many projects awarded by an open bidding process.
Here are a few key ways that we can deliver more effectively on our projects’ profitability.
Manage For Outcomes
One of the key challenges that projects, project managers and organizations fall into is that they become focused on filling time on the schedule and not on the outcomes that they need to achieve. If you are looking to maximize your ROI and profitability from any given project, the first step you need to do is start looking at managing towards outcomes.
There are strong reasons for leaders and organizations to orient their management towards outcomes, including increased ability to manage resources, better alignment between talent and projects, and reduced reliance on hourly billing which can become a highly volatile cost center. The last of these can really make a huge difference in your organization’s ability to maximize the project profitability.
To get started managing towards outcomes, you will need to do two important things:
1. Manage milestones. Begin thinking about your projects in terms of milestones that you need to achieve not just activities that need to be completed. Milestones can be key delivery dates or quality measures or key project phases completed, but make sure they are all tied to the outcome, rather than just end dates of task lists. Managing milestones helps everyone on the project see targets they can aim for and feel a part of the overall success of the projects.
2. Trust your team. Milestones also allow you to be more effective in managing your team, but only when you give them autonomy to use their expertise, test new ideas, follow their own best practices, and to complete the milestone in the most effective manner. For your team, this can be liberating, but for you it can be quite challenging, especially if you have consistently been involved very heavily in every aspect of your projects. But by trusting your team members, you give them the opportunity to maximize their contribution and to fully achieve the vision of outcome-based management.
Align Projects with Strategy
Profitability in organizations and projects is driven by several factors, not least of all, strategy. By understanding the project’s place in the organization’s strategy and goals, you can make resource decisions in a manner that allows you to allocate the best resources to the best projects—and not just to the project that happens to be in front of you at the time.
For too many organizations, the decision on resources comes down to which manager has the most clout or which project comes along at the time that a critical resource is available, high value or not. In taking the time to align your projects and their needs with the organization’s goals and objectives, you can make better decisions on how to use your most valuable team members and limited resources.
In aligning your projects with the larger goals of the organization, you will need to develop a more strategic mindset which includes thinking about:
- The tangible value your organization provides—and how this project serves that mission.
- Who your target customers are and whether or not the target customer is the buyer or just an end user.
- How this project will help your organization tell a compelling story to its target market, and how is this story and value different from other, similar companies.
Manage Scope Creep Aggressively
This is one of the worst causes of lowered profits in organizations—and all too often overlooked. You could say scope creep is often caused by the desire to over-deliver for a client, but it is also a huge factor in an organization’s ability to deliver consistent, necessary profitability.
As the leader of a project, the most important thing you can do is to define clear goals and objectives at the outset of the project. This is going to enable you to manage towards outcomes, and it will also allow you to have successful conversations about how this project and these goals and objectives fit into the overall strategy of your organization.
Because we live in a society that often talks about “under-promising and over-delivering,” scope creep can become almost addictive in an organization. But the simple truth is that every special request you take, every small favor you do, or every additional feature you add to a project, will cost you money.
And that money eats into your margin, lessening your ability to continue to deliver projects for your clients.
Knowing the goals and objectives at the beginning of the project gives you the ability to have more constructive conversations about scope creep, and these goals and objectives arm you with the ammunition necessary to make these conversations successful. To talk about scope creep in an effective manner that respects the request and the desires of the team and client, maybe frame your conversations like this:
When the client asks for something additional, control the conversation around the goals and objectives set forth at the beginning of the project and have a discussion built around whether or not this change is consistent with the goals and objectives, or something that is desired after the team or client sees what is happening with the project. If the latter, don’t just say no, but convey that you can happily accommodate the request, but it will increase the investment or expense required.
In the end, managing for profitability is an ongoing challenge for project managers, whether they have fixed cost projects or not. And, as a leader in an organization, profitability readily defines whether or not you and your team are going to be able to continue to deliver the value that is at the heart of their jobs.
In reviewing these ideas, you will notice that profitability shares something with so much of project management: the need to effectively communicate with the stakeholders. It is a foundational principal of successful project management, and even more important when you are talking about how to ensure you deliver your projects in a profitable manner.
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