Some businesses earn revenue by working on projects with new or existing customers, such as deploying subway services in cities, building roads and overpasses, etc. Every such business should evaluate whether the project is profitable. However, determining project profitability is not an easy task. Quite a few project managers are surprised to find that all their hard work is devoted to unprofitable projects. Let’s see what factors need to be considered to understand whether a project is profitable or not, and how to specifically calculate the profitability of a project.
To assess whether a project is affordable (profitable), we can start with the following 6 key points:
1. Hidden business management
Remaining competitive is clearly a key factor affecting an organization’s activities.
In general, an organization’s KPIs are important for improving a company’s profitability and understanding the role of specific projects based on the companys key objectives.
2. Structured installation
Projects should be set up in a way that allows for effective management from the start and throughout the life cycle.
This means defining a set of goals for each project and reflecting them in the basic project budget.
This will be the control point for all project costs.
3. Cost Control
Only after a basic budget has been confirmed can the cost of the project and its profitability be tracked.
In all projects, actual costs should be prioritized and balanced against estimated costs in the budget.
4. Always keep track of the project scope
It is easy to forget the scope of a project due to new client needs and changes.
If the project has a fixed price, any activity that is not part of the original scope will involve additional work and costs for which the team will not be paid.
This will immediately affect the overall profitability of the project.
5. Improve transparency and communication
We know that communication and transparency are the foundation of successful projects. These can be problems for organization’s that still rely on manual or outdated methods to organize data.
Moreover, project performance is difficult to predict when there is no clarity between departments and teams.
6. Regular evaluation
It is necessary to evaluate each project against a basic budget so that delays and risks can be avoided and foreseen.
It is important to manage upcoming costs and increase costs as they occur, because this will give a clear picture of the total cost of completion.
PPM provides you with features to manage project profitability:
Ensure continuous access to real-time data
Project profitability always suffers when businesses lack real-time information. If basic data is held and managed by different departments, it will cause bottlenecks in even the simplest processes. For Project Finance, the lack of real-time data means that the impact on profitability is not fast enough, i.e. when the project delivery team is making decisions. To protect the profitability of the project, all information must remain visible to all parties and be updated in real time. PPM is a real-time trading system. All transactions (such as requests, commits, deliveries, reviews, and acceptances) and data in the system are real-time, and users can view the latest information in real-time.
Optimize resource planning, allocation and utilization
Taking full control of your projects isn’t just about having the right resources; it is about using them in the most efficient way. This could mean choosing them by location, skill or even rate of charge. Using PPM, you can view all resources and deploy them according to the criteria you choose. You can also track how much you expect to spend on each resource, keeping a close eye on expenditures and budgets at every stage of the project. With a central pool of real-time calendars, you can consolidate data to see everything from individuals to projects on one screen.
Accurate time and expense management
Utilizing PPM to capture time and expense information is the quickest and easiest way to accurately manage time and expense. Providing employees with a simple, accessible system that enables them to quickly and easily record their activities will be preferred over manual timesheets or clunky spreadsheets; results will be more accurate, as there is no need to retype.
Timely and accurate billing
Billing must be fast and accurate to protect cash flow. Traditional management-heavy processes can slow down projects, create bottlenecks and lead to billing errors that are embarrassing at best and lose valuable revenue at worst. This is especially true when billing processes rely on multiple systems and separate departments and lack software integration and cross-departmental visibility. Manually updating separate spreadsheets can also lead to errors. PPM simplifies and controls billing, and has the flexibility to make changes based on the type of billing and the level of approval required. Software that measures estimated versus actual costs and regularly compares the two can often flag serious issues before they become a problem.
Manage project scope
PPM provides requirement and change management functions, allowing you to control project scope and handle changes and impacts in real time. The best way to deal with changes is not just to suppress them. For high-priority changes, use PPM to provide change impact information, including time and cost, so people can make trade-offs. Many project-wide issues stem from (i) insufficient up-front research and (ii) the inability of the software used by the project team that cannot provide impact information in real time. The end result is that the user group feels that the project manager keeps saying no, while the project manager thinks the user group demands everything.
Make sure the right team is in place
Profitable projects always have good managers and are backed by strong systems. All in all, this winning combination allows for proper planning (and pre-planning) and ensures that the scope is set from day one and that discrepancies are caught as they arise.
However, if inexperienced team members are given professional work and there is no fault of their own, activities may need to be redone and costs written off. This certainly affects the profitability of the project. It makes sense to ensure that you always assign the person best suited for the task——it is more likely to be done on time and to the right standards.
PPM contains a talent pool that provides project managers with skills, availability, location and rate information. When a project manager plans resources in the resource planner, he can select enough resources and the planner will alert him to the skill gap (if any) of the resources he has selected.
Make it easy for your employees to track and report
PM’s data entry is intuitive, especially for non-financial users, as this encourages frequent use, even when employees are busy. PPM remembers regular inputs like timesheets, and it automatically loads information like project codes and assigned hours so employees don’t need to look up this information again before filling out timesheets. It provides user-friendly functionality on any handheld device (PC, smartphone or tablet) to support today’s mobile working. With direct cost capture, re-keying is not required, and timely data can be viewed for immediate work-in-process reporting.
The best practice for projects should be to create a single source of truth. The same applies to the project finance system and the project management/work system: you should see the same data for both. Whether you are a project manager or a finance director, the data is the same no matter which system you are working on.
Similar to an Automated Teller Machine (ATM), is a real-time transaction system that maintains a single version of real data as the ATM maintains your account balance.
Leverage automated alerts
PM’s Automated Alert can flag projects that are about to go over budget, or remind project participants that critical deadlines are approaching, which is proven to eliminate inefficiencies.