Managing Profitability

Profitability of a Project - the great service industry misnomer

Why?
Because it is too subjective to be of any use.

It is possible to calculate the profitability of a project - we can all do it, but we'll all come up with a different answer and end up arguing about it - I guarantee it.

Let's consider a simple example:

A person completes a task. They have overrun by 3 days.
Did that cost anything?

If we're charging the customer by the day then maybe not, but maybe they'll give us less work in the future, so ...maybe.

If this is a fixed price task the answer is different:

• Yes it did if we had other chargeable tasks for that person to do.
• Yes it did if that 3 days was on paid overtime.
• Yes it did if this is a contractor whose contract we had to extend to complete the task.
• No it didn't if the person had no chargeable work to move on to.

So we can see that the answer depends on the circumstances.

Who's responsible for the profit on this task?
The answer is: the person responsible for this overrun.
It could be the Project Manager who let the task overrun. That's the easy answer and the one that most organisations choose.

However:

• It could be due to the person having insufficient training.
• It could be because the right person wasn't available and we had to use an inadequately-skilled person.
• It could be that we couldn't recruit the right person.
• It could be that we shouldn't have recruited this person in the first place.
• It could be that this person had nothing more to move on to, so we let them overrun to provide a better solution.

How many more would you like?

To determine profit on a project would mean analysing every day of every overrun or non-chargeable day and agreeing (the most difficult part) on why that was the case.
It's just not worth it.

So how do we manage profitability?
Profit can only be managed at a macro level - the level that hires and fires from a company (or profit centre). This could be a Department Head, an Operations Manager, the Finance Director or the CEO. It depends on the make-up of the organisation.

Profitability can never be delegated

Based in Northampton, we tend to cover East Midlands and Northern Home Counties - Herts, Beds. & Bucks, but if you are further than this and need help, feel free to contact us and we will try to help - that may mean that we just find someone more local who can help, but we will make sure they are the right supplier and that they understand your requirements.

Our services are reasonably priced and can be success-based if scope and nature of the requirements allow.