|Project Management for Profit – A Failsafe guide to keeping pojects on track and on budget
Author: Joe Knight, Roger Thomas, Brad Angus
The triad of project management: Scope, Cost, & Schedule are often reflected in monthly reports. When reporting my projects to my program manager, I know exactly where my project stands in relation to one of those three.
But more importantly: Is my project profitable to the company? That is a key metric that only the financial bean counters know weeks or months after the project is complete. What would happen if I, as a project manager could tell where the project stood on a profitability level almost in real time? That would be immensely useful; not only to me, my boss, my boss’s boss; but to the project team.
The goal of this book is empowerment. The book strives to empower a project manager to know exactly where his project stands, at any given time. Everything in the book comes back to cost, and how that impacts profit.
The book is an easy read, with side stories along the way to prove points and make more difficult scenarios understandable. it begins by laying the foundation. It builds upon Stephen Covey’s 7-habits book. Utilizing Covey’s time matrix, all activities should fall in quadrant #2, Important; but not urgent. If a project manager finds him or herself in quadrant #1 (Important / urgent) then they have already failed: the activity has become urgent and as such will be expensive – thereby reducing profit. The whole goal is revolves around one key metric: what is the amount of labor required to earn a profit?
They stray from the conventional accounting methods – but in a good way.
- They redefine Cost of Goods or Services (COGS) as variable costs, such as material, contracted labor, or shipping. these are the costs that can fluctuate during the reporting cycle.
- They redefine Selling, General, and Administrative Expenses (SG&A) as fixed costs, such as the core company team. The core team will always have 40 hours a week per member.
- Profit is taken on labor hours only. The logic for this is: you have to perform work to make something, thus expelling energy and labor.
By redefining these line items, a project manager can get an accurate picture of his/her costs during the reporting cycle. But that is not all, there are additional figures required, the first set are those found in the bid:
- Bid COGS (as defined above).
- Bid hours, this is the number of man hours expected to perform the work.
- Project revenue, how much cash flow is expected from the project.
- Project Gross Profit: Project revenue – Bid COGS.
Then there are the various aspects of the reporting system to watch each week, or reporting period. My company works off a bi-monthly reporting cycle, so my “scorecard” will be bi-monthly.
In short, if you are a project manager, whether you have access to the financials or not, this is still a valuable book, and enables to you detect problems earlier, and as you well know, bad news only gets worse with age! The goal is get information as close to real-time as possible and transmit that to the project team, in a manner that is easily understood by all.
By adding profit the PM’s triangle – it provides a metric that is easy to communicate – and relatively pain free to attain.