We’ve been supporting SMEs for over 25 years now and knowing the importance of having one eye on profitability at all times, we want to give our clients some strategies around where they’re making money – and where they may not be – with the following insights around project management.
1. Use your past data as a guide to accurate direct cost estimates
For a job to be profitable when it ends, it should start with an accurate estimate that includes the cost of the various individual job components, plus the amount for your markup. However, even the best of us can fall into that old trap of underestimating our costs especially if we don’t have good visibility across the project.
Underestimating your costs across a project and committing to delivering projects at prices that are too slim, will eat away at your profit margin. Less profit could result in less overall money on projects, which means less wiggle room if something blows out and has a negative effect on your cash flow. Worst case scenario in the long term, it could send your business into insolvency.
While it is appealing to rely on your personal past experiences and assessments to come up with your cost estimates, a project management system can speed up this lengthy process. It takes away any speculation, and gives you invaluable financial and non-financial information so that you future estimates can be as accurate as possible, giving your business the appropriate margins you need to be profitable and have that ‘wiggle room’ if something goes wrong.
Comparing your estimates and finished project reports can help you find the ‘why’. Do you have the best processes in place so your team knows exactly what’s expected of them? Was a new employee or contractor working on the job and maybe they needed more training prior to starting? Are you pricing your services far too low? Did you have to go to the client more than once to get all the information you needed to start? Do we need a better brief tool.
Having historical information available and using it for future estimates can lead to better profit margins for you, and fewer issues in the longer term with your clients.
2. Try to value your team’s hourly rates to recover at a minimum your costs plus your margin per hour
By reviewing these numbers in a project management system, you can check employee and contractor performance and their ability to complete work according to the projections made at the beginning of the project. It actually does help your team for them to have clear expectations and information on how long a piece of work should take them, and you can also keep them up to date on their progress and encourage them to notify you if they think they’re going to go over the allotted time and dollar budget. This insight helps you get ahead of issues before they eat into your profit margins.
3. Keep the team updated as to what has been signed off on by the client for the project and ensure that they know they need to itemise out-of-scope works
As you’ve probably experienced, clients can sometimes request additional tasks or services that are not included in the original job scope. These could be the agreed deliverables and associated costs or rejigging the allocated resources and timelines that you have agreed upon. Even if these requests appear minor, they can add up, using a lot of your allotted time and create an inclination for similar requests from the client as the project progresses. These out-of-scope works could end up costing your business time and money and have a major impact on the profitability of the project and potentially put your relationship with the client in a difficult position.
Your team need to be kept informed and be permitted to voice their thoughts and opinions to protect you, your business and the project against these out-of-scope requests so you can address them with the client immediately. Having a core business value where every staff member and contractor feels empowered to speak up is so key to keeping the project and the client relationship on track. That means having your staff
tracking their time accurately against the project proposal, the client understanding their own responsibilities, and the business checking the project progress regularly to ensure all tasks are delivered on time, within the proposal price and within scope.
So, the tip here is to get your team together before finalising the proposal and discuss the work to be delivered and the estimated costs. Seek ideas and feedback from the team on how long they think their tasks will take and if they see any potential concerns and ensure there is a clear pathway for them to identify out-of-scope works to the project leader.
4. Manage your team time tracking
For many businesses, your workforce is the biggest cost to your projects. To maximise your profit, it’s essential that you accurately track, monitor and report on your team’s time.
When you’ve set-up, filled-in and got this timesheet data, you can look at where you might be missing out on any profit. Is someone spending time on the initial project assessment that you didn’t include in your estimate? Do any of the team need more support to complete their work more efficiently so you can keep your costs down and your profits up?
Project management tools also let you track your projects while they’re in progress to make sure that the workforce component of your billable work is staying on budget. We’re talking about the time and expenses that have been recorded against the project, but not yet billed to your client.
If you’re looking like you’re spending more than your proposal value, you can adjust for the next proposal. These changes can include increasing your proposal price; revising your workforce management strategy and streamlining your processes; and removing any barriers to increase efficiencies and get the work completed more cost-effectively.
5. Ensure you are accounting for all related projects costs
It’s always good to ensure that you are checking that your proposals and outgoing invoices include everything you do for a client within the scope of the project. Those out-of-scope costs can add up and if you don’t manage them properly, you can under quote and eradicate your profit margin before you know it and can stop the outflow.
Make sure you are costing your items in your project management system, you can choose from your pre-existing list and easily add new items that will be visible for all projects in the future. Include every relevant cost when you initially quote and then when you are sending out your progress invoices out to ensure your revenue stays on track.
Lay the groundwork early for more profitable projects for your business.
By considering your desired profit before you begin any project and setting up your proposals, your client expectations and your teams’ responsibilities with this profit in mind, you have the pathway to achieving the margins you want at projects end.