In fast-paced services industries, savvy CFOs are tracking numerous key metrics like net income, current ratios, working capital, cash balance, DSO, gross margins, and more. But the one metric that may matter more than any other for long-term growth for professional services firms: project profitability.
The nature of the “project” can range from a technology implementation or ad campaign to a marketing event, research study, or countless other outsourced services. But the one constant? Each project typically has a beginning, an end, and employees and contractors assigned to deliver the service. Contracts can be short-term or last for years. Billing terms can also vary widely such as time and materials or fixed fee based on milestones. Since every project is unique, it’s essential for you to clearly and quickly understand an individual project’s profitability as well as the profitability of different classes of projects. After all, once you sign that contract, you own the outcome, whether it’s profitable or not.
Project profitability isn’t the job of just one individual or department. When you’re seeking to raise your game with project profitability, you need teams that can collaborate throughout project lifecycles and across functional disciplines. Sales must bid on the right projects at the right fees. Project managers need to assign the right resources to that project. And your talented professionals have to deliver their work on time and on budget. While all of that happens, you’re charged with monitoring budgets vs. actuals to avoid overruns, ensure profitability—and analyse the data to make even better bids in the future.
Here are five important steps your firm can take to achieve, preserve, and enhance project profitability.