The following blog is last in a four-part series of blogs highlighting the causes of margin erosion and demonstrating how modern software like Progressus can help you minimize the effects of this common challenge!
In this final blog, we will discuss the final factor in avoiding margin erosion. In part 1, we learned that developing an accurate cost estimate provides a solid foundation for the relationship of the deal. In part 2, we learned how to limit out-of-scope requests that can often derail project plans. In part 3, we learned that keeping the people in your firm busy and on task helps the profitability of the project.
Here is the fourth and final tip in avoiding margin erosion:
4. Arm yourself with information necessary to proactively respond to cases of margin erosion
Project managers and principals need the tools to budget effectively, closely monitor actual time spent versus budget, adjust their planning based on the required changes and be armed with the information necessary to proactively respond to cases of margin erosion. In order to empower project managers, they must have the appropriate project accounting tools and metrics in their hands and build consistent practices utilizing these tools.
Key Project Performance Indicators
These metrics that should be monitored on a regular basis for all projects.
- Cash Position
- Labor Productivity
- Realized Utilization
- Forecasted Gross Margin
- Actual Gross Margin on Closed Projects
- WIP Gross Margin
- % of Margin at Risk
- Schedule Variance %
Accurate Accounting for Time and Expenses
As a project progresses, it is typical for workers to adjust the time spent on a task. A key reason for margin erosion is that the work performed strays from the budgeted time for a task. The inability to recognize this erosion, or gain visibility of the changes, presents a significant threat to a project budget. Quick and simple time management across projects and tasks is integral to effective team management.
All in all, there are several ways in which a project can succumb to margin erosion. The important thing is to apply preventative measures to help avoid margin erosion from happening. While not every factor can be controlled, you’ll be surprised how much the four measures discussed in this blog series can help your business when it comes to controlling margin erosion.