Doing More for Less: Mystery of the Vanishing Profits

By on August 17th, 2010

In today’s competitive environment, most of us are faced with three major factors impacting our profits: more capacity than work, aggressive pricing to get the sale, and our client asking for additional features or benefits after the project is booked.

In the typical scenario, sales works hard to bring in opportunities, and estimating cuts the price to a minimum profit margin to try to secure the work, and if you’re lucky you close the deal.

But then the fun really begins as you start to work on the project and realize there is more to it than you thought. Maybe a lot more. 

It may start very simply and innocently – changing a few words in the copy, a couple of line-break changes for better layout, and the next thing you know you’ve happily agreed to move the mail date up by three days.  Whatever the request, the result is the same – you do the extra work, (incur cost), to keep the client happy, (loyal?), and it eats into your narrow profit margins even further.  If you do not have a detailed activity-based cost system, the total impact of small, incremental changes, or even larger ones, could go unnoticed.  At the end you look at the financials and wonder where the profit has gone.

One way to change the trend is to implement a Statement of Work, (SOW), for every project – even small ones.  Make sure the statement of work reflects all aspects of the project: data, composition, print, finishing, distribution and reporting.  You will get push back that this is too much work and slows down the sales process, but in fact we have seen over and over that making the effort up front can significantly reduce delays in the contracting and production of the project, and the clarity it provides saves time, (cost), for both you and your client. 

The statement of work would be provided to or reviewed with the client to confirm that you and they are in agreement as to the scope of the work.  Ideally, the client and you sign off on the SOW when the pricing is finalized and the purchase order is provided. Track the actual work performed against the SOW and make sure the changes are documented so they can be considered in repeat or similar future work.  Communicating to the client the changes and additional work being performed can minimally be used as a way of creating good will and improving the relationship, but can also be an objective way of identifying and communicating additional costs.  You decide in advance of discussion whether these are costs you wish to pursue with your client.  Most importantly, you know that the work and costs exist. 

This may seem simple and obvious but we have found time and time again that even if there is a Statement of Work process in place, it is used inconsistently or steps are left out.  Most often, the closing review of a project is left undone, as we have moved on to focus on the next project.  So the next time you wonder where profits have gone, take a look at your SOW process.

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    One Response to “Doing More for Less: Mystery of the Vanishing Profits”

    1. Scott Baker Says:

      A detailed SOW is imperative for the successful conduct and completion of any project. Any change request should be documented, including an estimate of the costs that will be incurred and the impact on the completion timeline. The project manager should review the change requests with the decision makers so that everyone understands the ramifications of the change requests on both the budget and the timetable. Agreement and approval of the changes should be reached before proceeding with the requested changes.

      Following this sort of process ensures that all parties stay on the same page, expectations are managed, and costs are controlled. While it may seem cumbersome to employ a disciplined approach to deal with project change requests, many projects fail because of “scope creep” and unexpected cost overruns. Needless to say, a strong project manager is required to managed the project, including the change request process.