Project Business Management
SERIES ARTICLE
By Oliver F. Lehmann
Munich, Germany
“Managers – including project managers – prefer to base decisions on numbers.
Give them wrong numbers and they will make poor decisions.”
Summary
The article discusses the importance of balancing profitability, liquidity, and customer happiness for project contractors. Loaded costing, which allocates both direct and indirect costs to individual customer projects, can lead to poor decisions. Marginal costing, focusing on direct costs and contribution margins, provides a clearer view of the profitability of a portfolio of projects and helps in decision-making. Contractors must use accurate data and the right costing methods to ensure financial stability and long-term success.
The Three Main Objectives of Project Business for Contractors
In the world of project contracting, a contractor’s success hinges on their ability to balance three critical objectives: profitability, protection of liquidity, and customer happiness. Each of these goals plays a vital role in ensuring that projects run smoothly, the business remains financially stable, and clients are satisfied with the results. But while they are distinct, they are deeply interlinked, and managing them in harmony is what separates successful contractors from those who struggle.
Figure 1: The three major objectives for a contractor in Project Business
- Profitability:
For any project contractor, profitability is the cornerstone of success. This is the measure of how much revenue remains after all the project costs—such as labor, materials, and overhead—have been covered. A contractor must ensure that each project they take on generates a profit, or at least contributes to the company’s overall profitability.
Why it matters: Profitability ensures that the contractor’s business can grow, expand, and survive over the long term. Without profit, the company cannot reinvest in new tools, hire talent, or take on larger projects. Profitable projects also provide the business with the financial buffer it needs to weather tough economic conditions, unexpected delays, or project overruns. It’s the fuel that drives the business forward.
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Editor’s note: This series of articles is by Oliver Lehmann, author of the book “Project Business Management” (ISBN 9781138197503), published by Auerbach / Taylor & Francis in 2018. See author profile below.
How to cite this article: Lehmann, O. (2024). Profit Margins in Project Business PM World Journal, Vol. XIII, Issue X, October/November. Available online at https://pmworldlibrary.net/wp-content/uploads/2024/11/pmwj146-OctNov2024-Lehmann-Profit-Margins-in-Project-Business-1.pdf
About the Author
Oliver F. Lehmann
Munich, Germany
Oliver F. Lehmann, MSc, ACE, PMP, is a project management educator, author, consultant, and speaker. In addition, he is the owner of the website Project Business Foundation, a non-profit initiative for professionals and organizations involved in cross-corporate project business.
He studied Linguistics, Literature, and History at the University of Stuttgart and Project Management at the University of Liverpool, UK, where he holds a Master of Science Degree (with Merit). Oliver has trained thousands of project managers in Europe, the USA, and Asia in methodological project management, focusing on certification preparation. In addition, he is a visiting lecturer at the Technical University of Munich.
He has been a member and volunteer at PMI, the Project Management Institute, since 1998 and served as the President of the PMI Southern Germany Chapter from 2013 to 2018. Between 2004 and 2006, he contributed to PMI’s PM Network magazine, for which he provided a monthly editorial on page 1 called “Launch,” analyzing troubled projects around the world.
Oliver believes in three driving forces for personal improvement in project management: formal learning, experience, and observations. He resides in Munich, Bavaria, Germany, and can be contacted at oliver@oliverlehmann.com.
Oliver Lehmann is the author of the books:
- “Situational Project Management: The Dynamics of Success and Failure” (ISBN 9781498722612), published by Auerbach / Taylor & Francis in 2016
- “Project Business Management” (ISBN 9781138197503), published by Auerbach / Taylor & Francis in 2018.
His previous articles and papers for PM World Journal can be found at https://pmworldlibrary.net/authors/oliver-f-lehmann/
