All clients are demanding. They will take whatever a service provider is willing to give them, demand anything that a service provider is willing to agree to, and assume whatever authority is ceded to them. All clients will attempt to extend the scope of work in their contract, since scope creep undoubtedly benefits the client through added products and/or services that are not paid for, at risk to the provider with no added reward or benefit, with expectations and precedent set that added benefits will continue to be given for free. Often times these are justified under a flawed facade of one-side flexibility, with unwritten promises of future work held out on the proverbial carrot at the end of the stick. While some leeway should be granted by both the customer and the provider, control limits must certainly be placed. Firm and fair treatment of customers creates respect, fosters partnership, and is good business practice.
The triple constraint of project management, pictured below, balances dollars, time and scope. Focusing on dollars for this discussion, cost is usually thought of as the price charge to the customer or the costs incurred by the provider for labor, materials and overhead.
While a good general approach, a more realistic analysis is to view dollar leg of the triangle as the profit that the firm must achieve to sustain long-term viability in the marketplace. And when margins are reduced in cut-throat competitive environments, accountability for profitability must be managed by project managers at the project level.
Projects are temporary endeavors that have a defined beginning and end, they are not perpetual business operations that are expected to surpass a break-even point after an initial investment. A $1 million project at a 20% project margin yields $200,000 in profitability. A project that loses $1 million will require the firm to perform $5 million (at the same 20% margin) to cover the loss. Once a project is operating at a loss it is difficult to recover. It is not in the interest of either partner, the customer or the provider, for the provider to operate at a loss; losses trigger consequences, including discontent, poor performance and default. Simply stated, successful projects are not win for the customer and lose for the provider, a successful project where the firm suffers loses is not a success.
The Project Management Body of Knowledge (PMBOK), slanted toward customer side project management with discussions of earned value management (EVM) and organizational structure that imply non-contracted employees, offers little guidance in measuring, sustaining, or even understanding profitability or revenue management. This not to diminish its value, only to suggest that a superset of project, program and portfolio management must include good business practice and financial discipline that assures sustainable profitability, the very reason that contract firms conduct business.
