Resource planning

What is the bottleneck of success in different project types?

Tuomas Mikkola
Tuomas Mikkola
Project Business Consultant
Development and delivery projects in project resourcing

Roughly speaking, there are two types of projects: development and delivery projects. The development projects usually include development of something new, such as a process or a product. Whereas delivery projects include a clear specification of a project scope which must be followed and delivered to a customer. These project types are very different, even more different than people usually think. Especially when you are thinking about what are the success factors in the project world, you should ponder what is the ground-breaking success factor of the specific project organisation. You shouldn’t think of the singular project but keep eyes on what is essential from the whole project organisation’s viewpoint. 

Before going deeper, let’s define what success is. In this case, we will use the easiest measure which is money. Of course, there are other meters, e.g. employee wellness, but the meter used in this presentation and article will be money. What are the key factors in a project or project organisation when we aim to succeed from the money point of view? Excluding good leadership, which contributes naturally to success, what is the bottleneck of success in development and delivery projects? 

The bottleneck of success in development projects

Organisations who make development projects have many projects in different phases. Some are long in an execution process and some are in an evaluation phase meaning that it is not sure if they will start (project ideas or initiatives). Every project idea or initiative should get their own business case which presents the profitability forecast. It can be done in e.g. a formal way, such as through a cash flow forecast.

Profitability forecast for each project
Every project idea or initiative should get their own business case which presents the profitability forecast.

Now we can tackle the main question regarding development organisations. Development organisations should always choose the projects that have the best business case for execution. Picking the projects is like eating cherries from the top, the best ones should be chosen. However, the organisations should always view the overall project mass and see which projects can be executed. Of course, there are also some projects that are mandatory, and you can’t choose whether you start them or not. Legislative changes can cause these kinds of mandatory projects and one good example is the EU GDPR which is enforced in May 2018. You can’t choose if you want to make the development projects it requires, you just must find resources to execute the needed changes (on time).

To conclude, the bottleneck of success in development projects is the number of ongoing projects under execution. The projects with weak business case should be excluded or at least they should be left out. 

The bottleneck of success in delivery projects

The world of an organisation who does delivery projects is very different from the one who does development projects. The starting point is that no project is left undone. Lawyers say ”Pacta sunt servanda” meaning agreements have to be kept. When the contract is signed, the project will be executed. The pressure comes already alone from the business ethics and agreement fines. The business case of a delivery project is very divergent from the development project’s case. The turnover of a delivery organisation comes from three factors: number of employees, average invoicing rate and average hour price. Pretty straightforward and simple.

Here's a turnover calculation example of an engineering company of 100 people.

Employees: 100
Invoicing rate change: 75% -> 76% (1 percentage point increase)
Average hourly price: 100€/h
Cost: 120 000€/person

PROFIT: 3M€ (9% -> 20%)

The most important question for delivery project organisation is what is the easiest way to improve profitability?

You can grow turnover by recruiting new employees but costs will rise at the same pace. This means that the profitability will not change a bit. You can also raise the hourly price but it can harm the success in bid competitions. This probably won’t have a big impact on profitability either. However, raising the invoicing rate can have a remarkable impact on the figures. This gets us to the main matter of the article, the bottleneck of success in delivery projects. By optimising the invoicing rate of delivery project organisation, you can boost the profitability immensely. 

To sum up the points mentioned above in the article, we can identify that in both organisation types the main factors are resources and the resource optimisation. The bottleneck of success in development project organisations is the maximum potential of ongoing projects, whereas in delivery project organisations it’s all about raising the profitability by improving the invoicing rate.

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