Tuomas Mikkola from Silverbucket hold a presentation “The tools of project organizations”. Tuomas has 20 years of experience in project business so he has gained some insightful perspective and ideas on the matter. This article is based on the content of the presentation. You can watch the presentation from here (only in Finnish).
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 that what are the success factors in project world, you should ponder that what is the ground-breaking success factor of the specific project organization? You shouldn’t think of the singular project but keep eyes on what is essential from the whole project organization’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 organization 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?
Organizations who make development projects have many projects in different phases. Some are long in the execution process and some are in 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.
Caption: 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 organizations. Development organizations should always choose the projects for execution that have the best business case. Picking the projects is like eating cherries from the top, the best ones should be chosen. However, the organizations 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 if you want to execute 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 them 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 are excluded or at least they should be left out.
The world of an organization 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 organization comes from three factors: number of employees, average invoicing rate and average hour price. Pretty straightforward and simple.
Caption: An example of an engineering company of 100 person and its simple turnover calculation.
The most important question for delivery project organization is that what is the easiest way to improve profitability?
You can grow turnover by recruiting new employees but costs will rise in the same pace. This means that the profitability will not change a bit. You can also raise the hour price but it can deteriorate the success in bid competition. This probably won’t have a big impact on profitability either. However, raising the invoicing rate can have a remarkable impact in the figures. This gets us to the main matter of the article, the bottleneck of success in delivery projects. By optimizing the invoicing rate of delivery project organization, you can boost the profitability immensely.
To sum up the points mentioned above in the article, we can identify that in both organization types the main factors are resources and optimization of them. The bottleneck of success in development project organizations is the maximum potential of ongoing projects, whereas in delivery project organizations it’s all about raising the profitability by improving the invoicing rate.