Is Your Project Profitable?

  Estimating   Portfolio Management   Work Breakdown Structures (WBS)  

Your company just signed a $200K deal and they've elected you, its best project manager, to manage the development. You're confident you'll get the job done on time and according to specs. But by the time you deliver this project, how much profit will you realize?

If this $200K is strictly an estimate, then it doesn't really matter. As long as you charge your customer on a per diem basis, then you're guaranteed to realize a profit. If you charge your customer $1,000 per diem, and the job ends up taking 250 days instead of 200, then your profit is $250,000 minus your expenses.

However, if the $200K is a fixed price to cover the activities described in a Statement of Work (SOW), then you better hope that your estimate is accurate. Otherwise, the extra 50 days that you didn't account for will come out of your own pocket.

How can you ensure that each contract remains lucrative?

First, make sure that the items described in the SOW are well defined. Don't leave anything up for interpretation. Your SOW should be as clear as your software specs. As a matter of fact, it's preferable if your SOW is your software specs. Any scope change demanded by the customer should be an addendum to the original SOW, and you should charge extra for it.

Second, take the time to properly size each feature in the SOW. Sales people …

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