Do you know how much profit your organization is generating from its projects? Project profitability is a critical metric for any business, as it reflects the success of the company’s project management activities.
However, recent project profitability and budget statistics reveal that many organizations are struggling to achieve healthy project margins. Surprisingly, some sectors perform better than others, and specific project management practices can significantly impact profitability.
In this blog post, we will explore some surprising facts to help you understand the financial implications of project management.
90 to 95% of agencies don’t think their projects are profitable
A recent report by Forecast and Cactus has revealed that most agencies (90-95%) do not consider their projects profitable. The report surveyed over 160 agency leaders, of which only 9% believed they were successfully achieving project profitability, dropping to 5% for smaller agencies.
There could be several reasons why agencies are struggling to achieve profitability. For example, they may be underpricing their services, overestimating their capacity, or facing stiff competition. They may also be experiencing cost overruns or scope creep, which can erode profitability.
One significant challenge for companies is managing employee time utilization, with larger agencies spending more time managing clients. The report found that for agencies with 100-199 employees, the most time-consuming areas of client management were status and update meetings, resource management, and timesheeting.
It’s important for agencies to carefully evaluate their business models and financials to identify areas where they can improve profitability. This may involve rethinking their pricing strategies, streamlining operations, or investing in new technologies or skills to increase efficiency and effectiveness.
IT Consulting reports higher project margins on T&M projects a few years in a row
IT Consulting has consistently reported higher project margins on Time & Material (T&M) projects than on Fixed Price projects for multiple years. In 2023, Time & Material projects in IT Consulting reached 37,4%, while Fixed Price projects sit at 36%.
In contrast, according to the 2020 SPI research, IT Consultancies achieved the highest margins on T&M projects at 38.7% compared to 36.9% for fixed price projects. T&M projects are less risky than fixed price projects since the cost is based on the actual time spent and hourly rates. Additionally, T&M projects allow for greater adaptability to changing requirements without extensive planning. Ultimately, paying for completed work can lead to reduced uncertainty and cost savings.
An average budget overrun for IT projects is 27%
According to Gallup, IT projects tend to exceed their budgets by 27% on average. This problem is particularly costly in the information technology industry and has a significant impact on national economies. Statistics indicate that project management failures in IT programs result in an annual cost of $6.2 trillion to the global economy.
91% of US CEOs believe that skill directly affects a company’s financial performance
PMI highlights that almost all CEOs tend to think that there’s a direct link between financial performance and skill.
It is well-known that skilled and knowledgeable employees are crucial for the success of any organization. These employees can bring innovative ideas, increase efficiency, and improve customer satisfaction, leading to better financial outcomes.
In a recent webinar from Runn What We’ve Learned from 1,000 Conversations with Resource Managers, Runn’s CEO Tim Copeland emphasized the importance of aligning work with passion and intrinsic motivation for staff, highlighting its potential to enhance organizational quality and profitability. He shared an example of a large company that historically prioritized staff utilization for financial success. Recognizing that their staff’s skills weren’t the most valuable, the company shifted focus to training and development, despite initial costs and challenges.
This transformation, though initially daunting, led to lower utilization targets and increased client value over six months. Ultimately, the company achieved a harmonious balance where profitability increased while reducing employee stress.
Moreover, the CEO’s perspective on the importance of skills is not limited to technical expertise but includes a wide range of competencies, such as leadership, communication, and problem-solving abilities. Therefore, investing in employee training and development can pay off in the long run by improving overall business performance.
Overall, this statistic highlights the growing recognition of the importance of human capital in the modern economy and emphasizes the need for organizations to prioritize employee skill development as a strategic priority.
20% of project professionals believe that adopting agile techniques can lower project costs
A significant proportion of project professionals recognize the potential benefits of adopting agile techniques in reducing project costs, according to Axelos.
Agile is a project management methodology that emphasizes iterative and flexible development, customer collaboration, and quick response to change. This approach can help reduce project costs by promoting efficiency, reducing rework, and enabling teams to focus on high-priority tasks.
Agile methodologies also emphasize continuous improvement, which means that teams can make necessary changes throughout the project’s lifecycle. This approach can help reduce the risk of costly mistakes or delays that may occur when using more traditional project management methods.
However, it is worth noting that the success of agile implementation depends on various factors such as team collaboration, proper training, and effective communication, among others.
More than 50% of professional services companies are curious toward taking the step to a subscription pricing model
TSIA reports that over 50% of professional services companies are considering switching to a subscription pricing model. Unlike traditional project-based services, professional services subscriptions focus on customer outcomes and are designed to be renewed. These services offer a recurring revenue model and typically have flexible consumption options. They also have terms and conditions that encourage customers to use the services before they expire. Renewing subscriptions is now a top priority for professional services delivery teams, who must focus on long-term customer success.