Project Management for Profit: A Failsafe Guide to Keeping Projects On Track and On Budget by Joe Knight & Roger Thomas & Brad Angus

Author:Joe Knight & Roger Thomas & Brad Angus
Language: eng
Format: mobi
ISBN: 9781422144176
Publisher: Harvard Business Review Press
Published: 2012-06-04T14:00:00+00:00

FIGURE 7-5

Before we ask the project manager to enter the new COGS total on his GP/H worksheet, let’s take a quick look at the gross profit metrics for the project as they were beforehand (see figure 7-6).

FIGURE 7-6

Now he enters the new figures for COGS. As expected, overall project gross profit drops by the corresponding amount of the COGS overrun (see figure 7-7).

FIGURE 7-7

Remember that we’re assuming the project was 50 percent complete at the start of the week, so earned gross profit is half of total project gross profit. Note an important fact that the worksheet shows: the project’s earned gross profit has now decreased from $25,000 to $21,250 because of the decrease in total gross profit. The project manager has to “give back” $3,750 in gross profit that he had previously claimed as earned to make up for the impact of the budget overrun. (He doesn’t have to give back the full $7,500 in COGS overrun because the project is only 50 percent complete.)

For any project, a comparison of actual COGS to bid COGS is a key measure. If COGS is significantly over budget, there may be a change order lurking in there somewhere. Scope creep can’t hide in this system, as the effects of change orders show up immediately. Large discrepancies here can also identify issues with a project’s execution or a shortcoming on the job’s original bid. Whatever the cause, you are at least dragging the problem out into the sunshine. That lets you take corrective steps as early as possible. It also helps you learn where you can do better on future projects.

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