How to improve efficiency and increase your profit margins

Project-based businesses have two clear-cut ways to increase their profits — they can increase their prices or improve their operational efficiencies. If they choose to raise their prices, they risk losing clients and pricing themselves out of the competitive market. This ultimately makes improving operational efficiency the smarter and more effective choice. By following these five simple steps, you’ll be able to increase your profit margins without increasing your prices.

1. Assess current performance

You can’t improve your operational efficiency until you understand your current performance. You need to analyse every aspect of your operations and identify the existing inefficiencies. During this process, you should implement a set of KPIs that will enable you to improve the way you manage your business performance now and in the future.

2. Manage capacity and resources accurately

Having previously established your baselines of performance you now need to carefully assess your current human resource capacity. Your employees are your most important, yet also your most expensive resource so it is vital that you do not have more people than absolutely necessary to fulfil your project obligations.

To ensure you manage your resources most effectively:

• Assess employee skills and productivity

• Look back at previous projects as a guide for creating new project plans and delivery milestones and relate this to your fee and scope

• Identify where resources are not being utilised by pro-actively reviewing your project reporting. That is, if you have it!

3. Improve estimation and resource allocation

Now that you fully understand your capacity and available resources, you can begin to allocate them. By checking the following instances, you will be able to resolve any resource allocation issues and have more time to create new efficiencies instead:

• Are your project leaders clear about the scope and fee?

• Is your resourcing aligned with the project scope and fee?

• Do you have an overall studio picture of resource allocation?

• Are you clear on when projects have too many resources.

Gathering information from as many projects as possible will give you greater insights into where estimates are failing and mistakes are being made. It will also highlight where project managers have allocated resources incorrectly, consequently affecting efficiency and profitability.

4. Stay on top of project management

If you don’t carefully manage your projects, it won’t be long until they spiral out of control and reduce your profit. Regardless of how capable your project managers are, there is always room to improve.

Key areas to investigate and improve include:

• Scope management and variations — project managers need to manage changes to milestones and deliverables

• Unbillable work — always avoid tasks that are outside the scope of the project, particularly those that are unbillable

• Skills — keep skills up to date to ensure managers are performing at the top of their game with the latest techniques and skills

• Client expectations — implementing your own frameworks will enable you to better manage your client expectations and the actual project process. In addition, fully resourced teams will help to ensure that your clients receive the service they expect as efficiently as possible.

5. Use technology to your advantage

Make sure you aren’t eroding your profit margins by using inefficient systems to capture project performance. The key to efficient operations is accurate and timely information. Thus, investing in systems that increase operational efficiency is an investment that will boost profits.

The ideal system will:

• Make KPI capture and reporting easier by centralising data

• Prevent errors by automating common tasks

• Be flexible enough to accommodate your operations and project management frameworks

• Allow you to allocate and manage resources better to achieve positive outcomes for customers.