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Food for Thought- Incentivizing to Maximize Profitability

Food for Thought- Incentivizing to Maximize Profitability

In a project environment it is the project team, lead by the project director who are ultimately responsible for delivering the agreed contractual scope first time every time at least cost (budgeted cost).

Least/budgeted cost is the optimal delivery cost with no inbuilt contingencies whatsoever. It is the minimum known effort (measured in hours) required to deliver the scope.

In simple terms, a project/delivery team that manages to deliver the scope at the budgeted (least) cost, is a team that maximizes profits to the business they are working for.

Maximizing profits therefore requires each individual on the project striving towards achieving their own individual budgets making up this “least cost”.

The Business should not only focus on requiring that each project delivers at their agreed least/budgeted costs, but also encourage by incentivizing each project team member, the “grass root level” to adhere to their allocated budgets.

Objective performance measurement techniques are vital for incentivizing to maximize profitability.

Earned value management applied at both a project and individual resource/staff level will provide the tool and means to steer the project/all involved in meeting their target budgets and in maximizing the project’s profits.

A pre-defined/approved maximum bonus can be paid to a project that successfully delivers its contractual scope within its budgeted cost.

Similarly each project team member’s bonus can be related to their performance (measured in cost variance at completion of the project) and proportional to the overall work effort involved (measured in the team member’s budgeted cost as a ratio of the overall project budgeted cost)

Incentivizing to maximize profitability as described above would in my opinion not only create momentum at the senior project management level but also the vitally important “grass root level”. It will encourage more team “belonging”, innovation/entrepreneurship, efficiency/effectiveness and result oriented teams.

Can this be the way for the future?

The creation of a feeling of belonging, partnership at every level of the business and incentivizing to maximize business profitability.

What do you think?

© 2015, Majed Bushnaq

Food for Thought - Why performance measurement techniques are vital

Food for Thought – Why performance measurement techniques are vital

Objective performance measurement techniques play a crucial role in deriving project transparency and early warnings.

Without use of such techniques:

(a) Projects are more likely to drift into the unknown from a time, cost, quality perspective and

(b) Projects driven businesses are at risk of sudden demise

Objective performance measurement techniques therefore have a much more fundamental role than incentivizing to maximise profitability.

Let me explain:

On my first point (a) above, Earned value management or EVM for short (used extensively by major defence companies) have been used for many years as an objective performance measurement technique and a management tool for aligning projects towards their target time, cost and quality parameters.

But EVM is not a “magic switch” where at a “push of a button” you extract objective performance related information and with another you manage the project.

EVM is an entire strategic, holistic, encompassing and comprehensive project management approach in its own right.

EVM can be categorised by a set of 25 Attributes based on the ANSI/EIA 748 requirements and the UK Association of Project Managers (APM) Guidelines.

The aim of each Attribute is to guide/enhance the development of a viable project organization.

How you set it up and how you apply EVM on projects will determine the success or otherwise of a project(s) in terms of its time, cost and quality parameters.

On my second point (b) above, business financial reporting must be driven by the project(s) true/real time underlying performance.

Failure to correlate financial results with true status of projects performance can lead to the business demise.

© 2015, Majed Bushnaq