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do you know your per person, per-project profitability

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  • 1. DO YOU KNOW YOUR PER-PERSON, PER-PROJECT PROFITABILITY? Change is good. In the last fifty years or so, the world changed dramatically, and the economy went along with it. We have now shifted from a system of primarily physical production to a knowledge worker economy in which the individual is a company’s greatest asset. Each person has value to the organization; consequently, that value must be accounted for and maximized in order to be successful. Since our entire system has changed, it isonly natural that our methods of project accounting and strategy must changeas well. Many companies today, however, have not yet grasped just how theycan improve their processes to accommodate this new way of doing business.In a knowledge economy, most, if not all, work is done with information. Insuch an environment, managers must treat employees as volunteers, becausethat is essentially what they are. The well-being and happiness of bothemployees and customers are crucial to the business’s success, which is why itis called a “people” business.The most effective managers know that accounting for the effort, cost andprofitability of each person and/or project is the best way to succeed, anddoing so is not as hard as one might think. The process that will take you fromwhere you probably are right now—the state we affectionately term“chaos”—to a prosperous state of order is called the P5 continuumTM (Per-Person, Per-Project Profitability).The Path to ProfitabilityChaosMost businesses begin at this stage, in which you don’t have the informationyou need about projects and employees that will help you make informed
  • 2. decisions about the future of your business. In this stage, it is difficult toreplicate successes with any type of consistency and projects are oftenabandoned in crisis. Over-commitment is common as well.Transition: Most of your employees are tracking most of their timeIn this stage, you attempt to get a basic idea of how hours are spent withinyour company. Have most of your employees give an approximation of directcosts on a per-project basis in order to track project labor hours on allprojects. Make sure that this information is visible to management.Structure: Direct costs are knownDig a little deeper by having all personnel track their hourly rate and expenseson all projects. In step 2 you proved the value of the data. Here we make ourknowledge complete.System: Now you know total cost on a per-project basis as well as totalcost on a per-person-per-project basisAllocate indirect and partially indirect costs such as electricity, office supplies,or tasks that are too small to measure on a per-customer basis. Give veryrelevant and tightly defined per-project and per-person cost visibility.Order: Revenue integrationConnect all of this data with revenue by integrating your project accountingsystem with a financial or ERP system, CRM tools, or another back officesystem. This enables you to reach project tracking nirvana by obtaining per-project per-person profitability.It is not necessary to follow the process all the way through to ‘order’ in orderto realize benefits; you will begin to realize them as soon as you start, nomatter where you stop along the path. The further along you go, however, thebetter off your company will be. This method will give you the strategicinsight necessary for success. After all, if you don’t know which of yourprojects are profitable and which are not, you will always find yourself at riskof losing money and wasting employee time. As the world and economy
  • 3. continue to change and grow, it is imperative for businesses to make theappropriate adjustments to their time management and accounting methods.Reference URL: http://journyx.com/node/2123