Don’t Get Surprised by Margin Erosion – Part 2

The following blog is second in a four-part series of blogs highlighting the causes of margin erosion and demonstrating how modern software like Progressus can help you minimize the effects of this common challenge!

In the first blog of this series, we discussed how developing an accurate cost estimate was an important factor in avoiding margin erosion. Again, margin erosion oftentimes has the most significant impact on the bottom line of professional services firms –leading to decreased profitability. Let’s try and help you avoid that situation!

Here is the second tip to avoid margin erosion:

  1. Proactively manage the change order process

Out-of-scope requests can kill project profits. Every firm gets out-of-scope requests from clients, yet few have formal processes for dealing with them. How a firm deals with out-of-scope requests can go a long way in determining a firm’s profitability. Change orders are not always a bad thing, but minimizing them should always be a goal. 
Change orders usually originate from a few common issues, including:

Miscommunication between the members of the project team

In many ways, clear communication and precise coordination between the client and the project team is the best defense for margin erosion. Putting extra effort in getting the collective project team on the same page early in the project will be rewarded with improved profitability. At the start of every project, care should be taken to schedule regular project meetings, constantly update progress plans, and keep every member of the team updated and informed on the latest developments.

Minimize the effects of change orders on project profitability

Early decisions in the proposal process and initial planning need to be confirmed as the project gets underway. In a good business development process, a number of options and approaches are discussed with the client and not everything ends up in the final project scope. Confirming the scope with the client and the team as the project moves through its various phases assures that if change orders are needed, they can be quickly ferreted out before a lot of wasted effort is spent.

Keep scope changes to a minimum

As companies strive to retain clients and obtain new business, project managers and salespeople often accept increases in project scope without fully understanding the financial ramifications of the changes. No matter where they come from, scope changes usually impact the project in terms of both schedule and cost. Reducing and/or eliminating the number of change orders by taking the precautionary steps discussed above at the start of the project.

Learn more about how to avoid margin erosion by downloading our white paper!