For companies that sell projects to their customers the planning of costs and revenues for individual projects forms a key part of their business. During bid stage via planning the project price is determined. The project price is often a key decision criterion for the customer, i.e. it is highly relevant for the win probability. On the other hand the project price directly impacts the project profitability. Creating bids that are competitive and profitable at the same time is of crucial importance for the success of a project business.
During project execution the cost and revenue plan forms the basis of monitoring activities. Here, it is important to early identify deviations from the plan in order to initiate corrective measures. Regular forecasting processes are necessary in order to ensure transparency in the organization about the expected business outcome.
In addition, in many projects change requests play a large role. Proper planning and subsequent monetization of the change requests is often fundamental in order to achieve the desired project profitability.
It is of high strategic importance for project companies to improve the cost and revenue planning in order to further professionalize and scale their business. Important topics are:
- Leverage previous bids to create better bids for future opportunities. Depending on the type of business this could be a fairly unstructured process where the bid managers collect the information. It can also be a highly structured process where the project experiences are leveraged to systematically improve the bid estimates, e.g. by adjusting certain parameters. Also past project experiences can form the basis of productized service offerings
- Identify process and organizational deficiencies. A proper and detailed cost and revenue planning allows to detect process and organizational deficiencies via comparing the planning data with the actuals. It is e.g. possible to analyze how effective existing risk assessment measures are. It is also possible to correlate the profitability of projects in certain areas with the win rate in these areas or to identify resources where costs are systematically overestimated or underestimated.
- Basis for business development. By simultaneously looking at the profitability of projects in certain areas and the opportunity win rates in these areas
insights are derived that form the basis of future investments in sales and delivery capabilities.
- Forecast of resource needs. Using the planning information from running projects as well as projects in the pipeline it is possible to get a complete and accurate view on future resource needs. This is for example the basis for the strategy on training, hiring and sub-contracting.
Nowadays, in many project companies the detailed cost and revenue planning of projects is often done using local point solutions which are often not integrated or only poorly integrated with the ERP backbone. In many cases even local MS Excel files are used to store bid estimates, base line plans and forecast versions. This leads to missing transparency in the organization about the true status of projects. As a consequence there are often bad surprises and it is practically impossible to make the project business more predictable and better controllable.
With SAP Commercial Project Management SAP offers now a solution that provides powerful capabilities for cost and revenue planning of projects. The functionality is designed in a way so that front-office users like project managers or project planners can easily work with it. As a frontend MS Excel is leveraged though the data is not stored locally but directly in the central and fully integrated SAP ERP system. With this not only the operative processes will be substantially improved but the now available data form the basis for better business decisions. As described above this helps to create better bid estimates in the future, to detect process and organizational deficiencies, to better plan business development, and to have improved insight into future resource needs. Companies can achieve standardization in their project business which leads to higher predictability, transparency and control. Ultimately this will improve project profitability and customer satisfaction.
Learn more about SAP Commercial Project Management under http://www.sap.com/commercial-project-management.