De-coding Poor Margin & Profitability: The Dreaded Ops Black Hole

The root-cause to declining margins & profitability lies in the deep, dark, spreadsheet-laden abyss of your project financials & resourcing…  “The Operations black hole”. A place where hard-won project dollars shall never, ever, return from… and high-flying consulting space-ships can disappear forever.

Most professional service firms don’t even know the black hole exists. Occasionally they spot it in their rear-view mirror, months after engagements are finished, and in the distance they faintly spot all the $margin they’d expected to make, vaporized by scope-creep, over-delivery & poor pricing.

The gut-reaction is to blame the three main protagonists…

1. 1. It’s the clients fault – they always push for more, get our team on the back-foot & drag out a project. Problem is – if you’d spotted all of that earlier, you could’ve stopped it… or better still, $charged them!
   2. Or is it the delivery teams fault… I mean, where have all those budgeted hours gone? What side-of-desk extras weren’t subject to a change order? If time was tracked & utilization monitored – you’d have no surprises.
   3. So it must be sales? They over-promise, knock down the price to get the deal… that’s why there’s never any margin left… and they get all the commission & bonuses! Sorry to burst the last bubble, but if you need a standardized offering, based on proven previous project profitability (I wanted to add “productization”, but 4 P’s is enough (just ask E. Jerome. McCarthy)).

So none of them are to blame… and you can’t really point fingers at the resourcing team either, because they’re trying to construct your space-ship, designed to navigate the “operations black hole”, out of plastic, sticky tape & glue… I’m not an intergalactic engineer, but even I know you’ve got to have the right tools, in the hands of the right people, if you want a job done right.

So how do you navigate the Ops black hole?

1. 1. Get people to accurately track their billable time, at least at client AND project level. Bonus insights coming your way if they track to deliverable & non-billable time too.
   2. Use the time captured data, to start analyzing live projects against their existing budget… and tightly manage any potential scope-creep & over-delivery in real-time. This will surface some scary results. Scary good, scary bad – part of the process!
   3. As you now start to build a bank of delivered projects, start to review which of those generated the highest $gross margin. Look at your charge out & cost rates too.
   4. Analyze the same projects & client work, but with your $cash flow hat on… which enables you to best manage your WIP, speed up billing & cash collection?
   5. Build increasingly repeatable propositions & all new proposals around the best-performing projects. You’ll have solid pricing, billing & resourcing profiles by now. 
   6. When sales say they need prices dropped on future opportunities, get them to evidence from past client work, their proposal delivers the $margin you need.
   7. When delivery say they need more time or people, get them to do similar!
   8. Repeat steps 1-7, improving your process incrementally.

Successfully positioning, incentivizing & motivating people to execute on this plan, will enable you to course-correct from impending ops-black-hole doom, to a spaceship back on-track, with a crew all aligned too. Here’s to killer $margins & profitability for 2024 & beyond. Continued success! 

Interested in exploring these concepts further? I’m just a click away—let’s connect!