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Project Business Management

By Oliver F. Lehmann

Munich, Germany

 



Summary

Based on a recent case of a defaulted project provider in the United Kingdom, the author recommends to put a stronger focus on profitability of customer projects, a topic that is rarely discussed in project management. This profit is needed to protect the performing company and also people and other organizations that depend on its health.

Customer Projects between Need and Greed

A Major Project Vendor Goes Insolvent

On January 15, 2018, the United Kingdom’s second-largest[1] construction company Carillion PLC collapsed. The company was a global major player in building, infrastructure, and services. Carillion employed 43,000 people worldwide, including 20,000 in the UK. It was reported that “the company was hit hard by cost overruns on projects” as well as delayed payments from customers[2] that turned these projects into loss-bringers. The company was a contractor in major construction projects, including the headquarter of the British GCHQ intelligence service and the Tate Modern building. It also provided ongoing services for public hospitals, road maintenance, provision of school meals and ran even prisons. The portfolio of the company was wide, the core business however was obviously construction and therefore project management.

Figure 1: The famous donut shaped Headquarter of British GCHQ intelligence service was a Carillion project (©GCHQ 2014)

According to the information that is publicly available, the company has been knocked out by a double-whammy:

–        Loss-making projects ruining the profitability of the company

–        Late payments from customers, battering its liquidity

Carillion did not make enough profit to build the reserves that would have allowed the company to cope with late payments without running into liquidity problems. At the same time, the company suffered from shortage of liquid money in customer projects, a sticky situation that commonly leads to decisions that are not made in order to support long-term profitability and ensure a happy customer, but to survive the current day and still be able to report some process at any costs.

The problem is not limited to Carillion and its customers, most of them obviously public agencies. The company’s default also hits its estimated 30,000 subcontractors[3]. One may carefully assume that about half of them worked for Carillon in projects. This gives an impression of the jobs that are at stake on top of those inside Carillion. Many of these subcontractors are waiting for payments for orders that they have fulfilled or for which they have ordered goods and booked resources that they will need to pay for, but the default of their customer Carillion will have to make them write off the majority of the invoiced amounts. Even the complete loss of their outstanding payments is something they must consider. In addition, most of them will have resources blocked for future work at Carillon, making them unavailable to gain income from other projects and are now facing idle times or lay-offs.

Many of these subcontractors may in turn have sub-subcontractors, and so on, and the loss of income from the project business at Carillon is trickling through this network of vendors distributed over various tiers. The number of jobs at stake in Carillon’s project supply network (PSN) is probably much higher than the jobs lost inside the company, and the effect on the pensions of current and former staff will also be massive.

To read entire article, click here

 

Editor’s note: This is the 4th in a series of articles by Oliver Lehmann, author of the book “Situational Project Management: The Dynamics of Success and Failure” (ISBN 9781498722612), published by Auerbach / Taylor & Francis in 2016. See author profile below.



About the Author


Oliver F. Lehmann

Munich, Germany

 

 

 

Oliver F. Lehmann, MSc., PMP, is a project management author, consultant, speaker and teacher. He studied Linguistics, Literature and History at the University of Stuttgart and Project Management at the University of Liverpool, UK, where he holds a Master of Science Degree. Oliver has trained thousands of project managers in Europe, USA and Asia in methodological project management with a focus on certification preparation. In addition, he is a visiting lecturer at the Technical University of Munich.

He has been a member and volunteer at PMI, the Project Management Institute, since 1998, and serves currently as the President of the PMI Southern Germany Chapter. Between 2004 and 2006, he contributed to PMI’s PM Network magazine, for which he provided a monthly editorial on page 1 called “Launch”, analyzing troubled projects around the world.

Oliver believes in three driving forces for personal improvement in project management: formal learning, experience and observations. He resides in Munich, Bavaria, Germany and can be contacted at [email protected].

Oliver Lehmann is the author of the book “Situational Project Management: The Dynamics of Success and Failure” (ISBN 9781498722612), published by Auerbach / Taylor & Francis in 2016.

To view other works by Oliver Lehmann, visit his author showcase in the PM World Library at https://pmworldlibrary.net/authors/oliver-f-lehmann/

[1] (TCI, 2017a)
[2] (BBC, 2018)
[3] (Goodley, Sabbagh & Kollewe, 2018)