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Project Supply Networks (PSNs)

SERIES ARTICLE

Project Business Management

By Oliver F. Lehmann

Munich, Germany

 



In the imperfection of all human things, we see the best arrangements degenerate. Therefore,     from time to time, where necessary, the enhancing hand must be applied, so that these      institutions meet their original purpose again.   

Frederick II, King of Prussia, called “The Great”

Summary

A general tendency can be observed in project management that more work is contracted out to vendors and service providers, leading to project supply networks (PSNs), that are growing in number, size and complexity, and that are often opaque and very dynamic. The larger a PSN grows, the more project management is shoved into the background by commercial topics. Organizations on both buyer and seller side are hardly prepared for this development, and literature, instruction, and consulting are mostly blind against it. The author recommends development of a new management discipline “Project Business Manager”, who is trained to deal with the commercial aspects of project management in these networks as much as with the technical, organizational and interpersonal aspects that are the focus of pure project management.

Case Story: A Project Contractor in Crisis

Happy Mollusk IT Services, Inc. had great plans for the year 2016. The company is a regional implementation partner for business software who follows a business model to implement solutions for customers worldwide in form of customer projects, and these projects provide the income for the organization much more than the software itself, which is mostly freeware and cannot be sold with profit, but can be implemented as part of a paid customizing and consulting service.

A forecast in late 2015 showed how the organization was planning to make profit with its services: They had six projects that would provide income (margins). The sum of the margins from the projects minus the indirect general and administrative costs (G&As) to run the organization would be the raw profit (EBIT) for the organization. The plan was to have an EBIT of about 10% from the projects by the end of 2016, as is shown in Figure 1.

Figure 1: The original business forecast of Happy Mollusk’s portfolio of customer projects; amount numbers given in US-Dollars

The payments from the customer are the most typical business model of a project contractor. Over one or more customer projects, these projects must provide revenues for the organization but will also create costs. The difference between these two numbers will be the margin from each of the projects, and when the sum of the margins exceeds the G&A costs, also called indirect or overhead costs (the cost to be able to do the business), the organization can be profitable from its projects.

Over half a year later, Happy Mollusk’s management looked at the costs of the projects that have occurred so far and that were forecast for the remaining six months of the year, and found out that four of the projects were on the way to meet their forecasts, but two would exceed them. Figure 2 shows how these increased costs reduced the company’s profit from the projects:

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Editor’s note: This is the first 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 full 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 Munich 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 oliver@oliverlehmann.com.

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