Which Company Sees Greater Profits: Project/Program Management or Engineering Consultancy?

When it comes to the profitability of managing a project or providing engineering consultancy services, there isn't a typical or one-size-fits-all answer. Each project is unique, and the factors that influence profitability can vary greatly. In this article, we'll explore the components that go into determining the profit levels for both types of services and provide insights from practical experience.

Assessing Project Profitability

The normal approach to assessing a project's profitability includes a comprehensive evaluation that takes into account both financial and non-financial benefits. This evaluation is crucial because the financial benefits can sometimes be overshadowed by less tangible gains, such as improved customer service levels, enhanced health and safety, or reduced legislative emissions—all of which can be significant drivers of business success.

Financial and Non-Financial Benefits

Some projects don't yield immediate financial returns but are essential to business operations. For instance, projects aimed at improving customer service levels, enhancing health and safety standards, or reducing legislative emissions are often undertaken as a cost of doing business, rather than for financial gain. These types of projects can, however, contribute to a company's long-term success and maintain a positive public image.

In-House Project Management

If a company manages all aspects of a project internally, they bear the full costs and benefits. The profitability of such projects can vary significantly, depending on the specifics of the project itself. For instance, a project with high operational costs might result in minimal financial gain, while a project with lower operational costs can yield substantial rewards. This approach allows the company to retain all the benefits and absorb all the costs.

Project Management as an Enabling Service

One practical example was a project where we acted as the enabling company and subcontractor for a major change for a client. In this case, we made a positive return. However, the project we enabled resulted in a significant operational cost reduction for our client. My analysis indicated that over the next ten years, the client saw a return of 20 times the overall cost of the project. Our consultancy services were not used in this instance, meaning the client did not incur any costs from an engineering consultancy.

Risk Management in Projects

Profit levels in project management and engineering consultancy are influenced by a myriad of factors, including the added value provided and the scarcity of specialized skills. For example, in my company, the contact center operations division yielded a net return of 5-10%, while the IT consulting division provided a return of 20-25%. These variations highlight the importance of skill sets and the value they bring to a project.

Another significant factor to consider is the client contract. Some contracts transfer significant risks to the subcontractor, which must be priced into the project's cost assessments. Judging the cost of the risk and the likelihood of its materialization is a critical step in project management. In one specific project, if all risks materialized, we would incur a 20% loss, but if none materialized, we would make a 35% profit. Thankfully, we were on the positive side of this risk assessment.

Conclusion

Whether it's a project/program management contract or engineering consultancy services, the key to achieving higher profitability lies in a thorough assessment of both financial and non-financial benefits, a clear understanding of the risks involved, and the strategic use of internal resources and external expertise. By carefully evaluating each project and making informed decisions, companies can maximize their returns and ensure long-term success.