Every business and function has a few levers that make a difference on the business. In terms of make the operations run better, everything else that doesn’t lead to the moving of these is a distraction. Let’s talk about this in the context of Project based work. Time is a huge lever.
There are two options:
-Time and Material
-Flat Rate
Projects are an interesting function for a business that is primarily MRR based revenue. They’re the one part where the model setup is that the more work you do the more money you make. That reality sets you up for failure from the start. Unless you can gain some efficiencies. How do you do that?
Flat rate deliverable based projects. e.g. We’ll have this result delivered to your business by this date regardless of how much time it takes. The value is the deliverable, not the hours worked.
The other option is Time and Material basis. I do not like these. There are unique circumstances where they make sense. Your margins are capped to whatever the difference is between your hourly rate and the hourly cost of your project team. The issue is that there is no incentive of efficiency for your project managers or team on these.
Is there risk with flat rate? Sure. The entire thing is a risk/reward discussion and you need to price it accordingly. You might even lose a little margin on the first project (flat rate allows you to build in a margin buffer so you can mitigate against the risk of losing money entirely). There’s no reason that a good project manager, after running 2-3 projects with the same defined scope, shouldn’t be able to increase the margin of this type of setup significantly.
More to be said on this. I’ll post more late this week. Are you a business owner or a project manager? Which finance structure do you prefer and why?
Thoughts on Data, Culture, and Organizational Development
