Project Profitability: Building a business case for project scope, schedule, and budget


    Project managers have the fundamental responsibility for preparation and management of a project’s scope, schedule, and budget. Performed effectively, the potential for project profitability is enhanced; performed poorly, a significant financial loss may occur. In particular, preparation of the project design budget requires care, with a rigorous avoidance of “rules of thumb,” guesstimates, and over reliance on past project data and experience.

    Developing scope of services

    Before a contract is signed, a well-written scope of services defining the work to be performed, the responsible parties, the design schedule, and many other items must be prepared. For circumstances where a design firm prepares the scope (as opposed to the client or a third party), the firm must develop standardized forms and systems for this activity.

    The scope of services provides a contractual listing of the service obligations of the design firm on the project. Items that are unclear or open for interpretation may create circumstances where the engineer or architect is not adequately compensated for their work (such as in the case of “scope creep”), may delay the project, could result in disputes or litigation, or lead to other unforeseen consequences. It may also be prudent to identify exclusions; that is, items not to be undertaken by the design firm. Many standard contracts already identify some of these items (such as soils testing), but others are not identified.

    Design firms use several methods to determine the scope of services on a project. Many work with detailed checklists. Some use the broad definition of services offered by the American Institute of Architects (AIA) or the Engineers Joint Contract Document Committee (EJCDC) forms. Others perform a detailed analysis of the activities required to complete the project based on the type of project, the nature of the work required to meet the client’s needs, or some other criteria.

    However a scope of services is determined, the project manager must make his or her best effort to ensure all necessary service (and expense) items are included, and a system is in place to monitor the actual work being performed. In situations where the project manager questions whether an item is beyond the contractual scope, a separate record must be kept until a determination is made if the item is billable to the client.

    Scheduling the work

    Project schedules are important and highly useful tools for designers. Preparation of schedules allows for detailed planning of work activities and provides a device for communicating critical dates and activities to clients, consultants, and to the internal project team.

    In addition, schedules provide a tool to help program the project, test alternative approaches, and evaluate job performance. Development of a project schedule is an aid — not a substitute — for project management. It is a useful method for monitoring percent complete, offers guideposts for the project team, and can show the likelihood of meeting deadlines.

    Scheduling serves many purposes. Communication of the plan to all team members is a crucial one. Scheduling plans provide day-to-day goals for measuring performance and accomplishments. The schedule provides a useful method to manage the inevitable scope change on a project.

    There are three primary components to an effective project schedule. First, it must be realistic; second, it must be carefully planned; and third, the activities planned must be obtainable and achievable based on the resources available.

    Determining the design fee

    It is vital for architectural and engineering project managers to completely prepare a project design budget. Owners/clients will require designers to justify their fee and to support the cost of a fee increase for scope of services changes. Budgeting also provides a guideline for monitoring and controlling the hours and dollars spent in completing the project work.

    In addition, the project budgeting process:

    • allows the project manager to obtain a buy-in from technical/design staff regarding scope/schedule/budget items;
    • requires the project manager to think through who will work on the project and when;
    • allows the project manager to closely examine the proposed scope of services; and
    • requires forward pricing fee estimates on long-term contracts to compensate for overhead increases, staff raises, inflation, etc.

    While the project manager leads the effort to prepare the project budget/fee, he or she typically turns to technical staff to prepare specific portions. It is the project manager who requires the technical staff to justify their own budget/fee proposals, presents it to the client, and often negotiates any necessary changes. A poorly prepared budget/fee proposal may result in a substantial financial loss to the design firm.

    Validating the business case

    Once a project manager has prepared a proposed project scope of services, schedule, and budget, the results need validation. It would be a mistake to simply assume the initial effort is accurate and not subject to review. Design firms need to establish a criteria and a review process for significant project efforts. Some firms determine that all projects over a certain fee dollar amount go through a review process, others subject all base projects to a second look.

    The review process itself can take various forms. Where a less-experienced project manager is being mentored, the mentor may undertake the review. In other cases, a principal who is not involved directly in the project may play a “devil’s advocate” to question assumptions, time frames, expenses, and decisions. Care must be taken by this senior staff member not to weaken the project manager’s authority during this process to ensure proper accountability.

    An alternative validation method could be a review of the proposed scope, schedule, and budget by other project managers. One firm requires a brief presentation by the project manager to other project managers at a breakfast or lunch meeting. This allows questioning of the proposals and sharing of information and experiences. Suggestions for changes or improvements may be made, benefiting the end result.

    Howard Birnberg is executive director of the Association for Project Managers. He may be reached at 312-664-2300 or