Total Cost Management: The Secret to Profitable Projects

In today's competitive business environment, companies are under pressure to improve profitability. Effective project management can help companies to select the right projects, execute them efficiently, and avoid cost overruns.

Effective Project Management Improves Return on Capital Employed (ROCE)

Effective project management has a significant impact on a company's financial performance, as measured by Return on Capital Employed (ROCE), which is a common metric in the industry. A structured Project Management Process (PMP) is necessary to facilitate the optimal use of resources (people, money, and technology) over the life of a project to maximize value. PMP consists of five phases, including identifying and assessing business opportunity, selecting from alternatives, developing a preferred alternative for full funding, executing the project, and operating and evaluating the project.

To achieve world-class performance, value-improving/best practices must be used in conjunction with a systematic PMP. Also, decision and risk analysis, project execution planning, and total cost management are critical tools in achieving project success. Lessons learned and peer reviews help to improve future project performance.

The key benefits of effective project management for improving ROCE:

  • Increased profitability: By delivering projects on time, within budget, and to the required quality standards, companies can improve their profitability.
  • Reduced costs: Effective project management can help to reduce costs by identifying and mitigating risks, optimizing the use of resources, and improving efficiency.
  • Improved efficiency: Effective project management can help to improve efficiency by streamlining processes, improving communication, and increasing collaboration.
  • Increased customer satisfaction: By delivering projects that meet or exceed customer expectations, companies can improve customer satisfaction.
  • Enhanced reputation: A reputation for delivering successful projects can attract new customers and partners, and can also help to improve the company's stock price.

Management has primary accountability for improving capital efficiency in the project management process. It establishes clear expectations and objectives for the project team and provides resources to support it. It also leads by demonstrating visible support and positive reinforcement, providing feedback, and holding team members accountable for project results.

Economic analysis, cost estimating, planning/scheduling, benchmarking, contracting/procurement, performance measurement, cost control/forecasting, progress reporting, and finance/audit are all crucial processes in the project management system.

Overall, effective project management can be a valuable tool for improving ROCE. By following a structured project management process and implementing best practices, companies can improve their chances of delivering successful projects that meet or exceed their financial goals.

By implementing a structured project management process, upper management's oversight/commitment, application of value improving/best practices and total cost management, a company can improve its bottom line with better, cheaper, faster, and safer projects than its competition, leading to higher Return on Capital Employed (ROCE) and increased shareholder value.