With the ever so high accelerating pace of change, businesses across the world are seeking innovative ways of staying ahead of the competition. Companies are increasingly leaning towards a project-based/project-driven business model which allows them to become nimbler and promote the entrepreneurial culture within the organisation to drive innovation.
So, what in the world is a Project-driven business or a Project-based organisation as some may prefer to say? Let’s find out!
What Is A Project-Driven Business?
In general, any business or organisation that relies on managing and delivering projects for external clients to generate most of its revenue would be termed project-based. These companies are structured around pitching for projects, planning and executing projects, and then delivering the project to an external client.
However, modern-day project-based organisations are not just limited to revenue tracking by projects but they also use projects to track internal costs and capitalisation of their investments.
Some examples of project-driven organisations are architectural and engineering firms, construction companies, oil and gas operations, legal firms, accounting businesses, publishing houses, management and technology consultancies, government contractors, consulting firms and non-profit NGOs, to name a few.
Additionally, some project-driven organisations can work within the larger construct of a business, such as research and development centres and information technology departments that are embedded within the operations of their parent company.
Modern-day project-based organisations are not just limited to revenue tracking by projects, but they also use projects to track internal costs and capitalisation of their investments.
So, What Is So Unique About Project-Based Businesses?
Project work is in general unique and contractual. It has a start and end and cannot be classified as a routine operation for any company. It is driven by the specific needs and goals of the client, which change from client to client. Hence, project-driven companies require skilled teams that perform specific tasks and can work on several projects simultaneously. Also, often several teams will work together to successfully execute a single project.
One defining factor for project-based companies is that they have a matrixed organisation. What is that, you ask?
Well, in simple words, a matrixed organisation is one where people with specific skill sets can be put to work wherever their skills may be required. A project-based organisation respects “skill sets” and typically has very high utilization of labour.
A project-driven organisation runs a highly collaborative and intellectually oriented business; its main value proposition is the expertise and knowledge they offer to its clients. Hence, their business practices are also highly specific, including a variety of transactional, transformational and tacit activities.
Transactional activities include tasks like data entry, processing information, handling workflow management, as well as generating regular reports.
Transformational activities include functions like data analysis, information mining as well as process improvement.
Tactical activities include tasks like - decision-making, exchanging information and collaborative problem-solving as a team, and much more.
Business practices in project-driven organisations span three types of activities.
(Image Credit: https://www.pmi.org)
Hence, it is safe to say that project-based organisations have functional groups or departments, each with its own specific skill sets that they utilize in multiple projects. There are project managers that directly interact with the client and it’s their job to manage the scope, schedule and budget of their specific project to ensure the company is profitable as a whole.
Challenges Faced By Project-Based Businesses
As discussed above, a key driver for project-based organisations is their intellectual capital. This is the knowledge, experience and expertise of its staff, which is what the company leverages to execute projects for its clients.
However, a downside of this is that sometimes, the firm becomes so focused on the cultivation and dissemination of intellectual capital, that other business considerations can become neglected.
It is not uncommon for project-based firms to face challenges concerning project management discipline and ensuring that projects not only conform to technical quality standards but are also able to meet other business considerations, such as:
Budget commitments of the project.
The biggest challenge for project-based companies is to strike the right balance between scope, schedule, budget and quality to create a more holistic approach to project management. This is usually the result of placing technically focused personnel into the role of project managers, who often find that transactional elements of project management are out of their scope of work. This, in turn, impedes the company’s ability to effectively monitor, control and schedule financial performance across its project portfolio.
So, what is the best solution?
The answer lies in ensuring that project management and accounting functions come together to jointly facilitate key business processes such as - project initiation, revenue recognition, billing and collections. Unstructured collaborations between project accountants and managers caused by misaligned roles, responsibilities and tools can affect the bottom line of the company, and this is where the right technology steps in.
One such great tool is project-based ERP or Enterprise Resource Planning software, which is designed to integrate key business processes like finance, accounting, customer relationship management, management accounting, procurement, human resources, budgeting, sales order entry, materials, and manufacturing to become the single source of truth for the organisation.
We will dwell on the characteristics of an ideal ERP/business for a project-driven business (and why you should consider investing in one!) in one of our upcoming posts.
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About Projects Expert
Projects Expert is the first of its kind Oracle partner that specialises in Project Centric Enterprise Solutions. We aim to deliver sustainable, robust and business-friendly Oracle solutions for Projects driven organisations.