Project Management

3 Management Mistakes That Could Destroy Professional Services Businesses

3 Management Mistakes That Could Destroy Professional Services Businesses
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A professional services business is only as good as the work it does for clients. Whether they’re short-term projects or retainer-based services that last for years, client projects are the heart of a professional business -- the focus of its people, the source of its revenue and where profitability lives or dies. If projects fail, a business can lose clients and revenue or even worse, kill the business.

Project management problems become increasingly deadly as a professional services business grows. While securing bigger and better projects and expanding the business feels great, growth also puts the business more at risk if not managed carefully. As professional service businesses continue to see record employment growth, now is the perfect time to focus on three common project management mistakes professional services businesses make and how to avoid them.

1. Client communication failures

One of the most common mistakes a growing professional services firm makes is failing to effectively communicate with clients. According to a recent study my company conducted, client communication is the most important factor influencing the success of a project. But this is often easier said than done.

Related: 5 Project-Planning Tips to Help You Meet Your Goals

Ninety percent of survey respondents selected email as one of their top three methods of communication during projects, but email is built for private communications between a few individuals, whereas delivering successful projects is a team endeavor. For most professionals today, relying on email means entire chains of communication are put in silos between teammates, withholding valuable information in their inboxes that’s inaccessible to both colleagues and clients.

With growing teams and bigger projects, it’s impossible to keep track of every small detail using traditional manual approaches, such as copying and pasting or multiple all-hands meetings. While new collaboration tools are trying -- unsuccessfully -- to replace email entirely, the real solution is to use project management software that integrates with email automatically, tracking conversations and treating the content of their messages as assets to share across the team.

2. Inaccurate budget tracking

Even when firms attempt to properly track time, managers are often in the dark around budgets and time spent by team members when it matters most: while the project is running. Our study found that only about 30 percent of professionals use a timesheet connected to their project management software. The vast majority, about 69 percent, track time spent on projects manually or not at all, leaving them uninformed and risking financially catastrophic project failure.

Even the best-case scenario where an employee diligently tracks their time in a separate timesheet application is still a nightmare for project managers. More than two-thirds of them manually pull reports from timesheet software and apply it to project budgets, meaning delays of a week to a month between work being done and project managers seeing the budget impact.

Often, by the time a project manager can compare estimated budget to time spent on a project, the project is over, their team has already moved to the next job and any losses have to be absorbed. This is obviously a problem on a per-project basis, but it has potential to do greater damage to the firm as a whole in the long run. When budgets and projects remain separate, it’s impossible to determine whether projects are profitable and adjust the sales approach for the next contract.

Related: The 5 Biggest Reasons Projects Fail

As firms grow and take on more clients, an inaccurate picture of the company’s employee time and resources available can be catastrophic. Since payroll is the largest expense for professional service firms, they can’t afford to lose track of any employee time -- it would amount to driving their business blind.

If firms continue to take on new clients with no clear understanding of how much time they truly have available, employees will end up overworked and projects will go well beyond deadlines and budgets. When projects go beyond scope due to untracked time, businesses essentially do extra work for free.

3. Assuming projects are too short for management

Unlike more expensive and time-consuming projects in other sectors (such as construction), projects in professional services are relatively short. Our recent study found that the most common projects at professional service firms ran between one and three months, with 60 percent of projects completed in under three months and only 20 percent running for more than six months.

One of the most common misconceptions, however, is that these shorter lived projects aren't big enough to do real damage if they fail. An average of 27 percent of service-based projects go over budget, and the average profit margin of professional firms is around 15 percent -- about the same amount of revenue as a firm earns in the most common length projects. Clearly, even though most projects for professional service firms are shorter than in other sectors, one failed project can be enough to wipe out profitability for a business for the entire year.

Professional services businesses are only profitable if they can effectively manage projects and keep clients happy. Unhappy clients lead to loss of  business and poor project organization leads to loss of profits. Without clients or profits, a professional services business cannot succeed. These matters are made even worse as businesses grow out of old processes. All growing businesses should re-evaluate their project management capabilities and consider new technology to ensure long-term success.

Related: The 'Hard-Stop' Method Can Help You Save Time and Money on Testing New Ideas