Have you ever experienced Margin Erosion?
Margin Erosion is a bummer… In simple terms, Margin Erosion (sometimes also referred to as Margin Creep) is when you planned for a certain profit percentage in a project, but something has now occurred in the project and it is slowly eating out of your planned profits, and soon could end up taking the project for a complete loss.
Margin Erosion is Common
Margin Erosion is quite common, in fact many project managers place contingencies on their projects to counter the planned and unplanned potential risks that could take the margins belly up.
There are several reasons as to why projects experience Margin Erosions, and a great number of them can be dealt with in the project planning phase and included in the statement of work (SoW) prior to signing the contract for the project. In my experience, I once conducted an analysis for a company that was carrying over $250 Million Dollars of Margin Erosion in their live projects.
Understand the Triggers of Margin Erosion
I once coached a principle Project Manager in Latin America who had the hypothesis that Seasoned project managers (PM) had less Margin Erosion on their projects as compared to the Junior (PM), and after he conducted a further analysis found out that the percentage of Erosion wasn’t different at all between the Project Managers. In fact, the way the project was planned and sold had the most significant impact on the Margin Erosion. The challenge however is, one must fully understand the triggers of Margin Erosion in order to plan and reduce them before they occur.
If you are experiencing Margin Erosion in your projects, give us a call, We would love to get some time with you and support you in getting your profits back where they belong, with you and your shareholders!