Three or four times a year, TPSA conducts multi-member studies that delve very deeply into topics that require intensive data collection and analysis. TPSA member companies pay a little bit of money to be involved in these studies and in exchange, have the ability to help shape the study to suit their needs. They also get exclusive access to the data set and other deliverables as soon as they are completed for a period of 4 months. After 4 months, the rest of the Association’s membership can access the data. The next multi-member study to come out of this “quarantine” period (on September 1st) is the TPSA 2009 PS Project Performance study. This post offers a glimpse of a couple of the myriad of interesting data points that came out of that study.
When I conduct studies like the one we did on project performance, I always have to remind myself of the reasons why companies are interested in them. For me, oftentimes, benchmarking is a form of primary or basic research. Going back to my days in academia, I’ve remained interested in uncovering “patterns” and making “findings.” However, such ivory tower thinking is as removed as possible from what the typical PS executive is interested in. Rather, PS executives are interested in understanding what is typical for similar companies, or what can be expected as results under certain circumstances — for the practical business planning benefits such knowledge brings. In the case of project performance, benchmarking can help and has helped many companies more reliably predict how different kinds of projects perform under different kinds of conditions are likely to perform. Benchmarking project performance is a business process, in other words, not an academic endeavor.
Many fledgling PS organizations sometimes struggle with blind spots they have regarding the most fundamental and rudimentary metrics. I think a lot of readers would be surprised to know how often we get inquiries from technology companies about what gross margins they should expect for their PS projects. The genesis of such inquiries is the very dearth of actual industry data on such things as typical projects margins that spawned our study in the first place. The fact is that project margin performance varies considerably along a large number of factors. In order for PS businesses to effectively plan and manage their businesses, they should have very detailed benchmarking data. That way, they can set proper expectations for different projects under different circumstances.
One simple data point will help illustrate both the richness of the data set and the potential practical application it enables: customer type. Many mature PS organizations are able to precisely model and therefore plan for project margins as a function of customer type. But many other PSOs simply don’t have the data streams to enable this level of detail. That’s where the TPSA 2009 Project Performance Study comes in. It stands to reason that whether a customer is new or existing, whether the customer is strategic or non-strategic might make a difference in margin performance. For one thing, new customers and strategic customers are the the type which PS organization is likely to invest unbilled work to doubly ensure project success. And there are many other reasons for this dynamic. But exactly HOW differently do projects delivered to these types of customers perform? Well, the 2009 data set says …
As usual, we can’t give actual project margin detailed data, as this information is proprietary … not to mention very hard to come by. What the above graph does give us is a sense of the margin performance of projects delivered to four different customer types as a percentage or proportion of the overall TPSA average actual or realized project margin. And as predicted, projects involving existing customers perform very differently from this involving new customers; just as projects delivered to non-strategic customers perform differently from those involving strategic customers. Existing customer projects average slighly higher than the overall average actual project margin, while new customer projects land fully 14% below that average. The non-strategic vs. strategic customer comparison shows a somewhat different pattern, but overall the same picture: strategic PS projects are less profitable than non-strategic projects.
Oftentimes, benchmarking can confirm what you think is true, but simply don’t have the data to know for sure or to know precisely what the answer is. This data point from the 2009 Project Performance study is just one among hundreds like it. If your company is a TPSA member that did not participate in the study and you want to be able to access the full data set, you can get access to it beginning September 1st. Check the TPSA website for details.
