Typical challenges of the project-based business
Project-based businesses typically deal with make-to-order, long-term, complex projects on a fixed-price basis. Their products have a low level of standardisation and are engineered throughout the execution of the project. As a result, managing project costs can be challenging:
- No transparency of true project costs
- Creeping profit margin erosion
- High variations between order entry costing and actual costs at project end
- No transparency of the root causes of the variations
Additionally, if there is no working "lessons learned" process, these problems can persist for some time.
Why Non-Conformance Costs (NCCs) erode your profit margins
A major contributing factor towards those challenges are Non-Conformance Costs (NCCs). These are additional costs that are not part of the original project plan, and result in the creeping profit margin erosion that can be found throughout many project-based businesses. We define them as all deviations between the preliminary and final costing of your customer projects. NCCs may include scrap, re-work, warranty, over-consumption and price variations. In the project-based machinery and equipment industry, bad monitoring of Non-Conformance Costs can even jeopardise the future of the organisation.
Blog Post - Profit Margin Erosion
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How to keep Non-Conformance Costs under control and stop them eroding your profit margins
Whilst cost variances cannot be completely avoided in the project business, there are steps that can be taken to minimise (or at least forecast and account for) NCCs. You can find them in our free E-Book "How to prevent your profit margin erosion slipping through your fingers" and discover them in our webinar recording "Getting to grips with Non-Conformance Costs".
Our experiences bundled in 1 PIKON solution to tackle your profit margin erosion
Drawing on over 20 years of experience of working with project-based businesses, combined with our unique 3-point approach, we have created a solution to keep your Non-Conformance Costs under control. Please click the button to request a free demo and get more information.