In project-based businesses—such as engineering consultancies, architectural firms, and construction companies—the success of the business is directly tied to the success of its projects. And success isn’t just about technical delivery or meeting deadlines—it’s about profitability.

That’s why it’s critical for Project Managers (PMs)—who may initially be involved as Bid Managers—to understand that they are managing a part of the business. Their performance influences not only project outcomes but also the overall financial health of the organisation.

Projects Drive Profit  

While businesses exist for many reasons, one fundamental purpose is to generate income. Money isn’t everything, but without it, no business can survive—let alone grow or reward its people.

For project delivery businesses, profitability comes through the successful execution of projects. If projects consistently lose money, the business suffers. On the other hand, when each project is managed for profit, the business can achieve healthy margins.

In companies with shareholders, project profitability also affects the company’s share price and overall valuation. Moreover, staff bonuses, salary increases, and reinvestment opportunities are all tied to profits.

In short, profitability is not just a finance team issue—it’s a project team responsibility.

Why Project Managers  Must Understand Financial Proposals

A business cannot afford to win unprofitable work. A poorly priced project not only drains resources but may even require borrowing to cover losses—resulting in added costs and financial strain.

Most Project Managers don’t intend to deliver loss-making projects. When it happens, it’s often due to one or more of the following:

• The project wasn’t managed efficiently.

• The bid was poorly prepared—especially in its financial assumptions.

This is why Project Managers must understand how to contribute to, or lead, the development of a profitable financial proposal.

Key Financial Questions for Project Managers

Here are some essential questions every PM should be able to answer during the proposal stage:

• How is the proposed fee calculated?
  Are you using:

  • Bottom-up costing (based on detailed estimates of hours and resources)?

  • Top-down budgeting (based on overall available budget)?

  • A percentage of the construction cost?

  • Historical data from similar projects?

  • A combination of all the above?

• Do you develop a Work Breakdown Structure (WBS) and program?
  This helps ensure that all activities are accounted for, properly resourced, and timed.

• Do you fully understand the scope of work?
  Accurate scoping prevents underestimation and missed deliverables.

• Do you understand your client and market expectations?
  A competitive fee must reflect what the client expects—and is willing—to pay.

• Have you delivered similar projects before?
  Past experience helps in pricing accurately and managing risk.

• Do you allow for contingencies and third-party costs?
  Always include margins for uncertainty, subcontractors, and disbursements.

• Do you include a standard or target profit margin?
  Establishing a baseline helps you assess whether the fee is viable.

Conclusion

Project Managers are not just deliverers of scope—they are stewards of business value. Understanding project finance and being involved in fee development is essential for ensuring project profitability and, in turn, business sustainability.

Want to Take This Further?

If you’d like to explore this topic further or need support with training your PMs in project finance, reach out to us.