In the current economic climate, professional service firms are acutely aware of the threat posed by the erosion of profit margins. Without proper planning and monitoring, project margin erosion can sneak up on you gradually. Everything appears to be in order until, suddenly, nothing adds up. And erosion can accelerate quickly.

Margin erosion is a term used to define loss of margin dollars that can occur once a job has been won. More simply, it is a gradual reduction in gross profits over time. Every business has to worry about margin erosion. It can be caused by anything from human error, system error, bad business decisions or practices such as excessive discounting or markdowns, poor quality control or lack of sufficient inventory.

There are four primary categories that encompass many of the problems that lead to margin erosion including bad estimates, scope creep, poor resource management and issues with clients.

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