Does project management matter? The relationship between project management effort, complexity, and profitability

The purpose of this study is to explore the causal impact of project management effort on project profitability (i.e., profit on sales) for varying degrees of project complexity in an engineer-to-order (ETO) project setting. We use a sample of 917 projects’ status reports of a large firm that offers ETO products coupled with a control function approach to empirically investigate the causal effect of project management effort on projects’ profitability. Furthermore, we investigate the marginal impact of project management effort and its effect for different degrees of project complexity. Our results reveal a positive but diminishing impact of project management effort on project profitability. Furthermore, we find that higher project complexity jeopardizes project profitability. However, project management's marginal impact increases with increasing project complexity, ultimately leading to higher returns of more complex projects. While previous research provided correlational evidence between project management and project success, this study is, to the best of our knowledge, the first to demonstrate a causal impact of project management on profitability. The results offer unique insights into the economic benefits of project management while taking into account the complexity of the projects. The study confirms the benefits of project management efforts regarding project profitability and underlines the high relevance of project management for complex projects, thereby underlining the importance of contingency theory. It shows that firms can compensate higher ETO customization and higher project complexity through higher project management effort.