6 minute read
Fighting Scope Creep
Getting a handle on services and time spent on your clients helps you grow profitability and retain your managers.
By Lynette Bertrand, Director of Marketing and Communications, CACM
Profitability is hard to come by these days. Boards and associations want more services, but they’re also looking for bargain basement prices and often shop around to find them. This has put an increasing amount of pressure on management companies that find competition to be only getting fiercer by the day. This is affecting all areas of their business from hiring and paying staff to keeping them to operating a profitable business.
But one thing that’s overlooked often in this scenario is scope creep and its impact on the bottom line. What is scope creep? In short, it’s overservicing a community. It’s not billing for services offered beyond the scope of the management contract — not charging for overtime, and it happens to the best of them.
Adam Balkcom, Senior Vice President and Consulting Manager for Association Prime powered by Southstate Bank, said that scope creep is one of the key challenges that comes up and is tackled during meetings of CEO groups that he has formed and leads. These groups are made up of owners and executives of management companies from across the nation, who meet monthly to address diverse business challenges from hiring and retaining staff to training to building company culture and vision, business development, and yes, profitability.
Balkcom was hired by Association Prime to consult with and help grow HOA clients’ businesses and launched the first CEO group more than two years ago. Now he facilitates three groups, soon to be four. Groups are carefully assembled to ensure members are able to exchange ideas with others who are not direct market competitors but are the same size or share enough business similarities.
“Overservicing a community is the biggest issue and one of the hardest to get in check,” Balkcom said. “When does customer service go too far? In what ways has scope creep been damaging to your company?”
What’s all too common is for community managers to spend too much time on certain properties, beyond what is specified in management contracts. This not only eats at profitability, as managers don’t bill for this extra time, but also results in manager burnout with many feeling they have too much on their plate or not enough time to get their job done.
Balkcom said it comes down to finding the balance of offering great service while also operating a great company. That means holding boards and managers accountable to adhere to the scope of work.
“You can’t be the low-cost leader and the high-service leader,” he noted. “If you’re going to be the Mercedes Benz of HOA management, then you will need to build more time, services, and cost into the contract. But if you’re going to be low-cost leader, then you have to be very tight on the contract. There is a cost to offer a service.”
While profitability is not an exact science and can be quite subjective, there are ways to help measure and improve this metric. One key way is to review contracts and ensure that not only the communities and boards are aware of what is covered in them, but also the manager so that they can communicate when boards ask for time and services that go beyond what they are contracted to provide.
- Adam Balkcom
Balkcom recommends that a short, one-page version covering the scope of work be drafted, so it’s easy for a board and manager to refer to. Then it’s making sure that the entire company is aware of scope creep and ways in which it happens.
“Holding boards and managers accountable for the scope of work frees up managers to take up properties and also helps companies not lose managers, because they’re burnt out,” he said.
In one of the CEO groups, guest speaker, Cat Carmichael with Strategy 1-2-3, trains group members on how to do Contract College with managers on a regular basis. It involves picking terms in the contract and making sure everyone understands what they are. The group also talks about tactics to keep boards in check and manage communities based on these agreements.
Companywide discussions and education about scope creep are important, as well as reviewing how much time managers are spending with clients to ensure that it’s within the range it needs to be. By reviewing regularly, problems like too much time can be detected and resolved by either changing processes to increase efficiency or billing for that service. Also, educating managers on ancillary ways the company can bring in revenue by providing an additional service or product.
Management contracts must be brushed up every few months to a year and also need to be part of the training and discussion for onboarding new managers, who may not know what your contract is, as well as new board members, who might not be familiar with the contract.
Balkcom calls scope creep the hidden enemy that lurks and must be kept in check constantly.
“Price of management services has been flat for years and in many areas, is trending down while payroll costs continue to increase, so you have to make sure how that person is using their time is very efficient,” Balkcom said.
Aside from keeping a tight handle on the scope of work, companies also need to evaluate properties and whether they are contributing to the bottom line, and sometimes, that involves making some hard decisions. If a particular community isn’t profitable, it may mean letting them go. This requires a change in mindset – from growing through addition of doors to growing through retaining and maintaining profitable clients.
“There needs to be a shift away from taking pride in the total number of communities under management to the overall profitability of your portfolio,” Balkcom said. “Midsize companies don’t want attrition, but you have to be willing to let go of communities that are not profitable and burning out your managers. Take a short break from adding communities and take some time to focus on making what you have more profitable.”
Bring the Board Around to Change
So how do you bring the board around to stick to a contract when you’ve been overservicing for some time? Balkcom offers these ideas:
- Sit down with board and review scope of work and current contract.
- Show the gap – what’s been provided above and beyond the contract.
- Invite the board to be part of the process or solution by forming a committee to take on the scope of work or paying for the management company to provide the service.
- Start invoicing for the additional work but zero it out to show the service provided for free this time but will be charged for next time.
- Bring in leadership to have those tough conversations with the board.
Lynette Bertrand, Director of Marketing and Communications, CACM
