M4D business Journal 114 Profitability and Growth

MANAGEMENT FOR DESIGN BUSINESS JOURNAL 114 PROFITABILITY AND GROWTH STRATEGIES FOR ARCHITECTS, ENGINEERS AND DESIGNERS Current economic conditions are strong—albeit challenging—and the indications are that this will continue. Having said that, Management For Design

So how can AED firms position themselves for future growth and meet the challenges of increasing competition, technological changes, a changing

continually encounters Architects, Engineers, and Designers (AED) that are not realising the strong and consistent profitability that could be achieved.

workforce, and potential ownership transitions? The answer is that today’s success-minded firms require a concentrated focus on strong project, resource, and financial management practices—the kind that can carry their long-term growth goals to fruition.

To match the high pressures of an increasingly competitive environment, the trend within AED firms has been to reduce fees (without a subsequent reduction in services). There is downward pressure on pricing and businesses are competing with a higher emphasis on attractive price, rather than increased value. And, as wellintentioned as these strategies are, it has made it even more challenging for firms to deliver projects profitably.

Unfortunately, Project and Resource Management for many AED firms is not what it used to be, and many businesses have moved away from best practices—that is, if they ever had them in the first place. Although information is now more readily accessible than ever, more and more of the routine Project Management activity is being left to overworked and under-resourced Project Leaders. It is becoming more and more difficult to deliver a profitable project.

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Project and Resource Control and Management is the key to successful and sustainable business profitability. And profitability is the key to growth — G ordana

Milosevska, Director, Management For Design

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Project and Resource Management Best Practices Typically in AED businesses, 75% of business profit is generated from 25% of projects. Which could also be read as 75% of project work is contributing little to the bottom line—this can be changed! To improve and maximise project profitability (and hence overall business profitability) we recommend applying the following project and resource management best practices:

1. Financial Overview of Project Results The most critical component of effective project performance is having financial oversight of projects.

“This doesn’t just mean having a finance person looking at the project results, but making sure the project leaders understand the financial status of the project and its impact on the business. When it comes to project communication, it means communicating the project status to the client, subcontractors and the entire project team that is involved—and you need a system for this,” says Callum Bruce, Head of Business Systems, Management For Design.

Ensuring that the project leaders are knowledgeable about a project’s finances can lead to a number of benefits across the enterprise, including: •

Planning and matching the work with the resources and costs

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The ability to manage the scope and deliverables

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Enable effective pricing and scoping

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Accountability for performance

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Identification of the areas of business that need improvement

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An understanding of what types of projects the company generates the most profit from

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Stronger project manager contribution to the overall profitability of the firm

2. Leadership Accountability The leaders of the business—directors, principles, asociates—can’t expect the responsibility for project performance to sit entirely with the project leader. The business leaders need to show the way, they need to develop and expect a culture of accountability and this starts at the top. Leaders need to expect and be involved in project budgets, scope expectations and project performance for their projects.

By developing and investing in a culture of accountability

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and project control, AED businesses ensure that their most important assets—their people resources— understand the underlying purpose, skills and profitincreasing practices associated with strong project and resource management.

“By creating a culture of project and resource management excellence, firms will be able to realize consistent, meaningful profitability for years, or even decades, to come,” says Milosevska.

resource costs are expected to be. Tracking percentage complete against expected hours can be a key source of information for addressing productivity.

“Often, what you invoice and how you invoice does not always follow the percent complete,” says Carla Dexheimer, financial controller, Management For Design. “Estimating your costs through to the end of a project requires having set budgets in place right from the beginning, and ensuring that the right data is available to all people on the team.”

3. Resource Management Although some would consider this as obvious, Management For Design is often astounded by the lack of thorough and integrated systems in practice for managing resources across the studio, (i.e. who is working on what and when, who is available, who is utilised and underutilised, and what are the resource requirements moving forward).

“No matter the size of your business, what you need is a system that shows you where and how your resources are allocated through the life cycle of your project— from the planning phases all the way to delivery—and a centralised and shared resource pool that captures who is doing what when”, says Bruce.

This way you can steer your team and their work through obstacles and scope changes as they arise— adding and subtracting resources as needed. Having a comprehensive insight into how your resources are allocated lets you respond quickly, make strategic decisions, and keep stakeholders updated when those unforeseeable project risks and uncertainties make themselves known. All of this raises your chances of delivering projects when you say you will.

4. Regular Percent Complete Calculations This method of measurement is required for all fixed (lump sum) fee projects, and that means that businesses must understand what their project deliverables are at any given time, as well as what their total estimated

5. Out of Scope Management Also referred to as ‘scope creep’, or variation to the scope; out-of-scope management refers to the fact that projects can have many distinct phases, all of which are prone to widespread design and documentation changes. By setting expectations regarding the scope of the project up front, project leaders can effectively eliminate the potential for their firm to move into a ‘grey area' when changes arise—where neither the firm nor the client is in agreement about whether the changes are part of the agreed scope, the timing or pricing.

Businesses need to have systems in place, and a culture that supports the system, to capture work that is outside of the scope of services.

6. Managing re-work Our research indicates that re-work can add up to 40% of project costs, and typically accounts for 1020% of project activity. In fact, re-work is one of the primary factors contributing to mediocre performance and productivity of projects and businesses. This can include design changes, unresolved designs and related documentation, documentation errors, inadequate or unresolved co-ordination, and ineffective project management. This is not an easy fix, it requires the business leaders to focus on, and commit to, an effective design management process, quality management, regular review, open communication, and accountability.

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7. C onsistent Backlog, Reporting, Monitoring and Updating

Know Your Numbers

“A well-managed firm is constantly looking at their backlog and monitoring project performance,” Dexheimer notes. “These businesses have a full picture of both their current projects and what is in the pipeline that will require management. Executed correctly, project leaders are involved in this process, and project performance is constantly evaluated to ensure maximized project profitability.”

All project and resource management best practices mean nothing without the strong financial control and understanding to keep your business ahead of the competition. It’s important for goal-oriented AED firms to recognize where they should be when it comes to key metrics. Below, are the key performance indicators (KPIs) to achieve and sustain significant growth moving forward.

Firms who are geared towards success in the upcoming years need to make it a priority to have a comprehensive resource requirements plan and strategy—one that will ensure they not only have the right number of people to complete the work, but also that they have the right people to help grow the firm and remain ahead of the competition.

Performance metrics are critical to the health of AED firms. Specific data that Management For Design recommends businesses measure and track include:

It goes without saying that these business practices need to be backed up by constant project leader and business training and follow up to make sure it’s happening in the business.

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Fees per hour worked

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Revenue per technical person

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% complete / % hours used

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Project profit

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Work generated

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Project backlog

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% utilisation

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Performance Measure

Benchmark

Best Performers

Fees per hour worked Revenue per technical person % complete / % hours used Project profit Work generated Project backlog % utilisation

Example performance metric tracking table.

“Having solid, visible historical performance information allows for more accurate project pricing and budgeting,” says Dexheimer. “What’s more, it really has a positive effect. Project management controls that keep projects on budget allow firms to achieve their target performance, and resource management and utilization rates on track. When combined, these all assure strong and sustainable profitability across the firm.”

Conclusion The economic climate is going to remain challenging for the foreseeable future—and will continue to impact the role of the profession, sustainability, growth goals, and planning for the next ten years.

With expected industry-wide growth ahead, AED firms need to move beyond managing the workload, competitive pricing, and winning the next project; to ensuring that all projects are contributing positively to their overall profitability.

Equally as important, firms require solid financial management, controls and expertise, to help them maximise profit margins and to build a sustainable and enhanced business. The first step towards financial stability in the current landscape is to ensure that your firm is managing and executing profitable projects across the board.

By implementing best practice project and resource management processes your business will be far ahead of the competition and equipped to make the decisions required to achieve long term growth and success in an increasingly challenging AED landscape.

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Management For Design can provide pathway for you to implement project and resource management best practices in your practice, allowing a greater number of your projects to contribute significant profits to the business. For more information, contact Rob Peake on rpeake@m4d.com.au.

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