WHAT’S NEW
MANAGEMENT FOR DESIGN Summer 2016
10 truths and myths about design businesses It’s easy to make assumptions in the day-to-day of running a business. Business leaders are busy doing and don’t often have time to reflect on what is and isn’t true. Sometimes we’re deluding ourselves that a piece of software is great because we don’t want to have to accept that it’s made no impact despite a large spend. The company line may be that the client is always right, yet in reality the team are constantly bemoaning difficult clients.
MYTH
VS
TRUTH
In this article we highlight 10 myths common to architecture and engineering firms and reveal the truths of each of them. Some say that truth hurts, but in business the truth can open your eyes to problem areas as well as to opportunities that are being missed.
1
MYTH MYTH
We are unique
Your offer is rarely unique! Someone out there is doing exactly TRUTH TRUTH what you are doing, except better!!
2
MYTH MYTH
We will create efficiencies in our business so that we can increase our profitability
We will pass on all the efficiencies we have created by reducing TRUTH TRUTH our fees!
3
MYTH MYTH
TRUTH TRUTH
4
MYTH MYTH
TRUTH TRUTH
5
6
10
We will never get to a meeting on-time unless it’s with the client!
TRUTH TRUTH
We will happily give up on providing a comprehensive service offering until we are reduced to be a supplier to the head contractor / builder
MYTH MYTH
MYTH MYTH
MYTH MYTH
TRUTH TRUTH
9
We are highly organised and our internal processes are second to none
We offer a comprehensive service across design and delivery
TRUTH TRUTH
8
We really don’t know if the application of BIM has improved the way we work
MYTH MYTH
TRUTH TRUTH
7
Revit and BIM enables us to work more effectively
We are excited about the calibre of our people The capability of graduates is diminishing and they have to be trained on how to be an architect when they arrive
The client is always right The client is not always right — just don’t tell them that!
Project Managers are a waste of time and money The lack of project management training and capability in design businesses has created a whole new role on the project
MYTH MYTH
It was better in the old days when we had yellow trace and drawing boards
TRUTH TRUTH
Technology has provided design businesses with profound changes that enhance the way design businesses work
MYTH MYTH
TRUTH TRUTH
No one can ever do a task as well as I can You can’t do everything and delegation is the key to you focussing on what you do best
Measuring and understanding productivity
For those who missed it, Management for Design were mentioned by PSMJ in relation to the productivity insights gleaned from our Business Conditions Survey. Data shows that many firms don’t have a true understanding of what productivity means or of the most effective ways of achieving it. Getting to grips with how you define and measure productivity in your business can present real opportunities for productivity growth. What is productivity? 39% of architecture and engineering firms surveyed are not measuring productivity in line with this ratio. These businesses are either unable to define productivity or think that productivity is derived from sales and growth, but that’s putting the cart before the horse. As PSMJ point out, cost reduction (indicated by 6% of respondents) rarely increases productivity, and we think cost reduction in and of itself is not a clear way of defining productivity as cost reduction may actually be an indication of staff attrition or a number of other significant factors that have potentially contributed to a decrease of productivity within the business. How do you measure productivity?
3% 6%
More with less/same
39% 33%
Sales and growth More capability Unable to define
19%
Cost reduction
Respondents who identified more capability (19%) as a measurement for productivity were closer to the money and the 39% of respondents who measured productivity as a way of doing more with less or the same resources are ahead of the curve. These businesses recognise that productivity and — as a direct result — profitability, are best measured by analysing the balance between output volume and input volume. These firms incorporate productivity into their business analytics, where data can have a real impact on strategic plans and growth strategies. Measuring productivity Firms who are failing to accurately measure productivity are missing out on huge business insights and growth opportunities, allowing competing firms to out run you. These insights present an opportunity for architecture and engineering firms to take a closer look at how productivity is measured, how it should be measured, and how to maximise the potential for productivity gains and financial growth. PSMJ define productivity “as the ratio of output volume to input volume”. Firms should be measuring billable and non-billable hours alongside actual client billings. Productivity growth is best achieved when more hours are billed for less staff time, e.g. fees/hours worked. Many firms don’t measure non-billable hours. We think this is an oversight. All hours spent on client work should be logged. This includes rework and out-ofscope tasks that often don’t end up charged to the client. Measuring all areas of input is the first step to ensuring that your analytics are truly meaningful. Once that stat is captured you can measure it with output and compare this ratio over time to get an accurate picture of productivity gains and losses in your organisation. Improving productivity Our annual Business Conditions Survey always asks business leaders to let us know how they plan to improve productivity in the year ahead. Looking at the most popular responses can help your firm gain insight into what competitors are doing to enhance productivity and what options you should consider to keep up and remain competitive in the market. What are your plans to improve productivity in the next 12 months? Improve client relationships Improve utilisation of resources
18% 14%
14%
Investment in training and development
14%
Implement improved management systems
11%
More accountability for performance
9%
9% 6%
Identify and reduce inefficient work practices
5%
Outsourcing Align organisational structure More flexible workforce
The main strategies for improving productivity identified in our latest survey include: 1. More accountability for performance: 2. Implement improved management systems: 3. Improve utilization of resources: 4. Identify and reduce inefficient work practices: If business leaders implement these four strategies over the next 12 months, productivity will increase and useful insights will be gained into how to maintain and improve productivity in your architecture and engineering firm into the future.
Onsite health checks for your IT systems
Do you feel your IT systems are falling behind your business needs? Data volumes have exploded in the design, planning and engineering industries. Information in itself has become a commodity and staying in full control of your business’s information resources is essential. Your business systems should be in sync with continuity plans. They should include cost-effective data and phone plans — an area where many businesses are overspending — and should ensure license compliance to protect your business.
Management for Design deliver IT Services to support and protect your business, ensure your IT strategy is aligned with your commercial objectives and bring savings to your bottom line. We provide onsite checks to assess your current IT Systems in line with best practice and industry standards and include: 1. Systems review 2. Business continuity review 3. Phone and Data costs review A thorough check of your system will allow you to discover imminent risks to your systems and your business, discover opportunities for improvement in productivity, learn about the perception of IT in your organisation, and gain an indication of where your business can save money. If you are interested in getting an IT Health Check for your business, we are offering a limited number of free and obligation-free checks, although we would be delighted if we could assist in any way to ensure the ongoing success of your IT Systems and, therefore, your business in any capacity. IT Health Check Get in touch for further information: info@m4d.com.au.
The Business of Design The business of running an architectural practice requires ongoing focus from business leaders, yet is often neglected in the process of servicing clients and delivering projects. Management for Design addressed these issues recently in a series of monthly webinars for the Association of Consulting Architects. Rob Peake investigated the main elements that make up an architectural business. Rob simplified the complexities of business management across people, strategy, business and financial management, legal, brand, systems and delivery. The webinars were presented as a 3 part series and we covered the first two foundations to building a successful architecture practice in the Spring issue of this eMag. We’ll continue to deliver content from the webinars throughout the year, encouraging business leaders to take a closer look at the foundations of their businesses and to implement some of these insights on an ongoing basis. Links to the webinar slides are available at the end of this article.
The 10 foundations to building a successful architecture practice are: 1. PURPOSE & PLAN
2. LEADERSHIP
6. MANAGEMENT
!
7. MANAGING RISK
3. SYSTEMS
8. MARKETING, COMMUNICATIONS & BRAND
4. FINANCIAL CONTROL & PROFITABILITY
9. DESIGN & DELIVERY
5. TEAM
10. SUCCESSION!
Let’s take a look at Sessions 3 and 4 Session 3: Systems Your business is a set of inter-dependent systems and your systems are “how we manage around here”. Regardless of the size and the state of your business you will currently have processes for handling most of the following operations: •
How do we manage our time?
•
How do we ensure we deliver great design?
•
How do ensure we deliver our scope and make a profit?
•
How do we manage our projects?
•
How do we ensure we are developing our people?
•
How do we ensure we get paid on time?
•
How do we keep track of clients, prospects and contacts?
•
How do we ensure our people are fully utilised?
•
How do we ensure our people and suppliers are paid on time?
•
How do we manage our internal and external communications?
•
How do we manage our submissions and tenders?
•
How do we manage our financials?
As a business leader, you need to make a decision on what type of business you want to build — are you building yourself a business or creating yourself a job?! The effectiveness of your business systems will determine how your business is managed and controlled and how sustainable it is. Work out ways to get things done effectively through systems. Try to think of your business as the real product of your work! Don’t only design your projects but design your business and deliver great business outcomes along with great project outcomes.
The more you grow, the more your business will rely on systems — they are a foundation for your business and how well your practice works is directly proportional to the effectiveness of the systems you put in place. What are the essential systems to control and build your business? Systems that: •
Align your strategic objectives
•
Manage multiple marketing activities to generate work
•
Attract, retain and regularly communicate with clients
•
Control financials and monitor performance
•
Manage projects and resources efficiently
•
Keep track of clients, prospects and contacts
•
Manage your business operations
•
Facilitate the design and delivery of quality work
•
Manage the numbers with regular reporting
Systems are the key to making your business stand out from other architectural practices you see everywhere. Prosperity, happiness, having a life outside your business depends on how well your practice functions. And as Principals — you need to set the example — you can’t delegate this to an ‘office manager’. There is an up-front time commitment involved in setting up your business systems. Without committing the time to systems, your business will struggle to grow and has the potential to quickly move away from your key business objectives.
How do you start? The systems required for your business can easily be identified by breaking your business into comprehensible parts, for example leadership, management, financials, business development, communications, design, delivery etc. Ask yourself how things should be done. What is our ‘way’? And develop the systems around this: the rules, the how to’s, the processes. Involve your key people throughout this process to ensure that the entire team understands the purpose behind your systems. Remember that you don’t have to re-invent the wheel. Take advantage of a number of systems that will handle project control, financial management, client management, document control, resource management and other key processes to make your life easier. Benefits that can be achieved: •
Work is more consistent
•
Less re-work
•
Less time/on time
•
Improved profitability with increased efficiency and scope control
•
Less frustration
•
More attractive and more likely to retain great people
•
More effectively manage and assess performance of projects and people
•
Systems create time for the leaders to be entrepreneurs
•
Allows others to take responsibility for different components of the business
•
Improved and consistent client management
•
This is where you build the primary value in your business
Session 4: Financial Control and Profitability How well is your business controlled? Profitability is a great indicator of success and 20% profit margin should be the minimum benchmark. Strong financial management and performance gives the business the ability to say no, to attract the best people, and also the ability to invest in marketing, technology, growth, training and other areas that contribute to faster business success. At Management for Design, we have worked with businesses that implement this strategy and achieve sustained profit greater than 40%. The ability to understand a company from financial statements is one of the primary differences between small and large businesses. Think about how and where you will attain this capability? As a minimum you need the minimum financial controls — income statement, balance sheet and cash flow statement, and all of these need to be reviewed regularly. Business and Project Financial Control are equally important — one leads to the other. Surround yourself with experience and expertise and review your financials on a monthly basis — get into a routine and make your director meetings non-negotiable. Your business MUST have a project costing/accounting system. The system you choose can be basic or sophisticated, but you need to know fees, costs and profit by project and monitor this regularly. Plan your projects by stage with resourcing and monitor and report your performance on a regular basis. Project Managers, today, want to take responsibility for the financial performance of their projects — fees and resources — so develop and implement a system for this and train your staff to use the system. If you want focus — then measure it! Winning work with low fees places significant pressure on profitability, quality and cash flows and ultimately on the ‘brand’ — don’t put yourself or your business in that position. Work generated and ‘opportunity pipeline’ are great indicators of future workload. Here are some sample Key Performance Indicators we track at Management for Design: •
% Profit
•
Expenses/revenue as a proportion of revenue, e.g. technical salaries, IT, marketing, plant and equipment
•
Cash at Bank/Safety Bank Balance
•
Debtor Days
•
Staff Utilisation
•
Fees/Chargeable Hour
•
Direct Labour Multiplier
•
Revenue Growth
•
Revenue per technical person
•
Work Generated
•
% time on Submissions
•
Backlog (Work in Hand)
Downloads You can download full slide decks from the webinar series at the following links: Webinar 1 (foundations 1 and 2): http://bit.ly/1F5L9w3 Webinar 2 (foundations 3, 4 and 5): http://bit.ly/1KBLTED Webinar 3 (foundations 6–10): http://bit.ly/1SLkWHZ
READING LIST Each issue, Management for Design selects reading material that may be of interest to design businesses. Our summer issue selection follows: Best Practices in Strategic Planning for A/E Firms David Burstein, P.E. Designed to help you conduct better strategic planning, this book provides you with the results of a survey that PSMJ did with 75 firms on how they conduct strategic planning including data analysis on what works and what doesn’t.
Start with Why Simon Sinek In studying the leaders who’ve had the greatest influence in the world, Simon Sinek discovered that they all think, act, and communicate in the exact same way-and it’s the complete opposite of what everyone else does.
Business Model Generation Alexander Osterwald and Yves Pigneur A handbook for visionaries, game changers, and challengers striving to defy outmoded business models and design tomorrow’s enterprises. The book takes powerful strategic ideas and tools, and makes them easy to implement in your organisation.
The New IT: How Technology Leaders are Enabling Business Strategy in the Digital Age Jill Dyche The new IT equips you with the tools you need to succeed in reframing the IT conversation and propelling your business forward.
The Scorecard Solution: Measure What Matters and Drive Sustainable Growth Dan E. King The Scorecard Solution helps companies chart a course for rapid change — and outperform the competition every time.
MANAGEMENT FOR DESIGN
Management for Design provides integrated business systems and services to the design industry across Strategy, Finance, Information Technology, Human Resource Management and Business Systems. By working with Management for Design our clients are enabled to focus on what they are great at and to control and build their businesses. For more information visit www.m4d.com.au or phone 03 9645 8834.
