Architecture, Engineering and Construction (AEC) firms lose money on projects due to many causes, and our research shows that scope creep and failure to bill for extra services is at the top of the list as the biggest cause by far. Scope Creep is the erosion of the project plan due to added requirements, unexpected client demands, and failure to bill and collect for extra services. Most firms struggle with scope creep for many reasons, often believing it is mainly a people issue. However, your employees are doing what they are taught to do, so without the right processes, structure and training, your employees will often adopt the least confrontational behavior.
In my book, Find the Lost Dollars: 6 Steps to Increase profits in Architecture, Engineering, and Environmental Firms I demonstrate the financial impact of just a 1% reduction in scope creep. The numbers are astounding and can easily be calculated for your firm. I promise that time invested in improving this aspect of your business management operations will pay you back quickly and significantly.
5 Steps to Reduce Scope Creep in Your AEC Firm
The following are 5 steps you can take now to help your project managers (PMs) and other employees understand the causes of scope creep, and develop practices to minimize it:
1. Develop a Detailed and Documented Process to Recover Extra Services
Without clear guidelines and processes to follow, all of your employees will deal with extra services requests differently. A good written process to manage project scope creep should include detailed instructions for project estimating, scope development, contractual language around extra services requests, client communication, and approval processes for ensuring that all requests are handled consistently. Once employees know what is expected of them and know they are following the correct processes, they will be more assertive in applying your firm’s policies and confident they are supported by firm leadership.
2. Develop a Clearly Defined Scope of Services and Estimate
There is a lot riding on the project estimate and scope which will become the guiding plan and budget for the entire project. It is critical to develop a detailed scope which closely reflects your understanding of the client’s requirements. The scope and estimate should identify the phases and tasks that will be required to get the project done within the expected quality, resources, budget and timeline that your client is requesting. Where many projects go over and experience scope creep is in too many meetings that were not estimated in the original scope. Estimating the number of meetings required for each phase, and adding a percentage for other contingencies that may cause the project to go over budget is a recommended best practice that can reduce costly scope creep later in the project.
3. Confirm Client Expectations
As part of your contract negotiations and extra services approval process, you should prescribe specific communication protocols for how client expectations are discussed, documented and agreed upon. Before a project has started is the best time to go over your extra services policies and processes with your client and agree as to how they will request extra services, and how your employees will estimate contract modifications, and request approval. It is a lot easier to deal with these uncomfortable conversations in the beginning before the stress of the project has begun. It also shows your client that you intend to strictly manage the project scope, and ensure that the project is delivered according to the contract.
4.Share the Project Scope and Contract with the Entire Team
In addition to creating processes and training all of your employees to follow them, it is essential to ensure that all team members completely understand what is and is not included in the project scope. A Zweig Group survey found that only about half of all firms consistently share the project scope with the entire team. If your employees do not know what is included in the contract, how are they supposed to identify whether a client request is reasonable, or if it should trigger an extra services contract change? A great way to do this is to define a process for holding and running the project kickoff meeting, including a standard agenda. Ensuring that the entire project team is included in the kickoff meeting, and the entire scope is shared and discussed will go a long way towards setting the project up for success.
5. Improve Capturing of Extra Services on Timesheets
Most extra services work that is not accounted for gets lost in general project codes on the employee’s timesheet. By defining extra services phases or tasks for each project, and limiting choices on the employee’s timesheet, you can better start to capture extra services and make sure it gets billed every month. In addition, strict protocols should be put in place that prevent projects from being setup and charged to before a signed contract is received from the client. Project managers should be reviewing and approving employee timesheets weekly to ensure that potential extra services are caught and dealt with before it gets too difficult to bill and collect them.
By putting in place processes and system controls, and verifying that your employees are following them consistently, you can measurably increase your recovery of extra services, and reduce scope creep. A laser focus on eliminating scope creep will pay off through increased project profit margins and better management of client expectations.
Cash is King Webinar
Managing Cash Flow in a Down Economy
Date: Wednesday, August 19th, 12:00pm ET
The average days to collect cash in the AEC industry is between 60 to 120 days. In this web training we will examine the complete project lifecycle to understand how cash flow can be increased when the economy is uncertain. Participants will gain valuable tips to improve cash flow by improving timesheet practices, reducing the billing cycle, and improving client relationships and collection practices.
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