Scope creep – that vicious blood-sucker that steals your project profits. When the scope of the work done exceeds what is promised in your contract, and you don’t get more money, you pay for it. It comes straight from your profit margins and can leave a project at a loss in the end. Just think – you are paying your client for the privilege of working for them!
We are all well versed on what causes scope creep – at least we think we are. Your client asks for something outside the scope and we don’t get approval for a change order. There are many reasons for this and here are the most common:
- Your staff are trying to keep the client happy and the client does not like change orders
- PMs are afraid to ask client for a change order – conflict stinks!
- PMs don’t know how to ask for a change order (very common)
- Our client says we are “nickel and diming” them if we get a change order for every small change (in fact it is always hundreds and thousands – not nickels and dimes).
Many of these common reasons for scope creep happen because of the culture of your firm, and your project managers’ unwillingness to ask for money. With a culture focused mostly on technical excellence and client satisfaction, and not on business excellence, these common reasons for scope creep will continue to drive profits down right out in the open.
In fact, these common causes of scope creep are actually easier to deal with because they are so common. You can put change order processes in place, teach employees how to ask for money, and work with clients closely to set better expectations up front.
The real danger with scope creep lies in the subtle everyday issues that cause scope creep that don’t get as much attention. These are the 7 causes of scope creep that secretly steal your profit margins.
What is so insidious about most of these secret scope creepers is that your client has nothing to do with them. Most of them are internal issues that require specific attention, focus and training to overcome:
1. Scope not detailed enough
When it is time to get a change order, it is critical that the scope is well defined and clearly details assumptions, inclusions and exclusions. Without this level of detail, conflicts with clients can arise and the A&E professional is usually on the losing end of the argument.
2. Staff doesn’t know what is in the scope
If your staff have never been told what is in the scope, they may mistakenly make assumptions of their own and perform services that were not included in the contract.
3. Staff Ignores Scope
Believe it or not your staff may actually ignore the scope on purpose. Again, this is because of your culture that focuses on quality above all else. Unfortunately, not every client has enough budget to afford the level of quality that your employees wish to deliver.
4. Too many meetings
Meetings tend to multiply or run way longer than planned, especially in times when project schedules get extended or projects get delayed.
5. Turnover at client’s office
Turnover with your key contacts at your client’s office may require you to spend a great deal of time orienting the new client reps about the project. Also, turnover within your team will cause you to have to orient new staff and lost progress made so far. This is scope creep – it is unexpected and outside the scope but hard to get reimbursed for.
6. Time held too long
Your well-meaning project managers may put extra services time on hold thinking that they are waiting for eventual approval or they can bill for it later after they see if there is extra money in the budget. This is why so many firms have huge write-offs! The longer time is on hold the lower the chance of collecting it.
7. Time not tracked on time sheet
In order to bill against a change order, you must track the time against it, but employees don’t always fill their timesheets out correctly and the time just goes against the base contract.
Each of these secret causes of scope creep can be addressed and corrected with new processes, employee education and better communication. However, if you are not looking for it, you won’t find it.
Focusing like a laser on causes for scope creep – both common and hidden – can make a huge impact on your firm’s profitability. And in fact, your employees will be much happier with some guidance and support to deal with these difficult issues. Some of the remedies are a quick fix and can add up to several percentage increases per year. Get your team on board with working towards reducing scope creep and your firm can join the ranks of the top performing firms in the A&E industry.
June R. Jewell, CPA, is a leading expert on business success in the Architecture and Engineering industry, and author of the best-selling book, ‘Find the Lost Dollars: 6 Steps to Increase Profits in Architecture, Engineering, and Environmental Firms’. June and her team guide A&E firm leaders to reach top level industry profits by getting their employees to take ownership in their firm’s success and be financial guardians for their projects and clients.
Through her extensive work with hundreds of A&E firms over the last 30 years, June has discovered that the key to business success is the firm’s employees and what they do every day that either waste time and leak profits or help the firm to grow and prosper. June and her team at AEC Business Solutions have developed a proven program to change employees’ mindsets and daily behaviors to increase productivity, financial performance and project success.
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.
More From the Find the Lost Dollars Blog...
I often hear people say that they are hoping we get back to normal. It feels like there is no normal anymore. Everything we used to take for granted has changed. Simple things like sitting at a restaurant and being served the food of your choice are now exciting, and...
The thing we all have in common right now is that it is difficult to predict the future. In my Monday AEC Crisis Roundtable meetings, the number one concern of A&E leaders right now is uncertainty. Without certainty it is challenging to develop strategy or plan...
Since this COVID-19 crisis started in March, I have been meeting with about 50 A&E leaders every Monday to discuss the new challenges they are facing in their businesses. I am thrilled at the level of participation, sharing and collaboration taking place in this...