I can’t believe it is already 2015. The beginning of a new year is a great opportunity to gain a different perspective and a more effective business management strategy. While we are all in business to make money, it is amazing that we persist with business practices that do not optimize our employee productivity, project profits, or marketing success.
Change is hard for every firm. We all suffer with the same issues – fear of and resistance to change, limited time and resources, a fast changing economic and technology environment, and limited expertise in financial and business management. With our economy improving and firms growing again, there are more challenges in trying to ensure that our growth is profitable.
Some firms are better run and more profitable than others. I believe even the most successful firms can run better. In my book, “Find the Lost Dollars,” I show the financial impact of just a 1% increase in your win rate, utilization and project profit margin. Do you know what your 1% is?
This is the perfect time to put a plan in place to make 2015 the most profitable ever. Here are eight areas you can focus on; each on their own can grow revenue, reduce expenses or increase project profits.
- Adopt a profitability culture – You may not realize it, but your culture may be what keeps you from growing, or becoming more profitable as you do grow. An emphasis on profitability is critical to keep employees focused on the bottom line. Looking for ways to constantly improve your people, processes and technology is critical to competing in today’s A&E market. Setting goals, regularly reviewing key metrics, and holding employees accountable is a culture change that will guarantee profits as the firm grows.
- Embrace thought leadership– Many firms have become commoditized, forcing them to bid on projects with low margins, and setting them up for potential budget overruns, and low or negative profits. The key to getting out of this trap is to differentiate your firm by looking for ways to focus your marketing around your firm’s expertise, and promote your thought leadership. The best ways to do this are through PR, blogs, social media and speaking engagements to become a recognized expert in one or two key areas. LinkedIn is an excellent way to start to build a presence online and connect with other thought leaders in the industry.
- Prepare better estimates – Estimates are the key to the entire project, forming the basis for the proposal, contract, scope, and budget. If you use old rates, or the rates implicit in your fee estimates are too low, you will set your project up for failure to begin with. Start with good estimating processes and templates, and ensure that there is consistency in the way that your estimates are prepared and approved.
- Improve time management – Good time management is critical to successful project management and profitability. Time sheets affect every aspect of the business including project reporting, billing, payroll, PTO accruals, employee performance management, overhead rate calculation, and capturing and billing extra services. I recommend daily time entry to ensure accurate data, and real time project reporting.
- Manage the project scope – In order to make a profit you must control project costs including labor, expenses and subs, within the scope of the contract. Many project managers (PMs) don’t have effective processes for communicating the scope to the team, monitoring real time costs against budget, and recovering extra services. Special attention to the processes your firm uses to manage scope creep will pay off with higher profit margins and less problems with clients on projects.
- Improve systems – If your firm is using outdated systems for capturing time and expenses, managing projects, preparing proposals and managing resources, chances are your projects could be more profitable. There is a direct relationship between effectively using technology, and firm growth and profitability. It is critical to keep up with software updates, and ensure that your employee’s daily tasks are as automated as possible. A sure sign of inefficient systems is dependence on Excel for monthly reporting. Help your employees to get the most value from every minute in their day, and look for ways to automate common tasks and processes.
- Develop your PMs with Training – Today’s project managers have many different responsibilities – some that are not on their job description. In fact, many firms I work with don’t even have a formal job description for their PMs. I recommend that you take a good look at what your PMs do every day and understand if they have the skills to excel in their roles. I hear many principals tell me that as many as 50% of their PMs are losing money, mostly because of scope creep, and lack of business skills to manage projects profitably. Business and project financial management training can go a long way towards improving your PMs daily behavior, and give them specific skillsets to manage budget overruns, and improve project performance.
- Look for better ways to do things – There is always a better way to do everything. If you interview your staff and evaluate how they spend their time every day as they engage with clients and work on projects, you will discover inefficiencies that can be streamlined through process improvement. An employee assessment, especially one that is anonymous, can help you uncover where your business operations and processes are weak, and help you understand where to focus your attention. Strive to tackle one problem or issue every quarter and you should see measurable results in just one year.
By looking at your business through different eyes, and continuous effort to improve, you will be able to save the company money, and improve the quality of your services and client interactions.
What are you going to focus on this month that will help your firm improve processes and increase profits?
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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