In my book, Find the Lost Dollars, I focus on the impact of just a 1% increase in profits in nine areas of your business. The reason for focusing on such a small increase is twofold – first – it sounds easy. Most employees will gladly step up to help the company improve just 1%. Second, it is usually much more money than most business leaders realize. The power of just a 1% increase in profits in several key areas of the business can be thousands to millions of dollars for most A&E firms.
But the reality is that most firms that focus on improving their business practices actually increase profits much more than 1%. For many of the clients we work with, we target a profit increase of 2% to 5% which is a substantial increase.
Many of our clients tell us that their projects are profitable, however, they are not earning the level of profits they desire. For example, when you bid a project with a 10% estimated profit margin, but actually end up with just 6%, what happened to the other 4%? These are the lost dollars that you should be looking for.
Small Changes Can Have a Big Impact!
Many firms get comfortable doing things the same old way they always have. That is one of the 10 culture traps that I discuss in the book. One of the exciting benefits of training project and firm leaders is that through the process of working together as a team, they often come up with dozens of ideas for business and project management improvements that will instantly result in higher profits.
For example, a 150 person engineering firm that I recently worked with did not have a good process for vetting the projects that they were pursuing. Their win rate was around 35% – meaning they were losing about 65% of the jobs they were going after. This was a substantial amount of money tied up in unsuccessful proposal efforts. We calculated that if they could increase their win rate just 2% it amounted to an extra $250,000 of additional revenue per year. Over five years this was $1.25 Million in extra revenue and much more to the bottom line because of all the wasted effort of their top projects managers (PMs) and Principals.
Another example is a 75-person architecture firm that consistently had project budget overruns due to scope creep. Their estimates and scopes were not detailed and they lacked a good process to manage all of the client requests for extras that were inherent in the type of work they did. In working with their leaders and PMs we discovered that over 25% of their projects were going over budget by 10% or more costing them over $100,000 to the bottom line each year. By working with their PMs in their estimating and proposal processes, as well as developing more effective processes for gaining contract modifications for client requests that were outside the project scope, we were able to instantly start to recover many of the lost dollars that were slipping through the cracks every day.
Finding an Additional 3% Profit From Your Projects is Not Difficult
Finding an additional 3% profit from your projects is not difficult if you are willing to evaluate your business and understand where all the lost dollars are going. By working with your teams to ensure that estimating and proposal processes are sound, project and time management is a priority, you are leveraging your systems, and focusing on your best clients, you can increase success across the firm and recover at least 3%, or more on every project you work on. In just 10 weeks we have been able to make progress and find lost dollars with many firms that we work with.
Our Find the Lost Dollars evaluation can uncover several areas that your firm can find your lost project profits and develop a strategy to get some of those dollars back.
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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