The project and practice difficulties you’re trying to overcome, essentially boil down to one built environment design reality — you need to make sure your staff are heavily utilized, because they’re by far the biggest cost any of our practices have. Typically, somewhere around 85 to 90 percent of the cost of running a practice is its staff.
You have to make sure that cost is well utilized, and therefore, as profitable as possible. Especially given the fact that you can’t dictate rates in the market — the market tends to dictate those rates to you. As a result, most practices tend to only make money because their staff work more hours than they’re paid. That’s the truth. There are a lot of things working against you creating profit in this industry, and that’s why sharp project and resource management is critical for project success. That’s also the truth.
Expensive people + fixed-fee rates (why guesswork doesn’t work)
For a start, the fee you’re working to is a guess. It’s a stab in the dark. “How long is it going to take us to do the design for this building? … Three weeks!” That’s a guess, my friends. Now, it’s a guess based on experience, sure. But how far out could that be? 200 percent? It could be massively out, right? And that costs you a fortune when you’re dealing with expensive people. The whole architecture, engineering, and construction design (AEC) industry is populated by highly trained and expensive people. That makes it a hard job to make money in this industry because you’re often tied to a fixed fee (which, you guessed it, you’ve had to guess).
You’ve got expensive people working within that timeframe, trying to achieve it, and there are a lot of other factors that work against you. For a start, even when you’re proposing a fee for a job, you define the scope of work you are going to execute for each stage of the job, but even that is constrained.
You sit down and say, “so what exactly am I doing when I do the concept design for a project?” Then you write a list of all those things. Fair enough. But then, of course, something changes in the project, as it always does. And because it kinda does, and kinda doesn’t, fit in one of the defined services you’ve included within that fee, you have to cop it on the chin and take the hit to your profit to cover it. You can’t say, “well, it’s outside those things I’ve said, and therefore it’s a variation and I can charge you for it.” Because your client can come back and say, “well, it really comes under the heading of this.”
You could sit and argue about it for a while, but very quickly it’s not worthwhile arguing about it anymore, because you charge yourself out at $200 an hour — by the time you argue for five hours, that $1000 variation you’re wanting to charge has just been eaten up by the debate time. So, you give up pretty soon. Again. it’s hard to make money in this industry. You’ve got to keep a careful eye on your resources to do it.
Matching workload with in-house capacity — the secret sauce
With the project features of expensive people and shifting timeframes we’ve already discussed, it’s absolutely critical you have a way you can project your labor needs — so that, as much as possible, you can meet those labor needs within your organization.
If you do need to outsource you want to make sure that it’s because you’re choosing to do so, not because you’re forced to. The reason? Fulfilling resource needs internally is the cheapest way you’re going to get the labor you need. No architect or engineer is ever going to be able to get another architect or engineer to work at the same rate as their own staff — externally, you start paying commercial rates.
So, you have to maximize the potential and the capacity of your staff. To do that, you need tools that help you plan out what the envisaged workload is, and also what your capacities are. So that, as best as possible, you match those two in order to avoid instances where you have more work than staff, or more staff than work. And that’s a very fine line to tread. As AEC professionals we all know that whilst you can push people to a certain extent, in this industry, people are normally already pushed. They’re normally already working long hours. It’s not like there’s time to spare.
It’s not credible to sit there and say, “well, we’ll just push the staff 20 percent harder.” Because as I’ve said, they’re usually already working anything up to 50 percent more than the hours they’re getting paid for.
Plan to fail without a planning board
To walk that fine line, you need some tools to help you plan into the future and to also manage what’s current. The planning for the future is all about having some sort of planning board, where you can put your envisaged labor loads (based on your guess of fees, etc.) and the guess of the split of work that’s going to happen across your staff.
Once that comes to fruition and you win the job, you then have to be able to quite tightly manage the distribution of work across people, and balance that against your need to execute certain external and internal deliverables on the job — which may well be highly defined.
A lot of practices have what they call ‘checklists’ that are an itemized list they check and sign their way through as tasks are completed, to ensure that all the elements of work they have to do for any particular stage are done in the sequence they need to be done.
In manual systems that often takes the form of a bit of A4 paper. Fancy? No. True? Yes. As you’re given one of these work elements to do, you go away and complete it and come back and sign off on the fact that you did it, on that piece of paper.
This way the project manager can then say, “Okay, there’s 26 things that we need to do for this stage, and I can see on our checklist that we’re 20 down. So, we’ve only got six to go.” They’re managing what people are doing and ensuring they’ve constantly got something else to move on to once they’re done. Ensuring that their staff are not perceived to be overloaded but have a horizon of work that suits their horizon of time.
That gets complex fast as a flash. Because you’re moving from an original planning and forecasting idea (which is typically done on a large scale, maybe by a dollar value that’s thought about as being necessary over a period of time), to a detailed project management idea that requires application to a live process.
Look at it like this:
- You’ve priced a job with a $100,000 stage
- You think that stage will take 10 weeks
- Initially, for planning purposes, you simply consider it to be a $10,000 a week labor spread
The problem is, that gets more detailed and fragmented as the job approaches and starts, and you break it down across:
- The labor rates that are needed
- When those labor rates are needed in the job and how long for
For instance, you might need all the designers up front, and then you need the CAD people at the end to actually draw the drawings. Then you need the directors at the end to QA the whole process. That sort of split. So, things get more detailed and more granular when you actually have to start to do the work and plan out what’s going to happen next week.
You need some way to have that list of work elements and tasks you want done and you need a way to assign each item to your (preferably local, internal) people.
The importance of maximum utilization across your project, and your business
Then you need the ability to access any other parts of the company that might not be within the bounds of your office. If you have multiple office locations, or there are multiple states or countries your company operates in, then you need to take advantage of them and their labor. This means:
- You’re giving the potential of extra work and utilization to those people in the other parts of the business, and
- You’re sourcing those people cheaper than you will any external company
So, it’s not just within the visible bounds of your office that you need to have this doctrine of maximizing the utilization of your staff — it’s across the whole practice. That may be multi-office, it might be multi-country, multi-state, etc. It may be multiple of those.
All that makes it imperative to have a system that lets you manage the spread of people across the progress of the stages of work for your project. But that system also needs to help you track the individual rates of the people you’re using against the time and fiscal budget of your project. We’ll get into more of this when we cover EVM in part five of this series, but suffice it to say the tracking requirements for project success are many and layered.
Yep — that’s a lot of stuff your management system needs to do in order to foster your project’s success. However, without that capability you’re back to running jobs based on a stab in the dark about how long and how hard it’s going to be to do any of these pieces of work. Sometimes you can win in that scenario, and sometimes you can lose horribly.
Managing resources and tasks across project progress
At this point I reckon we’ve established that you need a tool to help you manage the ongoing process of resource and task management throughout your project’s life. The other critical thing this clever system has to do is enable you to look at all that against your project’s budget, milestones and overall timeframe. I know, I said the b-word. But there’s no getting around it.
Let’s say I have a budget of $100,000 for a 6-week stage of a job, and I’m now halfway through the work required. In order to properly manage that project, I have to know:
- Have I used about 50,000 of budget?
- Have I used about 3 weeks of time?
You need something that’s going to help you measure and balance those aspects to complete on time and on budget. That’s really hard to do manually. Even with the best intentions, you have to do things like find out the hours of work done to date by various people in some sort of disparate timesheet system. You then have to manage that against the extra people that you’ve resourced at any point in time, and again, that may not be in your office — those resources might be external to your office, which makes it harder and harder. Then, you’d have to find some sort of manual way to compare hours against budget, both currently and into the future. And it just becomes too hard.
As I’ve discussed previously, many of our clients have got some sort of gut-feel, perhaps calculated to some degree, about what something’s going to cost. However, what a lot of them find impossible to do for all the reasons that we just nudged, is track ‘how am I going against that initial thought’? That’s problematic when you’re running a project, I don’t have to tell you.
In other words, if you’ve actually sat down and worked out a budget for doing the work, to use the swanky terminology of the industry, ‘how do I then get my ‘actuals’ to compare to that budget so I can see how it’s panning out? And how can I see where it’s going wrong so that I can actually manage the process?’
There’s the super old adage, which I know, because I’m super old, which says that ‘you can’t manage it if you can’t measure it’. Super old, and super true. And that whole measurement aspect is lost unless you have some sort of system in the background, that’s compiling all that information for you, and helping you to project and manage how things are going to turn out.
It’s bad enough to go 10 percent over budget, but if you actually know in advance that you’re going to go 10 percent over budget, the pain is somewhat lessened. Human instinct kicks in, and because you’re aware that you’re going to go 10 percent over budget, you become more disciplined about how you’re going to do the rest of the work — because you’re cognisant of the fact you’re going over and you can’t do anything about it, you suddenly don’t want it to cost even a fraction of a percent more than that.
The project to practice scale
The longer the stages, the bigger the jobs, the more important this is. But that’s not to say it has to be a big job, because that scale is always in comparison to the practice. A three-month job to a small practice is the same as a large practice doing a hospital. For us, it’s a big job. That’s what you’ve always got to keep in mind because that scale is a test of the internal systems, protocols and resources the practice has.
Often the good news is you’ve won the job. The bad news is you’ve got to then figure how on earth you’re going to deliver it. If it’s the biggest job you’ve ever landed, after the hangovers disappear from all the celebrations, there’s often a lot of fear and knotted stomachs going, ‘so, just exactly how are we going to do this when we are actually down 11 staff?’
You can quickly go from hero to zero. You must be very careful that doesn’t happen and that’s all about having a tool that lets you plan in advance and also lets you manage the current situation. Your system has got to be able to do both. To ‘handle today’, specific practices vary from practice in how they want to do it.
Some people are happy to work in a fairly general way from a system-management point of view. In other words, they might just say, ‘okay, well, Jeff and Linda are going to work on job 123 next week.’ Now, what they’re actually going to do next week is entirely up to someone else who’s doing some level of micro planning, and it might not be written down on paper somewhere. It’s just the manager going through the list of things in their mind that they know must be done. In that instance, the actual planning is quite high-level.
Alternatively, there are practices that say, ‘actually those things that the project architect or the head engineer has in their head, we want to document those, and we actually want to see those being achieved — we want to see all those external and internal deliverables get done and we want to see them get done in the right sequence, so we can be comfortable from a commercial and a QA perspective that we’ve done everything we need to achieve the outcome we said we would in the contract that was signed.’
Macro and micro in resource and task management
If you start to handle things on a micro level, if it starts to get minute, and you’re actually documenting those individual work elements in some sort of checklist format, then you have to monitor what’s happening with each of those elements. People like to juggle those in systems that are often referred to as ‘Kanban’.
Here you may simply want to know which tasks haven’t started yet, which ones are being worked on, who’s working on them, and which ones are done. This is a status-based arrangement and Kanban handles it brilliantly.
Now, it’s all very well to know that Linda and Fred are working on five different things each. However, some managers also have a feel for how long each one of those elements will take to complete, and therefore, they might actually like to schedule Fred and Linda’s week. So, you also need a facility that enables you to break up those five things into the ones that are in progress to specify what’s going to happen next week or the week after so that you can plan, as much as possible, the progression of those work elements for the people that you’ve assigned them to.
If you can’t see them progressing from ‘allocated’ through to ‘done’, then it’s very difficult to manage the overall process — because it’s the execution of each one of those tasks that holistically means the entire stage of work is complete. So, it’s important to have some sort of Kanban, or a Trello kind of format for it.
If you’re managing resources at a higher level where you’re happy to just say that a person is working on a project, or part of a project for a week at a time for instance, then you don’t need a Kanban-style format, you just need a planning and resourcing format that tells you when people are getting too busy, when people aren’t busy enough, or lastly, when people simply aren’t going to be there.
Managing staff leave
You need to have a system that tells you when people aren’t available, because they might be on leave. They might be going to a conference. There’s a myriad of reasons why people may not be available to work on your project, but if you believe you have somebody available to you for the 10 weeks of a stage, and it ends up that they’re actually on holidays for the last three, then you need to be aware that you’ve really only got that resource available to you for seven out of the 10 weeks.
The resource and task management element of your project management system has to be a very flexible, yet complex tool that handles all these variables. Fortunately, a tool like, let’s say, Synergy [wink wink] is just that. It gives you the ability to be able to do all those things at either a high level, on a planning board or to get right down to the individual work elements, or task to to-dos, and monitor the progress of your project. These tools let you maximize the opportunity to ensure that people are busy, and if they’re busy, then they’re getting through the fees that you want them to get through at the pace you want them to. And best of all, it’s all integrated. Back in part three — project setup — all that good work we know you put into getting your projects set up correctly pays off here by flowing right through to you task management and progress reporting. You’re so good at this!
Avoiding the attack of the zombie
By using these systems you’re doing the best possible thing to ensure your practice is commercially viable, because if you can’t do that, it’s not. A cash cow project will keep you alive for a while, even if you are really a ‘zombie practice’. A zombie practice means you’re dead and you don’t know it. You can appear to be profitable simply because there’s one huge job that happens to be making you money, but effectively, that job aside (because it’s going to end at some point in time) you’re dead.
So, you need to have mechanisms to ensure your commercial viability, because whilst it’s wonderful to do creative things like architecture, interior design, surveying, engineering, all those sorts of things, if there’s not money in it, then you don’t have the opportunity to be creative. There are very few volunteer creative people around, and the ones that are, are very skinny and very upset. Everyone needs to make money including your built environment business.
Producing production-line project success
The need for these systems in order to create project success is really no different to all the minute engineering that happens on a production line. On a production line, if you know that your raw resource is going to cost you a dollar, and you know that you can only sell it for two, you’ve only got a dollar to work with. So, you have to make sure that the processes involved from the raw resource through to actually shipping to the place of sale, doesn’t cost you more than a dollar. Now, that’s an over-simplification of what has to happen in any project-based business, because the good thing about the manufacturing processes is that you can be certain of what’s involved to take the raw resource to the finished product — with a project, it’s a guess. But you want to make that the best, most educated guess you can.
Any project-based service is difficult to work in. The difficulty is exaggerated in this industry, simply from the point of view that you have to hire highly trained, expensive people. You’ve got this overhead cost that you have to ensure is worth having. So, it’s hard. It’s a hard industry. But it’s a beauty when it’s working well, isn’t it?!
You need to ensure you get that reward, and as the owner of the company, you need to make sure the reward compensates you for the effort you’re exerting. That you haven’t simply bought yourself a job, which is the huge mistake a lot of business owners make.
A lot of practice owners and managers either think it’s okay, it’s just a consequence of running the place that they only make $150,000 a year. But in fact, they could go out and get hired for $150,000 a year. Don’t kid yourself it’s good, because it’s your place and you’ve got the freedom — because if you’re getting paid minimally and working 17 hours a day, that’s not exactly freedom. At the end of the day, you’ve got to make sure it’s worthwhile, and that the business itself is an asset. You don’t want to be slaving away for a zombie practice.
You’re in a people-centric business, because you’re not selling products. You’re essentially selling the services of your people. The actual price of the people working on a project might be disguised in a fixed fee, or it might simply be that you’re working on an hourly rate basis, but at the end of the day, you’re selling the people who work for you. You want to make sure that there’s money in that, and that it’s not essentially a slave trade.
In the next part of the series, we’ll be looking at project performance as the panacea to our built environment project woes. If you haven’t already, sign up to our newsletter to get it as soon as it comes out.