Engineering Inc. - March/April 2008 - (Page 20)

E xpenses in all professional services firms are directly and 100 percent related to delivery of services. JIM sTeIker sHareD eQUITy sTraTeGIes oped, maintained and analyzed together in order to be effective.” “Smart planning helps firms avoid potentially resource-draining errors, such as deviating too far from their core clients and services, taking risky ventures into uncertain markets or taking on projects before a contract is in place,” says Owens. “You wind up building your budget around what the client will pay, rather than what it will take to meet your profit goals.” Peter Ney, chief financial officer for EA Engineering, Science and Technology in Hunt Valley, Md., explains: “You have to create a culture where the financial and accounting team is as respected and appreciated as everyone else ‘bringing in’ the revenue. You have to hire and retain the best financial and accounting talent you can find because their creativity and excellence will help transform operational folks to the profit-accountability mentality that A/E firms need to succeed.” Marian Ross, chief financial officer of Harris & Associates, a Concord, Calif.based professional services firm, says adding a professional risk manager to the firm’s staff helped reduce its legal fees and other expenses. “Because there are always new things like indemnification requirements that we have to take on as the prime, it’s essential to have someone who can stay on top of it,” she says. No matter the firm, the point people for good financial management are the project managers who have the greatest influence on a project’s success. “These people need 20 ENGINEERING INC. MARCH / APRIL 2008 to constantly know what they’ve spent in terms of time and resources, and if their progress is on track financially,” says Steve Isaacs, a senior faculty member with the Napa, Calif.-based Advanced Management Institute, an industry consultancy. Ney says many firms mistakenly place accountability for profits on their finance departments. “Project managers need to know that they are responsible for tracking their project financials and delivering a profit, not just technical excellence,” he explains. But that’s sometimes easier said than done. Isaacs says a common problem among project managers is that many ascend to leadership positions without the training or experience necessary to properly administer important jobs. “Plus,” he adds, “in today’s environment, everyone’s busy. Project managers won’t back away from client or project needs, but they will often let administrative needs slide.” Solving Problems… and Avoiding Them Paradoxically, the very kind of growth and success that is contingent upon good financial management often is the reason A/E firms overlook the practice. “Small firms realize pretty quickly that they need to watch numbers closely,” Isaacs says. “As they grow, they start to think that management responsibilities can become more specialized, which isn’t the case.” Another common mistake is relying on off-the-shelf accounting and financial management software rather than tools tailored to the needs of A/E firms. “Products such as QuickBooks might be OK for very small firms,” Owens says, “but A/E firms need to look at other alternatives if they’re going to grow.” Having qualified financial management expertise in-house or under contract also is important to ensure that the routine aspects of financial management—accounting, billing, collections—are properly managed. Project managers also need to be clear on their targets, says Daggett. “For example, if a firm sets up a project with an effective multiplier of 3, but it comes S in at 2.7, the project manager will say it was profitable, but the firm has actually lost 10 percent of the potential revenue that could have been used for growth,” he says. “That’s why it’s important to continually emphasize the importance of meeting profit goals.” “There are many metrics to measure financial success, and all of them have advantages and drawbacks,” explains Ney. “The key is to have a limited number of common metrics that are used across the company, and make sure that all managers understand them. Large amounts of time can be wasted if different units within the company use different metrics to measure success.” Providing project managers with timely, consistent, to-the-point financial information can reinforce these principles without adding another responsibility. “A daily one-sheet report can provide the latest project expenditures, billing status, revenue factor and other key details,” Daggett says. “A project manager immediately knows where things stand and what areas need special attention.” Similarly, Owens says, involving project managers in contract negotiations helps build a better understanding—one that benefits the firm and its clients. “In small- and mid-sized firms, especially where the owner is the main client contact, the project manager has no concept of what’s required and might be unaware of mart planning helps firms avoid potentially resource-draining errors. T. Wayne OWens DeeMer DaVIDsOn PraTHer

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Engineering Inc. - March/April 2008 Table of Contents From ACEC to You News & Notes Market Watch Legislative Action Election Preview BIM Bottom-Line Strategies From the Ground UP 2008 Annual Convention Primer Across the Federation Business Insights 2007 ACEC/PAC Honor Roll Membrs in the News

Engineering Inc. - March/April 2008

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