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Top 10 Areas A&E Firms are Losing Profit
September 1, 2023 in Engineering
By AMR Consulting
How much money is your firm losing every day because your processes are not well established, people are not held accountable and/or the systems in place are not supporting their efforts?
Find out more about the top ten areas Architecture and Engineering (A&E) firms are losing profit, and how you can improve your business management and operational practices to find the lost dollars in your projects.
1. Lost Opportunities
Today, many firms are taking an uncoordinated approach to finding and pursuing new projects. They are chasing opportunities triggered by the last downturn, but are losing more often. Why? Because they are going after opportunities they should not be pursuing in the first place. And while many things contribute to this, one of the top reasons is firms don’t have the visibility they need to see which markets and projects lead to higher win rates and larger profit margins.
2. Cumbersome Proposal Process
Putting together winning proposals is no easy – or cheap – task. And it becomes even more of a challenge if the information you need is unorganized, in multiple data silos or just doesn’t exist yet. Successful proposals take time from not only marketing, but project managers, principals and other key team members. Firms can lose significant profits on a project before it even begins. Many firms don’t take into account the time and cost needed to put together a proposal to ensure they are achieving their desired profit margins.
3. Flawed Estimating Process
One of the biggest challenges firms face is underestimating the hours needed to complete a project. This becomes even more complicated when firms rely on a significant number of subconsultants. Of course the ability to estimate varies depending on the contract type (i.e. time & materials vs. lump sum), but firms may not be leveraging historical project analysis or project costing to more accurately and profitably estimate the next project.
4. Scope Creep
Scope creep can be detrimental to projects, especially when poorly managed. Inaccurate estimates, loose time entry procedures and delayed access to critical project information can all contribute to the problem. Delayed time entry and key project metrics mean project managers can’t proactively manage projects and identify scope creep before it’s too late. This can lead to project overruns, missed deadlines and unhappy clients.
5. Poor Staff Utilization and Resource Scheduling
Total staff labor charged to billable projects has been moving alternately up and down within a 1-point range each year since 2012. According to the 43rd Annual Deltek Clarity A&E Study, after a three- year uptick, utilization rates declined to 58.5%, representing a dip in performance greater than any observed in the last 10 years.
Many firms struggle to maintain high utilization across the firm for several reasons including:
- Firms rely on the same teams to deliver the same projects leading to some staff being overburdened and others underutilized
- Without an accurate resource scheduler, project managers can’t see which team members with the right skills are available to execute the projects
- Disparate systems and spreadsheets used to manage projects result in more administrative time for billable employees to monitor and deliver projects
- A poor time entry culture leads to inconsistent or inaccurate entries, billable time slipping through the cracks, or hours having to be written off or moved to overhead
6. Poor Project Management
According to the 43rd Annual Deltek Clarity Study, only 35% of firms are highly or very highly confident in their ability to report on project schedules. This disconnect is troublesome given increased staffing pressure. Delivering successful projects is at the core of what A&E firms do and poor project management effects not only project and firm profitability but also client satisfaction
Key Contributing Factors:
- Inexperienced Project Managers
- Lack of formal project management process
- Inaccurate or disparate project data
- Post-mortem access to data (reactive vs. proactive)
7. Long Invoice Cycles and Poor Cash Flow
On average, firms take 2-3 weeks to prepare invoices and send to clients. Combined with an average collection period of 75.3 days, it is no wonder that firms report poor cash flow. With that much lag time, firms are essentially giving free loans to their clients!
8. Inefficient and Non-Integrated Systems
Many firms get caught up in the day-to-day project tasks and don’t take the time to critically look at project and firm processes to identify where they can drive efficiency. However, the annual cost of inefficiency can be quite eye opening when firms take the time to take a closer look. If firms think about project team members, their hourly rates and multiply that by the number of hours wasted daily, weekly, monthly and yearly in administrative or unnecessary tasks, firms can see a significant drain on profitability.
9. Poor Time Entry Culture
On average, firms take 2-3 weeks to prepare invoices and send to clients. Combined with an average collection period of 75.3 days, it is no wonder that firms report poor cash flow. With that much lag time, firms are essentially giving free loans to their clients! Certainly part of the long collection period is beyond a firm’s control.
10. Ineffective change management practices
This can lead to disruption, inefficiency, and lost revenue. Changes in project scope, team members, or processes can often result in confusion, delays, and rework if not managed properly. This can lead to missed deadlines, lower client satisfaction, and higher project costs, all of which directly impact profitability.
Is your firm losing profit in any of these 10 areas? AMR can help! Implementing a modern, project-based ERP software can help you overcome these common challenges and streamline your business by integrating all of your financial accounting, project management and business development needs into one system.
AMR Consulting is a management advisory and ERP consulting firm focused on serving professional services industries. Since 1988, we have concentrated exclusively on supporting the A&E communities, and other professional services organizations. With our assistance, clients are able to focus on their areas of expertise, concentrate on day-to-day operations, and improve profitability.
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