Every day we speak to partners, directors and CEOs of architectural practices who are frustrated. We hear the same things, the same confessions every time - important questions about their businesses that they simply don’t know the answers to.
They confess to not knowing.....
- ...if the project we just completed was profitable
- ...if their staff are being efficient with their time
- ...if we can deliver the project on time and on budget
- ...if they’re able to bill invoices they have forecast
- ...whether they need to hire more staff or utilise staff more effectively
- ...how profitable the business is until the end of each quarter / year
- ...whether they should increase their prices.
Why do they not know the answers to these questions?
There are a couple of reasons. Either:
- Data is being recorded inaccurately or not at all. Employees won't use laborious or overly complex systems, which leads to a lack of consistency and accuracy of project data.
- Data is available but not accessible in one place – often there are too many separate systems that don't talk to each other.
Running a successful architectural practice relies on two key requirements:
- Simple systems and processes that staff can adopt easily to ensure time is recorded, resources are planned, and costs are recorded consistently and accurately.
- All project and business information is available in one place to provide the necessary insights to allow project managers and leaders to make real-time confident decisions based on the data.
If these two basic fundamentals aren’t present in your architectural practice, then you’ll have:
- No visibility of what is happening in your practice
- Poor project decisions being made
- Inefficient resource management
Left unchecked these problems will lead to the two Evil Twins of project management.
Evil Twin #1 goes by the name of “Underquoting”.
Evil Twin #2 goes by the name of “Over-Delivery”.
Underquoting and over-delivering on projects mean you reduce your profitability, your clients may expect more work than you have quoted for, and you can ultimately end up making a loss. To afford more creative freedom and pick up projects that excite you and your team, you need to start thinking about how you can make sure your regular projects are paying the bills and growing your business.
In order to rid your practice of these Evil Twins, you need to quote accurately, be clear about what is included in the price to your clients, and make sure your team knows exactly how long they’ve got to deliver each task.
This can be easily accomplished following CMAP’s PETAL Framework – plan, engage, track, adjust and learn.
How to banish the evil twins following the 5-step PETAL Framework
First, you need to scope out the work and understand what is involved so you can build an accurate quote.
Instead of looking at the whole project in order to quote, think about the breakdown of stages that need to be completed, the roles that will need to deliver them and how much time they’ll need. This gives you an accurate resource budget which you can use to drive your fee (if you’re doing a bottom-up budget) or to sense-check the fee (if you’re doing a top-down budget). The key thing to setting yourself up for success is knowing (a) how much will we get paid (b) how much will it cost us, and (c) what margin will this give us? It’s also important to not overlook factoring expenses into your budgeting, so they don’t chip away at your profits.
Everything you will do to complete the project i.e., the level of service and detail, needs to be detailed in your quote.
You can either build this into the fee structure of the quote, or you can include it textually in the statement of work, but the key thing is to ensure you include what you're delivering as part of the scope so everyone's clear from the outset. This should also include your team’s time on status call updates and rounds of design revisions.
In order to make sure your margins are correct, it’s important to make sure your cost rates are correct. Here’s a handy guide that will help you with that:
Finally, you need to deliver your quote to the client.
The key challenge here is setting expectations and making sure your clients understand exactly what is included in the scope of work so that additional requirements don’t crop up and take more of your time and resources.
Be absolutely clear about what your team will deliver so you don’t end up delivering a project that deserved a much bigger fee.
The first question on any project should be “how long have we got?” Your staff need to get into the habit of asking about budgets and timelines before they let their creative juices flow. This will allow them to think commercially, as well as creatively, so they know they are delivering a project within budget to increase practice profitability.
Make sure your team know exactly what is expected of them and in what time frame. That way they can plan their time accordingly. Asking “how long have I got?” at the beginning of each project is key in creating a culture where you allocate appropriate timescales to each task to avoid over-delivering.
The reason this is especially important in a creative field is it helps your architects reign in their wilder flights of fancy, and instead focus on delivering something mind-blowing within the boundaries set by the budget.
Next, you need to track the time being spent on the project vs the actual budget. This is easily achieved by timesheet engagement.
The biggest obstacle to timesheet adoption (other than most timesheet software being painful to use!) is that people often think the purpose of timesheets is for ‘Big Brother’ to keep an eye on them.
However, the real purpose of timesheets is to ensure the practice understands its exposure and profitability. Keeping up-to-date timesheets is essential in monitoring how long each stage of the project takes compared to how much you budgeted for.
Giving your employees the responsibility of their own personal budget means they suddenly discover the importance of timesheets as they need to be mindful that they’re completing work whilst staying within their own budget.
If you’ve noticed that your project is running over budget you now need to make some adjustments to get it back on track. Running over budget may be caused by scope creep.
For many projects, scope tends to expand the further in you get and the more clients move the goalpost. This expanding scope is commonly known as “scope creep”, and means the final project ends up being a lot bigger than you initially thought and quoted for!
However, creep tends to be the result of not properly defining the scope of work in the first place. In order to avoid scope creep happening, you need to have planned properly at the start.
Extra revisions or expanded projects can cost you more time and resources if you’ve not made it clear those things will incur an additional fee.
You need to continuously monitor how often your clients are moving the goalposts and flag up anything that was not originally specified in the scope of work and fee, and charge accordingly.
As with most things in life, when you’re running a practice the best lessons you learn will probably come from the mistakes you make. Making mistakes and learning from them is a key part of becoming an experienced leader.
To achieve consistent business growth, you need to be able to review your projects and learn from them, or else you risk making the same mistakes time and time again.
How can you learn from your previous projects? This can be achieved in four parts:
- Part 1: Gather quantitative data for analysis
- Part 2: Subjective elements
- Part 3: Bonus gains
- Part 4: Cost review analysis
First, you want to gather as much quantitative data as possible (budget, timesheets, expenses, and any external costs that you might have incurred from third parties).
This data will tell you the “financial success” of the project by comparing how long you thought it would take compared to how long it actually took.
Next, you should also gather subjective feedback from your team, including what went well, what didn’t work well, and what lessons were learned?
A great way to build a strong library of case studies is to discuss it during your Project Reviews. Did the project go well? Is the client happy? If so, would this project make for a good case study?
Template your review process so that it makes it easy for you to review and compare across projects. This will help you spot patterns and readily identify issues that need to be addressed in future projects.
After completing project reviews with a standard template (available using CMAP Pages), you should also be able to periodically compare projects side-by-side to see which types of projects are more profitable to you and which ones cost more.
Are there certain sectors that are more profitable for you and you should focus on winning more of? If a certain client’s projects consistently go over budget because they move the goalposts, should you continue working for them?
This will help you strategically plan ahead so that you can accept more profitable projects or quote higher for those you have seen normally cost you more money to deliver.
Now you know what you need to do, how are you going to implement PETAL in your practice?
Well, we’ve got you covered! Download our free guide and we’ll show you how:
- How to increase profitability in your practice so you can afford more creative freedom
- How to make quick and easy changes to your processes so that you can identify a costly project early
- Ways in which you can make sure your Practice is working efficiently to achieve consistent growth