Check the fee scale, reduce it by a gamble-factor and add back a contingency. Is this your idea of a business plan?
You produce great designs. You bring home projects on time and on budget.
You're busy - well, most of the time - which all adds up to the happy fact that you are keeping afloat in a difficult market. But do you want to do better than that? Do you want to improve your profitability? If so, you are going to have to take time away from the design work and think about how you can run the practice as a better business. Because ultimately, if your practice is going to grow and become dominant in the areas in which you operate, you don't just need to be good architects, you need to be experienced business people, too.
How well is the practice being run?
What would an outsider say? How efficient is it? And how good is it at doing what it's actually supposed to be doing: making money? You can't afford not to put your house in order.
A remarkably consistent picture emerges from the mainstream of Britain's architects. The dominant theme is fire-fighting - too few people chasing too many details on too many activities. There is precious little time for discussion of the longer-term, big issues; instead, a pervasive 'meetings culture' sucks up time and money without producing decisions and action. Some of your key money-makers are trapped behind a mountain of paperwork, while they should be spending crucial time with clients and prospects. Outside the front door, local niche players chip away at your client business, while clients increasingly demand 'extra value'. What would an outsider say about your practice?
The truth is that these are endemic traits of professional service firms, firms that start off as entrepreneurs, driven by the excitement of a few individuals putting their technical skills into the marketplace and establishing a business. With time comes success, and with success comes growth. Growth means more time on bureaucracy and less time doing the things the senior partners want to do.
And the result? A compromise, where the key partners are struggling to stay close to their client work, while failing to do it justice, and also tackling the administrative burden, with neither the appetite nor perhaps the experience to do an expert job.
Recognise the picture? There are examples of it everywhere. This predicament underlies most of the business inefficiency in the professional market, and it is nothing to do with people's technical ability to do their jobs. These issues are not impossible to deal with, but they are not going to fix themselves. It means some honest assessment and sober reflection on the issues you probably know have been affecting your practice for some time.
The best architects' practices work, quite simply, by using the methods that tend to work for profitable businesses anywhere. You are not an unusual business, with your own unique dynamics and deserving of unique sympathy. The things that are determining your success right now, and how successful you are going to be are standard modern business methods, which you need to fit to the particular demands of your practice.
Start with your own operating efficiency. You are running a business with a collection of important assets: people with experience and skills. But are these assets being used properly?
When everything depends on people, these people must be free to do the things that add the most value. What this does not mean is unnecessary meetings, or interminable internal meetings, or project architects being asked to operate with inadequate support or training, or excessive supervision at partner level.
Businesses should always take the time to think about their clarity of purpose and their efficiency. What precisely are you good at and going to focus on, and how are you going to make sure you get it done, and done well? There is amazingly little time put aside in busy practices for this type of management assessment; and yet without it bad habits become standard practice, and everyone is too busy chasing their tail to realise just how inefficient they have become. No wonder so many firms look at themselves and wonder how on earth they started acting as if they were IBM.
Clarity and efficiency result from some honest questions being asked.
Are all meetings prepared properly and run with a firm eye on agenda, timescale and actionable outcomes?
If not, you are wasting your time. Are the key people in the practice being used properly, on the activities that will make the biggest impact? If not, you are wasting their potential and stifling the real differentiators for your practice. Have you established the roles and responsibilities of the key staff? If people don't know where the buck stops, and who is accountable for what, there will be muddle, duplication and a serious risk of dropping the ball. Have you examined the multiple activities that tie up people's time and considered whether you really need to carry on doing them? Cut out the unnecessary work or it will eat away at your already limited time.
Once you have established these ground rules, ensure that somebody is responsible for monitoring them. It could be the practice secretary - although ultimately it needs to come from the managing partner. Getting the practice running with maximum efficiency is important, without it you will never succeed at the top table. But it is not enough on its own. You need to be focusing efforts on the activities that will be profitable consistently for your practice. This means hard facts, and architects are sometimes worryingly short of them.
Often, there is not nearly enough information about the actual profitability of client work and not enough use of profit data in deciding what activities the practice is going to get involved in and the amount of investment that will be required.
There is frequently misuse (or no use) of timesheets; a tendency towards 'quick' estimates that perpetuate pricing errors; and fee pitches (whether successful or not) for which the costs are not fully evaluated.
It is no wonder that profits remain flat while billings increase, and yet, once again, these are not traits unique to architects. Many of the biggest blue-chip companies in the UK are unable to determine exactly where their profit is coming from. But forgetting to determine what is profitable and what is not is a strange way of conducting a business.
What you need is a management information system (a database) that tells you where to focus your activities. This is not simply an in-house accounting package, as that only gives you bottom-line numbers without telling you why the numbers are as they are. Software packages are also, in general, unnecessary; any basic system that allows multiple entries and an element of analytical examination will suffice. So Microsoft Access, for example, is entirely adequate.
Picking your client
The purpose of good management information is to tell you what to do to operate more profitably. First, you must be able to determine the profitability of your client work. This need not be beyond a workable '80 per cent level of correctness', which can be implemented - otherwise you will get bogged down in unhelpful detail with cost allocation. If this means you need to get tougher on timesheet management as well, then do it - unless you know the cost per hour of each employee you can't possibly work out whether an exercise is actually making you money. Second, you need a single data view of each client - all the separate sub-projects you are working on, linked together, including the profitability of each.
You can now perform one of the most clinically necessary tasks: ranking your clients by profitability. This exercise is guaranteed to produce a different view from your intuitive ranking by billings.What it will show - if your practice is similar to nearly all businesses - is that the famous Pareto rule will dominate your activities: 80 per cent of your profit will be coming from 20 per cent of your work; and, just as importantly, 80 per cent of your work is producing only 20 per cent of your profit. This news tends to cause businesses to reconsider their focus more dramatically than any other type of self-assessment (see The Pareto Effect, above). Finally, you need to be able to examine your client business for trends: sectors where you are growing (or not); clients whose business is growing (or not); particular jobs that are increasing in sale levels or profitability (or not) etc.
The analytical work tells you which activities to focus on. Again, there will be some surprises. But the critical element (and the only activity that will start to repay your effort in producing this management information) is implementing the findings.
This will mean focusing your sales and marketing efforts on those client types, or job types, with the largest profit potential. It will also mean establishing a new sense of focus for the entire practice: what you are going to focus your activities on and the kind of work you are now going to set out to win. Without implementation you will simply not manage to take your business performance to the next level of efficiency. And this is the hardest step of all: making the changes that you know are necessary.
Mungo Dunnett runs Mungo Dunnett Associates, a consultancy for professional service firms. Email mungo@md-as. com
IS THIS YOU?
Too little time - for reflection, learning, planning
Not enough delegation
Too much time spent on inefficient administrative tasks
Key personnel not being used properly
Billings increasing but profits staying flat
Clients increasingly choosing lower-margin niche players