Case Study: How One A/E Firm's Software Quickly Paid for Itself
January 26, 2023
Although architecture and engineering (A/E firms) are increasingly moving to firm management platforms to streamline and simplify their operations, many still track project details using “systems” made up of spreadsheets, accounting software, time-tracking tools, and potentially other applications.
Such was the case with one engineering firm that, despite the limitations of this approach, was able to be marginally profitable. However, having heard several industry authorities in recent years touting the benefits of moving to lump sum billing, they were tempted to make the switch.
Facing the Reality of Inadequate Project Tracking
As appealing as the idea of growing their profits was, this firm had to face reality: There was no way they could successfully transition to lump sum billing, given their lack of project tracking capabilities. So, they implemented a firm management system with two features critical to lump sum billing.
The first is the ability to create a detailed work breakdown structure. When a software solution can divide projects into smaller scopes—lasting a few weeks to a few months—it’s much easier for project managers (PMs) to manage them. This firm’s engagements tend to bill at somewhere between $100,000 and $200,000, so manually parsing them into bite-size chunks requires a great deal of work. But with a system designed for that purpose, the effort is reduced significantly.
The second crucial feature is the ability of a system to make it easier to track earned value. The client trained its people on how they were to assess earned value and know what 10% complete looks like as compared to 15% complete. In doing that, they began focusing on tasks finished rather than relying on hours or budget dollars consumed.
Tackling a Test Case
With the two critical capabilities available and project managers who were now empowered with the new processes, the firm heard from a long-term client who they thought would be receptive to being a “test case.” They replied by generating an hourly proposal that included a note that they’d be happy to perform the work for a lump sum and offering a 2% discount on the fee as an incentive.
Not surprisingly, the client didn’t just say “Yes,” but “Oh, heck yes!” Who doesn’t want 2% off the price of anything?! The firm then completed 7 or 8 lump sum projects in the first six months of the year with jaw-dropping results: They were 30% more profitable than similar hourly projects for the same company, even after subtracting the discount!
Can Factor or any firm management system guarantee that its capabilities will lead to a 30% increase in profits? No, but this was a real-world example of what can happen with the right setup and more visibility into project progress.
"Ultimately, organizations that implement the right solution almost universally find that their new software drives tremendous process improvements and profitability increases."
From a Beta Test to a Rapidly Broadening Rollout
With several successful projects under its belt, the firm expanded lump sum billing to the client’s entire company (rather than the specific plant that had been the initial focus). From there, the firm broadened its lump sum billing further to all clients in that sector.
And the profitability increases just keep coming! Today, firm profits have essentially doubled, and everyone is benefiting:
● Clients don’t have to spend as much time reviewing invoices.
● The firm is getting paid faster and enjoying better cash flow.
● PMs are getting substantial bonuses.
● Improved project management is enabling the firm to compete for—and win—more work from the test-case client and others.
● Everyone is less stressed and more satisfied with the outcome of projects.
Nothing has changed about the quality of the work produced, of course. But delivering the same excellent output with fewer project tracking and billing hassles has made life better for everyone. And the firm will move to lump sum billing exclusively—all clients in all sectors—in the year ahead.
Certainly, you’ve got to wean clients off the 2% discount, but when you’re making 30% more profit on projects, you’ve got room to negotiate!
The Final Piece of the Puzzle: Changing the Project Review Process
Although the firm is now breaking projects into more manageable chunks, there are still scopes that “go sideways.” That’s inevitable in the A/E industry. And when the mindset is that PMs who let this occur are “bad at their job,” tension arises. Ironically, the potential for higher profits made these scenarios even more tense.
Wisely, the firm recognized this and has actively worked to change its project review process. Rather than asking PMs, “How did this go wrong?” the firm’s managers and principals now ask, “How can we help get things back on track?” And this shift from corrective mode to supportive mode has rippled across the firm and is paying big dividends in the form of more effective collaboration and people more eager to take on the challenging PM role.
Ultimately, this story is important for A/E firm decision-makers who view firm management systems as a necessary evil. Organizations that implement the right solution almost universally find that their new software drives tremendous process improvements and profitability increases, and that the system pays for itself in no time!
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