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How to Craft and Implement Your Recession Action Plan
April 16, 2020
In our previous blog, Laying the Foundation for Your Recession Action Plan, we explained that we interviewed architecture and engineering (A/E) firms that came out of the last recession in good shape about how they did it to gain insight on how firms can best address challenges like those posed by the coronavirus pandemic and resulting economic downturn. For many of the firms, self-assessment of their culture and a renewed understanding of their clients were critical in developing a successful recession action plan. After you perform those activities, the next step is to define your goals.
Choose Your Rabbit
Confucius is credited with saying, “The man who chases two rabbits catches neither.” That’s a simple but powerful truth. When a sharp economic downturn occurs, it’s important to pick your “prey.” In other words, you need to determine what goal will help you weather the financial storm most effectively and then focus your energy there.
Do you want to come out the other side leaner and meaner? Repositioned in terms of your offerings? Landing business in different geographic locations? Any of these tactics (and many others) could potentially benefit your firm, but you need to pick one and set your sights on it.
Once you’ve identified goals for your post-recession operations, you have to make a plan for achieving them. What we’ve found is that it helps to set what we call “minimum acceptable conditions.” For example, you might say, “We will always have breakeven cashflow or better.” Or “We will not cut people who can help us grow once the economy rebounds.” Of course, when you make those statements, you have to know how you’ll back them up. You might keep cashflow positive, for instance, by changing the way you plan and manage projects so they’re completed faster and more efficiently.
The elements of your plan are likely to evolve as the recession progresses, so you have to be flexible. But what can’t change if your firm is to survive is the agreement among key players on the general approach to survival.
"You need to determine what goal will help you weather the financial storm most effectively and then focus your energy there."
Bring Your Insights Together in Your Recession Action Plan
With newfound clarity on your firm’s culture, the needs of your clients, and your goals, it’s much easier to craft a detailed recession survival strategy. However, while you should work with a sense of urgency, you don’t want to act hastily.
One statement we heard repeatedly from A/E firms that made it through the last setback was that it’s important to reach an agreement among leadership regarding a post-recession vision, minimum acceptable conditions, etc. and then allow some time for those ideas to “marinate.” While you want to implement a plan promptly, a little time to reflect on what’s been discussed—even if it’s just 24 hours—may help you fine-tune your strategy.
After that pause, the next step is to create a “pro forma” of the plan in order to ensure that it is feasible. The last thing you want to do is set yourself up for a demoralizing failure that creates even more uncertainty about the future and undermines everything you’re trying to do. Consequently, the pro forma should include very conservative revenue estimates along with very realistic and predictable overhead expenses.
Once you’ve documented the plan and given contributors a final opportunity to review it, you’re ready to implement it.
The Right Way to Make Headcount Reductions (If Necessary)
Every A/E firm owner hopes they won’t have to reduce staff during a recession. However, if despite your best efforts you can’t maintain your operating budget in a recession and you need to make cuts, we’ve found there’s a right way and a wrong way to do that.
The wrong way is to focus on letting people at the low end of your payroll spectrum go and retain only highly paid team members who have typically been with you longer. There is, of course, a tendency toward this last-in-first-out mentality driven by loyalty and other factors. Unfortunately, it creates the problem of how to pay the people who remain, especially if your workload shifts toward the lower-margin work that may be all that’s available.
Instead, you need to be more strategic about staff reduction. You should look at technical skills, experience, work habits, client relations aptitude, and other attributes. With this information in mind, you should then cut diagonally through your organizational chart. In other words, the proportion of owners, managers, and workers should be kept steady as you make your reductions.
And for firms wanting to avoid staff cuts by implementing across-the-board salary reductions, a word of caution: In the last recession, this approach led to the downfall of many A/E firms. The damage to morale and to their high-performance culture either forced them out of business or put them in a hole where it took years and years to recover.
From Helpless to Hopeful
One of the most frightening things for A/E firm owners and their employees alike when a recession hits is the feeling of being helpless in the face of outside forces. Fortunately, developing and executing a decisive recession action plan can reassure everyone that the firm still controls its own destiny. That message can turn helplessness into hopefulness and generate the energy and optimism that helps power your firm through the difficult times and into the better times ahead.
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