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Is Your Firm Using the Right Project Management Approach?
May 7, 2021
Architecture and engineering (A/E) firms tend to use one of two primary economic models. The first is characterized by what we’ll call “passive project management” and the other is centered around “active project management.” The two used to be essentially interchangeable, but the industry is now moving rapidly toward a preferred approach.
Consequently, it’s important to understand the two models and why the change is occurring.
The Passive Project Management Model
Through the years, it’s been common for A/E firms to set the fee for a project based on what the market supports and what the client is willing to pay. More often than not it’s a lump sum contract, and once it’s signed, the firm begins working with little regard for the budget.
They essentially say to their salaried architects or engineers—people who are “exempt professionals” by labor law standards, so not entitled to overtime pay—that they should, “Do a great job and make sure the client is impressed with our service and our solution.” The problem with that directive is that there are always ways to increase the “wow factor” on a project, and architects and engineers pride themselves on finding them.
So, in this scenario, firms overthink projects and overwork their employees in order to deliver outstanding work. It doesn’t matter how many hours it takes. As long as the project deadline is met and the client is thrilled, that’s a success, even though a huge number of hours go unbilled.
The firm gets its profit, plus overseeing projects is much easier for managers since “the devil is in the details.” If you’re not concerned about budgets and tasks and hours worked, project management is greatly simplified.
And, there are other drivers for this approach, as well. One is that the software that’s been used historically doesn’t have functionality for in-depth project management. Another is that most architects and engineers don’t have much, if any, financial expertise, so they’d rather not go too deep into the details anyway.
In addition, clients love this approach. They get high-quality deliverables at a fixed cost, and the firm gets a reputation for having some sort of magic that enables them to do extraordinary work for ordinary fees. Of course, people outside the firm don’t see what’s going on behind the scenes—and that’s where there’s trouble brewing.
One of the biggest downsides of passive project management is that it relies on architects and engineers working an unreasonable number of hours and not being compensated for their extra effort. They tend to be perfectionists and get some pleasure out of a job well done, and also from making the firm’s principals and clients happy. But it takes its toll over time—on them, their families, etc. And as a new generation of professionals who understand the value of work-life balance comes up through the ranks, there’s growing reluctance to make this type of sacrifice.
"One of the biggest downsides of passive project management is that it relies on architects and engineers working an unreasonable number of hours and not being compensated for their extra effort."
The Active Project Management Model
Driven by the “changing of the guard” in A/E firms, and likely accelerated by the COVID-19 pandemic and the eye-opening experience of working from home, there’s now a noticeable shift toward a more active approach to project management. Not only are firms not expecting teams to work lots of extra hours, they’re actually requiring them NOT to work those hours.
Rather than, “Do whatever it takes to make the client happy,” managers are saying, at the end of a solid workday, “Go home. Get some rest and family time.” And that’s the case even though everyone understands that it might ultimately mean that a project is “very good” rather than “spectacular.” Experienced owners and managers are comfortable with that minor downgrade in large part because the client is getting what they paid for and probably can’t see the difference in quality anyway.
The result? Team members are happier and healthier, which means they’re more likely to stay with the firm. Plus, the firm gains an advantage in recruiting when word gets out that they don’t work their people to death and instead truly embrace having a clear delineation between work time and personal time.
There are some requirements for making the shift to this approach, however, including:
- You have to think about the scope of work before you submit your proposal. You’ve got to be intentional in how you define projects—going task by task and scope by scope, and tying deliverables to fees, rather than just slapping a lump sum fee on a contract based on your experience. Your initial figure can be the starting point for a conversation with the client, if appropriate, but it has to be based on specific tasks not some general idea of the project scope.
- You need a project/financial management system that enables greater transparency into, and coordination of, projects. Factor AE, for example, was designed with this economic model in mind. If you want to do excellent work, turn a good profit, and not overwork your employees, you’ve got to be able to track budgets, progress on tasks, planned time vs. actual time, etc. with a high degree of granularity.
- Teams have to be instructed that the agreed-upon fee is a limitation, not a suggestion. Work has to be completed efficiently and with increased attention to detail, and the target must be good output rather than “world-class” output. If the latter can be achieved within the allotted time, so much the better, but you can’t break the budget going after it.
And, of course, you still need to ensure that the client is excited about the results. Consequently, more monitoring and management of projects, as well as support of project teams, is a necessity.
Other Considerations for Active Project Management
As more firms move to active project management, we’re finding that many have to modify how they compensate their architects or engineers. Despite managers’ best efforts, there are times when teams have to put in more hours than were budgeted. Rather than expecting employees to work those hours for free, firms are realizing they may have to provide some type of overtime pay to keep talented people on staff.
We’re also hearing from firms that the discipline required with active project management is actually good for the business. That includes gaining a new perspective on how much more work they could have been getting done if they weren’t spending many extra hours on every project—the lost opportunity cost, so to speak. At some firms using the “old” economic model, it’s just understood that you’ll be writing off 15-20% of the hours worked on each engagement, even though the industry average is 6-8%.
Needless to say, making the switch to active project management isn’t easy, especially since it involves both a cultural change and a financial change. People need to understand that in saying “No” to overtime, you’re protecting the company’s bottom line. And, inevitably, the pushback will be, “If we make this switch, the quality of each person’s work will suffer, and by extension, the firm will suffer.”
But quickly firms realize that they can do both: stay within a carefully planned number of hours and produce great work. And the good news is that in doing so, they also tend to produce a pretty significant bump in their revenue.
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