Firms are super busy, but that doesn’t mean all is well. How are profit margins, recruiting, and employee training holding up?
The AEC industry is busier right now than it has been in a long time. This is great for your firm – right? I talk with at least five to 10 CEOs a week, and their results are surprisingly mixed. While it is obviously a booming market for services, being busy does not necessarily translate into high employee performance, recruiting success, or project profitability.
Every economic market provides us opportunities and obstacles, yet many firms run on autopilot, assuming that the dynamics of making money and growing are the same in up or down economies. This approach assumes that the opportunities will be obvious and take care of themselves, and that is not usually the case.
To be successful in a fast-paced business climate, it’s imperative to position your people, strategies, and decisions to recognize opportunities when they present themselves, and be agile enough to move quickly to take advantage of them. Likewise, we need to prepare for an inevitable future downshift and availability of work, and the hidden opportunities that also become available in a slower market.
By evaluating both the upside and downside of being so busy, we can both better take advantage of opportunities as well as avoid potential traps. Here are some considerations to help you develop your short- and long-term strategy in the current work environment:
The blessing of being so busy:
- Your revenues are increasing.
- Employees are more highly utilized.
- You don’t have to panic about sales as much. With a higher backlog, the pressure is reduced to go out and find more work.
- You can be more selective about clients and projects, and turn away work that has low profit margins or is not in line with your strategic plan.
- Your cash flow improves, and you have less stress about making payroll.
- It may be easier to grow and expand service offerings – if you have the people and the time.
The curse of being so busy:
- Because of the shortage of experienced staff, you may end up settling for people that are not as talented.
- Employees’ heads are down and too busy to pay attention to project scopes and budgets. As a result, there is money left on the table, increases in scope creep, and profit margins are not increasing at the same rate as revenues.
- Your firm leaders are getting pulled in many directions and may not have enough time to focus on the firm’s most important strategic goals.
- Important internal initiatives get stalled because key staff are too busy working on projects to work on non-billable, non-urgent but important business improvements.
- Despite the fact that work is abundant, clients are still exerting great pressure to reduce fees.
- In many markets across the country, salary and benefit costs are increasing faster than fees, causing profit margins to decrease.
- You may have to turn work away because of a lack of available resources. You may also have to subcontract out work that normally you would do in-house. This was inconceivable about 10 years ago, but now you have no choice.
- Important training and development is put on hold. In a time when less experienced staff are available, it is more critical to accelerate employees through their career path and increase project management effectiveness.
- As your older, more experienced employees retire, you will have less time to replace them and get mid-level managers ready for leadership.
- Some of your business units may be underperforming or failing altogether, and it can become more difficult to turn them around in a fast-paced work environment.
Leading an AEC firm in this time-compressed environment can be more challenging than in a slow-growth phase. You will have less time to make critical decisions and potentially less options as well.
If you can recognize and anticipate many of the repercussions of your expanding workload, then you have an opportunity to minimize their negative consequences. Preparing for the detrimental effects of being busy that can cause reduced profits, stall expected growth, or lead to poor staff performance is the key to ensuring that your firm experiences a mostly positive impact of being swamped with work. To anticipate and plan for these potential unwanted outcomes, review the list above and proactively develop strategies to deal with each challenge.
Being busy is better than the alternative, but it won’t last forever. Working hard is preferable to hardly working, but also has an opportunity cost. Leaders can mitigate the negative side of being busy by being aware of potential hazards, and developing strategies to ensure the positives outweigh the negatives.
June Jewell is a CPA and author of the best-selling book Find the Lost Dollars: 6 Steps to Increase Profits in Architecture, Engineering and Environmental Firms. She is president of AEC Business Solutions, focused on developing business assessment tools and online training for project managers to help A/E firms make more money on their projects. Learn more about how to improve your employee and firm financial performance at aecbusiness.com.