LOVING SMALL PROJECTS

Afterhours Task Team

The four vice presidents of a midsize architectural-engineering firm are meeting in the lobby conference room.  The door is shut even though everyone else has left the building.  Perhaps this creates the environment to address the task set for them by their president.  She is now meeting with potential investors whose participation might be needed to avert bankruptcy.  The VPs know that this cash infusion will come at the price of diminishing each current officer’s equity stake and profit-sharing.  That is, if they are able to turn a profit again.

That is the challenge before them.  The immediate cause of the downturn in the firm’s prospects was an optimistic decision to begin a project on risk based on “all the right signals” from a potential new client.  When the contract was never finalized due to that client’s loss of an almost certain federal grant, the firm was over $130,000 into the project, albeit at their chargeable rates.  The four had recommended that the president agree to taking on the risk absent a contract, so there are no fingers to point. 

In better years, a loss like that would be the difference between a great yearend bonus and a smaller one.  In this uncertain economy, many clients are delaying building projects, so the firm is only marginally profitable before the big write off for the missed project.  Their line of credit is fully tapped.  After first looking at minor ways reduce cost and increase revenues to close the shortfall, those at table conclude that they need to “fundamentally rethink how we do business,” in the words of the VP of Finance and Administration.  The head of Project Management concurs, adding, “Let’s fix things now the way we’d expect a new partner to come in and reset them for us.”

For the next hour, the discussion focuses on how to work smarter in a way that would reduce staffing needs and still meet contract deliverable dates.  Halfway through that analysis, the VPs of Operations and Project Management engage in a heated debate whether the project man-hour requirements of the former were padded (more than enough hours to do the work) or too optimistic (the work will likely require more hours than budgeted).  These two VPs together examine a list of current projects ranked by total contracted fees, identifying how much each project is likely to finish under or over budgeted fees.  The Operations VP suddenly notices that there is one page of projects contracted at over $25,000 and four pages of projects under $25,000.  Upon sharing this observation, the VP of Business Development (BD) notes that booking all those small projects represents the lowest revenue return per man-hour in his department.  This immediately grabs the attention of the Finance/Administration VP, who until then was disinterested in the working-smarter strategy.

Blame It on Small Projects

“I hate small projects,” the Operations VP confides.  “They seem to take just as much management time as large projects.  And a single hiccup, and the budget is blown.  A miscalculation on a larger project, and there is still an opportunity to find manpower savings elsewhere.”

“At least small projects don’t fester,” the Project Management VP counters.  “They’re in and out the door too fast to have a chance to lose big money.”

While these two are again at loggerheads, the VPs of BD and Finance/Adminitration are accessing data to confirm or counter their own preconceptions and others’ arguments.  The latter reports as she stands up and walks over to the electronic whiteboard, “Actually, on the whole, the smaller projects are more profitable as a percentage of fees than the larger projects.”

Feeling outnumbered, the VP of Operations rebuts, “Maybe we should only pursue small projects, then.”

By then the VP of Finance/Administration has written “Small Projects” at the top of the board.  Below this are two columns headed by “Pro” and “Con.”  She lists some of the data-supported characterizations already offered.  In the next hour her colleagues contribute the following:

Cons:

• Higher overhead accounting and marketing costs per revenue dollar.
• Can require as much management time as large projects.
• Too small and quick to turnaround losses to break even;  need to pinch pennies.
• Insufficient funds to absorb the learning curve with new clients or a new project type.
• Less opportunity to be creative and innovative.

Pros:

• Higher profit margins than large projects.
• Fill-in work between large projects or when large projects are on short term holds.
• Good experience for developing professional staff.
• Often are additional or post-occupancy services associated with large projects.
• Can lead to larger projects;  many companies won’t award a large project before experiencing a small project with a new consulting firm.
• Can also lead to deciding not take on more projects from a difficult new client.
• Quick feeling of accomplishment as a balance to larger projects that may require years to complete.

When additional ideas start sounding more like a restatement of thoughts already proffered, the Operations VP suggests they take a few minutes for quiet reflection.  This is the practice he employs in trying to guide his teams to identify the right design or to solve an engineering problem.  When five minutes pass and he calls for thoughts, the BD and Project Management VPs almost say in unison, “it’s about the clients, not the projects.”

The Shift

In an unplanned joint delivery, they present data from their different perspectives.  The PM VP first shares that by grouping the projects by client rather than by size, the data indicates there are clients who are always more profitable no matter the project size.  Other clients always seem to generate losses for the firm.  The VP of BD relates how these same profitable clients are more likely to call the firm about their upcoming needs, than requiring his sales force to regularly contact them.  By then the VP of Finance/Admin. has regrouped the data to identify which market sectors are most likely to have the profitable clients.  Finally, the VP of Operations offers that his staff consistently likes working with those same clients that were now being recognized as predictably profitable;  those companies are more responsive and typically arrive well prepared at meetings.

With the data on pros and cons of small projects now archived, the white board is cleared to further process this new course.  By the time the firm president swings by the office on her way home from the meeting with the prospective equity partners, the foursome has a list of actions they are in unusual agreement will turn this firm around.  This includes which industry sectors to seek more clients and which to avoid unless the profitability is too good to turn down.  “Pursue small projects at lower margins to have an opportunity to introduce ourselves, and to help us spot less-than-ideal clients,” is listed, too.  Together, these actions promote building ongoing business relationships with clients rather than presenting the firm’s services as a commodity, each project having a minimum profit margin.

As the president reads the list on the white board, her face never betrays her response to their recommendations.  She then stares at a point on the ceiling, mulling this huge pivot for the firm.  Finally, the Operations VP breaks the silence by inquiring how her recent meeting concluded.  Only then she smiles and looks again at the white board.  “I love this, I want to lead this change.  And I wouldn’t ever want to work with those vultures.”