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Ted Williams was one of the greatest hitters of all time. We know this because since the early days of baseball we’ve been tracking stats on every player for every game and Ted Williams rises to the top of the list in almost every category.

Whether through pen and paper, spreadsheet or enterprise software we have a history of using technology to measure greatness.

It’s the same for AE. Each hour on every project is an opportunity to capture and measure the great work your firm produces. Your ERP solution will either enhance or weaken that ability. But, how do you know when your ERP is falling short? Better yet, are there ways to anticipate the need for a new solution?

For ERP software, there are a few sure-fire indicators that it’s time to start looking for something new.

  • End-of-life -Discontinued product development or support
  • Outgrowth - When your firm outgrows the current feature set
  • Stagnant Development - No new features/improvements

1. End of Life

End-of-life is actually a normal stage in a product’s lifecycle- but that process can have serious ramifications. Often an end-of-life means a shift of resources away from supporting your software resulting in closed development and end of product support. Neither are good scenarios.

Typically, End-of-life is preceded by a vendor buyout, final version, end of sales or the release of a new (read, “replacement”) product.

2. Outgrowth

On a more positive note, sometimes your firm simply outgrows the feature set of your current software. There are lots of great solutions written for small businesses to begin managing their accounting, projects or CRM. However, larger contracts call for more employees, tighter communication and fully-baked integrations.

Balancing multiple vendors to capture your firm’s project/financial position can become cumbersome in periods of growth. If you’re growing too quickly for your software (congratulations!) it’s time to start looking.

3. Stagnant Development

Running a mature ERP solution has it’s benefits. However, terms like “product maturity” can easily mask a true lack of development or product improvement. This can leave you at a disadvantage. Signs of a slow down in development include fewer and far-between improvements to the product, long standing bugs or inattentiveness to customer feedback.

Since the early days of baseball, we've used technology to measure greatness and ERP software helps you capture this for your firm.

Great ERP does that in a way that innovates, continually improves and grows with you.

 

 

 

QuickBooks is a well-known accounting software package for small business.  It is often recommended to startups and small businesses by their CPAs, especially if that CPA does not have a lot of experience with professional service firms, primarily because (a) it is fairly cheap, and (b) the accountant knows it (more convenient for the accountant).

So when is QuickBooks a good choice? 

 

 

 

If a picture is worth 1,000 words, a chart is worth 1,000 numbers.

Years ago I was a consultant in the transit industry doing a maintenance study for NJ Transit.  They had about 11 maintenance garages, and we were comparing several metrics amongst the garages.  One metric is Miles Between In-service Failures.  Believe it or not, this number is surprisingly low in the transit industry, as I recall something like 11,000 miles.  That was about what most of the garages were reporting, but one garage was reporting 42,000 miles.

Either the manager of that garage was fudging his numbers or he didn’t know the definition of “In-service Failures” or he should have been in charge of the maintenance for all of NJ.  What struck me at the time was that we were getting the numbers from all of their standard reports, but no one noticed this garage until we put the numbers in a bar chart. 

 

 

 

Rulers

It might seem strange to talk to architects and engineers about the importance of measurements. They live and breathe physical measurements. But we’re going to talk about a different kind of measurements. Measurements that tell us how our businesses performed in the past, how they are performing now, and how they will perform in the future.

These measurements of performance are often called metrics.

 

 

 

Recently an associate and I were discussing the need for accounting controls in smaller professional service firms. He agreed there was a need, but thought it unrealistic, asking “How can you implement segregation of duties in a ten person firm where one person manages the accounting function?” He made a good point, but I have seen my share of clients living through a myriad of accounting messes that could have been prevented with adequate controls.

What is the answer?

 

 

 

The best way to get good decisions out of people is to give them timely, accurate information that answers their questions. This gives them both the motivation to act and the resources on which to act.

Historically, however, this was not done. Throughout the accounting cycle—usually a calendar month, but sometimes a calendar quarter—operating data was collected that was primarily of interest to the accounting department, mostly numbers preceded by dollar signs.

At the end of this period, after another period called the closing process, reports were printed out, usually defined by what an accounting system could generate.

Much of this information was considered confidential, so it was distributed to the principles of the firm, to the CPA, and maybe to the bank or lending institution that may have provided a line of credit.

Professional service firms like architects and engineers came to realize that there was also important project-oriented data that could be collected, but it tended at first to be collected and compiled on the same cycle, by the same people, printed and distributed to operations personnel, including project managers.

The problem with this cycle is that it provided data that was between one week and six weeks old, in a defined format that may or may not have met PMs needs, and all too often of questionable accuracy. Depending on the PMs workload and the level of detail, these paper reports could have been overwhelmingly voluminous, making it difficult for the PM to find the critical information he needed, and usually long after it would have been helpful.

In many engineering firms several projects could have completely come and gone in this reporting cycle.

Most of today’s professional service reporting systems are capable of much more than what the old system provided, but the old patterns are still followed: print a lot of reports, usually around the billing cycle and distribute them with more emphasis on billing than on control.

Stop It!

Let me propose four changes that will greatly empower PMs to make more timely and accurate decisions.

 

 

 

Managing a successful business requires effectively managing cash flow. And managing cash flow effectively means knowing how much cash to have on hand. To know that that we need to understand why cash is needed in the first place, then couple it with a thorough analysis of a firm’s revenue and expense cycles, preferably using an interactive model.

But let’s start at the beginning: how much cash on hand should an A&E firm have?

Do we have enough cash?

Based on what I see from my consulting with A&E firms, everyone has a different idea of how much cash is enough. I’ve seen 20 person firms holding several million dollars of available cash. I’ve seen hundred person firms that keep barely enough cash on hand to meet next week’s payroll. At both extremes, these firms are profitable and appear to be near-term stable, emphasis on the words appear and near-term. That being the case, is there a rule of thumb?

On average, firms in the architectural/engineering design sector maintain cash balances equal to approximately 20% of their total assets. This equates to about 8% of their annual sales, some reporting as low as 4%, others as high as 12%. Benchmarking your firm’s cash balance against some industry standard is not very meaningful, at least not without considerable investigation into what is behind the numbers.

 

 

 

Predicting Profit Accurately

All design firms have to factor in overhead when calculating project profitability. There are two main approaches for doing this: the Job Cost Rate approach and the Overhead Allocation approach. Most software packages offer one approach or the other. Sema4, for example, uses Job Cost Rate, while Advantage and Vision use Overhead Allocation. InFocus is unique: it offers both approaches. Let's review how each approach works.

 

 

 

One standard industry method of allocating overhead to projects is to use a predictive multiplier for the current year. Once the year has been completed the actual overhead is calculated from the general ledger and then retroactively applied to the projects for the given year. This can easily be accomplished in InFocus. The first step is to create a job schedule to hold the multiplier by year. Typically the schedule only needs one row to hold the relevant multiplier. Below is an example.