Unpacking the Fee Value
In our industry there are really 3 drivers behind what the value of the fee is that we earn on a particular job, namely the value of works, the published fee scales and the discount offered against these scales:
In our industry there are really 3 drivers behind what the value of the fee is that we earn on a particular job, namely the value of works, the published fee scales and the discount offered against these scales:
But what drives the value of works ? The obvious answer is the size of the project (over which we have very little control), but another important factor is the 'design value' - i.e. for a given building, one design might be valued at R10m, while another might be valued at R20m. The fee earned from this job would therefore double.
And what drives the design value ? Your employees - in particular how skilled, experienced and respected they are. In a nutshell - the employee quality.
But what about the discounts we offer. What drives them ? Yes, the current economic climate (but we don't have any control over that). However it is also our clients (how hard do they push us on discounts) and our peers (what discounts are 'the team' accepting) that drive the discount we finally agree. We may not be able to control the economy, but we can control (albeit over the long term) which clients and peers we work with.
Unpacking the Cost Drivers
Now lets take a look at what makes up the cost side of a project. There are the obvious company overheads (e.g. office rent), but in or professional services based industry, it is the labour cost that is the dominant cost on any project. This labour cost is a factor of the number of hours worked and the relative salaries of the staff who worked on the job:
And what drives these factors - the quality of your employees! A good employer can get the same job done in half the time of a bad one However, you may also pay your good employees more (resulting in a higher labour rate).
But there are also other significant factors driving the time spent on each project, including the project duration, the project size, the frequency of meetings demanded by the project and the number of changes to the project's design.
Again, the project size and duration are largely out of our control, but the frequency of meetings and the number of project changes are very dependent on our client and our fellow professional team members:
A Clearer Picture
So if we put the whole picture together, we can see very clearly that there are three key controllable drivers of project profitability (on both the income and expense side): our employees, our clients and our peers. I.e. it's all about the people.
The million dollar question is - which of our employees, clients and peers are the 'best' ? We may have a gut feel, but do we really know ? We may have that one client that gives us a lot of work, but when all is said and done, do we actually make money off him ? We may have a star employee that we pay top dollar to ( to ensure she does not go elsewhere), but are her projects actually profitable ?
Fortunately FRESH PROJECTS is singularly designed from the bottom up to answer these questions. Through effortlessly accurate time and expense capture, and intuitive simple business intelligence, you can quickly identify both your top and bottom employees, clients and peers. FRESH PROJECTS even takes it one step further - suggesting the correct discount value (based on past projects) that you are likely to require to on a new job (given the client, the employees you plan to use and the team you will be working with) in order to ensure profitability on that job !
