BQE Software is proud to share this interview with Tom Lynott of AEC Resources. Tom shares insights from his extensive work with A/E firms. His experience as a Project Manager, Financial Manager, Trainer and Consultant allows him to provide strategic as well as tactical assistance to principals and their teams. For the past couple of years clients have sought his assistance with management consulting, accounting system implementation and training, and process improvements.
Tom, let’s start with what you see every day in A/E firms.
First of all, A/E firms are creative and exciting businesses. I see many successful firms. But I also see firms that are struggling. Some of this is due to industry problems, but some is due to older accounting systems or an environment where Accounting does not really work with the rest of the staff. The result is often a firm that faces significant challenges in order to be able to better manage their projects.
What kind of challenges?
Their hardest challenges are often problems with their accounting systems and understanding that project management is a team effort between accounting and project staff. I often find firms with accounting problems that include:
- Unreliable or hard to understand reports that no one trusts
- Late reports
- Ignored information
Not every firm has all these problems, but most have at least one. The end result is these problems hamper a firm’s success. Managers don’t really know how their projects are doing. Also, the owners may not really know how the company is doing in general.
Rampant job costs, budget over-runs, billing and write-off issues, cash flow crunches and tax surprises might hide in the shadows but there’s no light on them. On any project, firms often don’t know they are in trouble until the fee is gone. Then it’s usually too late to save the job or negotiate a new fee.
What causes these problems?
There is no one single cause. The lack of information or reliable information might be caused by their legacy accounting system. Or it may be that the principals and project managers are happy to let the accounting staff carry the ball. Often it is a combination of both. This may lead to an environment with the accounting staff become gatekeepers to the financial data.
How does the software turn Accounting into the gatekeeper?
Many legacy accounting systems are designed for accountants – the screens, financial reports and so on. This is obviously important. But, this ‘accountant’ focus means the information for principals and project managers is either very hard to extract or is in an inefficient or unfamiliar format. Far too often I find staff that use Excel spreadsheets, manually analyze data, and generate custom reports in Excel or Word. These export/compile/analyze/format procedures take many hours or days to produce information that principals and managers need on-demand.
There is also an issue with not allowing staff to see or learn financial data of any type – salary rates and project revenue or losses. The information is guarded. Of course, some information should be confidential, but managers need other information to effectively manage their projects. Some managers set up parallel systems in Excel to capture their own information so they can do their jobs.
So the software is the culprit. Change the software and . . .”
No, not exactly. As I mentioned, principals may not want certain data to be shared, like bill rates and pay rates or revenues and costs. In the companies I worked in and with virtually all of my clients, the staff and managers know what the man or woman next to them are paid – it’s often stated in the proposal and scope of work! They know their bill rate, the contract fee . . . They know what projects are being worked on and how they are generally doing.
But when the principal says Secure It, Accounting does so. Except the legacy system padlocks everything. A bottleneck forms because the software’s security design is not state of the art. This makes accounting staff the gatekeepers. And some accounting departments really lock it down. They hesitate to release any information and then no one knows what’s going on.
Is that why you contacted us about BillQuick?
One of the big reasons, yes. My clients need to move on and replace their legacy systems. Your security design eliminates the bottleneck. BillQuick lets the firm – usually Accounting – decide what functions and information each user can access. This frees up Accounting and allows project managers to run their own reports.
Other than software, what produces ‘gatekeepers’?
Sometimes it is principals and project managers themselves. They are happy to let the accounting staff carry the ball. Essentially, they turn over project management and company financial functions to Accounting and hope for the best. This happens because of delays in getting information when they need it, or when it is unreliable or too hard to understand. They are also up to their ears in project work. They don’t know what accounting does anyway. So, a culture emerges where accounting and project management exist in the same firm, but they don’t work together.
So, not getting the right information in the right format and at the right time…
Yes, that’s right, in the form and at the point in time when it does the most good. That creates an environment where problems occur, like:
- Consistently over-running budgets
- Spending the entire fee
- Eating into profits on project after project
These firms fight fires constantly just to break even or earn a little profit. Successful firms can earn 15% to 30% profit on their projects. The ones hampered with legacy operating procedures and poor internal systems average less than 5%. With the recession, many firms who routinely did “good” or “OK” are now running into bad years.
So, what you do at AEC Resources is help your clients replace software and improve procedures.
Yes, but it’s more than replacing tools and one procedure with another. Both are critical, but it has to start strategically . . . start with a Team Effort. To succeed and not just survive requires that everyone understands their role and that it’s a team effort.
First, Accounting cannot manage projects. This is the responsibility of project managers and principals. Accounting’s central role is to provide accurate and timely information. They make sure time and expenses are timely. This ensures project information is available when managers and principals need it, usually weekly or on-demand. Information more than a month old is virtually worthless. A lot has transpired and managers simply discard it.
Second, managers cannot ignore reports or financial management of their projects. They need to ‘take charge’. If information is not timely, then they need to go get it. They need to review reports and make sure errors are corrected on an ongoing basis. This cannot wait for project closeout. Anything less and profits are lost. Think about it: Project managers spend the firm’s time and other resources. They assign tasks to staff and authorize subcontractors and other expenses. Without current project reports, they are not managing their projects. They are just spending money and hoping they don’t spend more than the contract value.
I emphasize to my clients that Accounting must keep on top of the data. Effective management of time and expenses means managers have the information they need when they need it. That the bills get out on time. That cash flow is managed and principals know what’s happening every week. If a gatekeeper or a gatekeeper type of procedure slows down the flow of information, correct the habit.
Changing habits are not easy. You must get a lot of resistance.
Once principals and projects managers see what they could have and how it leads to profits and success as a company, they want the change to happen yesterday!
The resistance often comes from Accounting. When projects and the company are essentially run by Accounting, change is tougher. Many do not see the benefits, they hesitate to change procedures and the software supporting them. They know project managers don’t read the reports. They know principals only request reports infrequently, at the end of the year or when a crisis looms.
My message to Accounting and everyone is always the same: Change Is Manageable.
Changing from legacy software and procedures is a manageable task. Principals quickly see that hanging on to legacy software too long, and not challenging ‘standard operating procedures’, increases costs. It makes it difficult to attract new staff and managers. New accountants are trained in newer technology. They may not be very keen on using legacy technology. New managers expect and need timely information. They come to a firm with more efficient procedures that will clash with older procedures. For example, waiting a week or month for project information is not acceptable. They expect budget, job cost, contract spent, percentage billed and other information now. They want to see bills before they are sent to clients. Imagine the client relationship problem that happens when a client calls to question an invoice and the project manager never saw it.
Giving up the old ‘gatekeeper’ role is tough for many accounting staff. The accounting system is no longer a “black box”. In a new system, project managers, principals and staff can add, edit and view data and reports without going through Accounting. They perceive this as a loss of control and that is uncomfortable.
How would you summarize this? What advice would you give A/E firms?
First, ensure the financial management of your firm is a Team Effort. Accounting staff and project managers must work together and understand how their respective roles support each other. This is the key to developing a truly successful professional firm.
Second, ensure project managers manage their projects. Similarly, principals should manage the company. Make sure the information they need is available when they need it, and in a format that makes sense to them.
Finally, ensure that Accounting is not a “black box”. They ensure information is accurate, timely and understandable. Without this, no one will trust the information. This does not mean accounting staff should do all the work. Everyone in the firm must do their part managing time and expenses, and they should access information they need.
Tom Lynott’s consulting firm, AEC Resources, LLC, is located in Cambridge, MA. You can contact him through his website, www.aec-resourcesllc.com, or by calling (617) 335-7817.