WHY YOUR ARCHITECTURE OR

ENGINEERING FIRM NEEDS A STRATEGIC

PLAN
And How You Can Make it Successful
By Raymond Kogan, AIA and Cara Bobchek, Kogan & Company, LLC
Architecture firms are good at thinking strategically about how to tackle a project; thats how you earn your
fees. Think about how you take on a design assignment for a client: you listen to the clients needs, address
those needs in a way that meets the schedule and budget for the project, and then design a solution that will help
to achieve the clients vision.
Strategic planning leverages those same analytical, organizational, and problem -solving skills that you already
possess as an architect to envision, promote, and implement an exciting and successful future for your own firm.
Motivations for Strategic Planning
Some of the more common scenarios that inspire a firms interest in strategic planning include the following.
Revenue, competition, and market sharein any economy, and especially in a prolonged downturn.
Waning profits.
Sensing opportunities to grow, but not being able to attain them.
Ownership transition.
Leadership succession.
The Benefits of Strategic Planning
The best firms to work for (from the employees perspective) are usually also the best firms to work with (from
the clients perspective). Their people look forward to coming to work, they feel rewarded for their creative
innovation and performance, and they see their career path at the firm. They are proud of be part of their
company, and that is part of what makes their company so competitive. Firms that use strategic planning are
more likely to be able to foster that kind of environment. The strategic plan:
Paints a vivid picture of a firms future.
Lets everyone understand the firms direction and priorities.
Is tangible, so it feels real, and sharing it throughout the firm engenders trust and support.
Incorporates ideas and input from a broad base of the firms employees, but is developed by top management,
which inspires confidence, displays leadership qualities, and instills a sense of direction that is so important to
the staff.
Provides a backdrop against which a firm make decisions and to which employees can hold each other
accountable.
Help a troubled firm get back on track, and helps a good fi rm to become stronger than ever.
Preparing for Planning
A firms staff members crave communication from upper management. Preparing for strategic planning is a
perfect opportunity for a firms leadership to get more personal with the rest of the employees. Meet with the
management and staff and travel to branch offices, if you have them, to explain that your firm is about to
undertake an important process that will define an exciting future for the company, and show your own
enthusiasm for it. Explain the process and reinforce that everyone in the firm will participate on some level
and benefit at all levels. The objective is to connect everyone to the process and the results.
Developing the Plan
The strategic planning team. The strategic planning team should include members of the firms top
management, and may also include some up-and-comers in your firm who demonstrate visionary and strategic
thinking. Keep the team small enough to be able to work effectively, but large enough to represent the breadth
of your firm and the best thinking that it has to offer.
Components of the plan. Your strategic plan should include the following key components:
The mission expresses the ongoing, permanent essence or purpose of a design firm. The mission statement
gives people inside and outside the firm a common understanding of the firms reason for being.
The vision is a big-picture, long-term description of what a firm aspires to become at a defined point in the
future.
Key initiatives and issues refer to the major unfulfilled opportunities and looming obstacles that affect a firms
ability to achieve its vision.
A firms goals are the near-term (shorter than the long-term vision) quantitative, measurable targets that the
firm sets and toward which it will gauge its progress and for which its people will be accountable.
Strategies are the good ideas the firm develops to address its key initiatives and issues and reach its goals.
Action plans are the short-term, tactical tasks that the firm will implement in order to put its strategies into
motion.
Planning retreat. Firms are most effective in developing their strategic plan when they bring the team offsite
for a retreat, during which they can be free of the many priorities of their day -to-day responsibilities and focus
exclusively on the plan itself. Many firms find that engaging a consultant aids them throughout the strategic
planning process, and especially in facilitating the retreat, which tends carry an ambitious agenda.
Implementing the Strategic Plan
Some firms find it difficult to follow through on their strategic plans and become frustrated that their good ideas
to move their firm forward are left sitting on the shelf. Its vital that your firms leadership models from the
outset that strategic planning is a priority, and that the strategic planning team members get others in the firm
involved in carrying out the action plans assigned to them.
If the strategic planning team stays together after the plan is developed, meets regularly to report progress and
make any necessary course-corrections, and holds one another accountable for the performance of the plan, your
chances of successful implementation increase dramatically. Above all, its important to document where your
strategic plan has effected positive change at your firm. Connecting planning actions to positive changes will
help build a strategic planning culture at your firm.
You have a choice when it comes to both the near- and the long-term future of your firm: you can try to shape it,
or you can just let it happen to you. The strategic planning process is an opportunity for you to take control of
the destiny of your architecture or engineering firm. You can decide what you want your firm to be, visualize its
potential, understand the circumstances in place today that could stand in the way of your getting there, and
devise and then take the steps necessary to the achieve the future you desire.
Ray Kogan, AIA and Cara Bobchek are with Kogan & Company, a management consulting firm serving the
design and construction industry and specializing in strategic planning and related consulting services. Ray and
Cara also are the authors of the book, Strategic Planning for Design Firms, published by Kaplan AEC in 2007.

7 SIGNS THAT YOU NEED RESOURCE

PLANNING
 Here are seven sure signs that your organization is missing out on the benefits of a resource planning solution:
1. People appear busy, but utilization rates remain low.
2. Some people are always overloaded, while others often have available capacity.
3. Your project planning is frequently based on guesswork.
4. You often overservice clients because you have no baseline budget overview or a real-time view of work
status.
5. You arent getting the most out of your peoples talents because you havent mapped their skills.
6. You cant compare your longterm project pipeline to your planned capacity.
7. Your resource planning is based on local spreadsheets because you dont have a solution to manage your most
important (and costly) asset: your people.
If these situations sound familiar, its a sign that your company could become more profitable by implementing
a uniform resource planning solution. Resource planning can make your life easier, create a better experience
for the user, and improve your bottom line.
Resource planning is one of the biggest opportunities firms have to deliver successful projects and generate
profits. Its surprising then that its also one of the biggest operational challenges that firms face. Why is that
and what can you do about it?
Simply put, there are two principles to resource planning:

1. Matching staff availability to project requirements

2. Aligning skills with projects

That said, to complete projects on-time and within budget its important that you fully understand the costs of
people, materials, expenses, and subcontractors that will be needed to complete projects and can plan and
schedule accordingly. The positive impacts resource planning can have on your firm profitability should make it
an easy choice to adopt, for it will ensure:

Higher and more uniform utilization

Happier clients

Higher win rates and more profitable business

However, resource planning can be difficult for some companies to implement for a few reasons. When left to
their own devices, most project managers are prone to tapping the resources they know and trust. The
alternative is centralizing the process. However, this often requires a firm -wide cultural and strategic change
that many companies shy away from.
But that is a big mistake.
There is a lot to be gained from moving to a centralized resource planning solution. A central resource planning
system puts all resource management information in one place and will consolidate all account and project
information. It provides everyone at your firm with a single and accurate version of the truth. Youll have
consolidated information based on actual data, in one place rather than across multiple s preadsheets from local
managers. That way youll get more real-time visibility into account and project progress across the
organization. That real-time visibility available to everyone from project manager to senior management will
help you increase utilization across your entire organization.
The good news is that this has been done before and there is a clear path to follow based on firms that have
successfully made the jump from massive spreadsheets to automated processes. Deltek Project-based ERP with
resource planning tools will help you do this, and will give you a n ERP system that includes a project
scheduling tool with resource attributes that gives you the ability to search for the right resource, with the right
skills, at the right costs, and when you need them.
So what should you look for in a Project-based ERP with Resource Planning solution? When looking for an ERP
system ensure that it has resource planning / resource scheduling that:

Provides a simple, flexible user experience, because resource and project planning varies by company.

Allows for people at different levels and competencies to plan optimally. You want a solution that facilitates
higherlevel, more resilient, flexible planning.

Provides options for drilling down, but can keep users from getting lost in too many details.

Provides one view that combines visibility into projects and resources.

Can be complemented by experienced consulting services as you need them, including pre and postimplementation
review and support.

PROJECT INFORMATION MANAGEMENT FOR

AEC FIRMS
Are you drowning in a Sea of Data?
Imagine this - what if managing your AEC projects and firm information could be as simple as managing your
iTunes or Spotify library? What if everything related to your projects was in one place and easy to find? What
if you could access it from anywhere, anytime and all of the information was organized, categorized, and easy to
search? Just think of what that could do to your firms productivity.
Over the last 30 years the AEC industry has undergone a dramatic change, transitioning from paper based
documentation to predominantly digital files. However, in many ways, the systems and processes for managing
all of this information havent kept up. For many AEC organizations, information is still fragmented and living
in silos. Its housed in personal folders, on network shares or scattered across disparate systems making it
difficult for teams to collaborate on projects. When information cannot be easily accessed or is not properly
organized for fast, easy retrieval, it not only negatively impacts pro ductivity, but also exposes a business to
greater risk of litigation when key pieces of information cannot be easily located.

Every AEC Project Generates a Tremendous Amount of Information

This risk increases with large AEC projects that span multiple ye ars and can generate millions of documents.
Even if youve already moved from paper based documentation to predominantly digital data files, managing the
high volumes of information exchange (RFIs, change orders, BIM files, drawings and reports) can be a d aunting
task. Its especially cumbersome when project partners, with limited access to your network, are participating in
the process. How do you ensure everyone is informed and working with the right information (and latest
versions) to keep projects on track. When your projects are hindered by information silos, unreliable data and
inefficient processes, not only will your organizations productivity suffer, but you are exposing your business
to greater risk.

The Daily Deluge of Email

Email has become such a fundamental aspect of the way we work, its difficult to imagine a world without it. It
has become the dominant form of communication for most businesses. While email has streamlined business
communication by providing a fast alternative to traditio nal mail, fax and phone, it can negatively impact an
organizations productivity if not used properly.
Consider this:

The average number of business emails sent and received per user per day totals 122 emails per day.[1]

This figure does not include the large number of spam emails corporations must filter on a daily basis.

People on average spend 2-3 hours a day on email related activities, consuming 20-30 percent of their business
day.[2]

If a central place for teams to store project related emails is not provided, each recipient and ccd user has no
option but to file the email, and separately the attachments, in personal folders or on network drives. This
results in storage duplication and makes retrieval at a later date more difficult. The risk of l osing key pieces of
information increases further when employees leave the company.

Mitigating Risk to Your Firm

AEC is a litigious industry, with the risk and cost of claims high. Although disputes can be due to any number
of reasons, when it comes to litigation, its critical for you to ensure that your organizations activity is
adequately documented and information is easy to find.
In the past parties working together on AEC projects exchanged PDFs that couldnt be altered. With BIM, actual
models with valuable IP are now being exchanged, which increases the risk of IP loss and legal disputes. Tools
like email and file transfer sites, while a necessity for communication and transporting large file types, have
also introduced an informality into the process without the necessary system gateways in place. This makes it
more difficult for project teams to meet governance and compliance requirements.
These risks can be amplified in large scale projects that can span multiple years and involve the exchange of
hundreds of thousands, even millions of pieces of information. Trying to find that killer email or critical
document when information is hidden away in personal folders or spread across multiple systems can be like
trying to find a needle in a haystack.
Where to Begin?
As you look across your organization the thought of where to start to drive improvements into your information
management processes may seem overwhelming. You may wonder how you can possibly move from todays
information chaos to a state of information efficiency and control. But think about it, whoever thought wed go
from vinyl records to musical libraries in the cloud so quickly? And - we sent a man to the moon in 1969 and
have been there several times since. So everything is possible! There is a way for you to gain control!

UNDERSTANDING THE VALUE OF YOUR AE

FIRM
By Victor W. Vaccaro, Jr., CPA/ABV, CFF, CDA, Principal Dannible/McKee and Associates, LTD.
An Overview of Architectural and Engineering Firm Valuation
How much is your A/E firm worth? Certainly an important question, and unfortunately it is one that many A/E
firm owners cannot easily answer!
First lets start with a discussion about why it is so critical to understand the value of your firm. There are
many reasons to understand the value of your A/E firm, including:

Plan for growth in value

Internal ownership transition

Merger with another A/E firm

Outside sale of your firm

And even acquisition of another firm!

GROWING THE VALUE OF YOUR A/E FIRM

If you know the value of your firm and understand the critical factors that influence its value, that should better
allow you to manage your firm to produce not only current earnings but also increase the firms long -term
value. A specific target value can be set for some future po int, such as the retirement of key
shareholders. Goals and strategies can then be established to help achieve this target value.

INTERNAL OWNERSHIP TRANSITION

When you transition ownership within your firm, you are really transitioning value. To understand the amount
in dollars that must be bought and sold, as a starting point, you mustknow the value of your firm. From there,
you can begin to consider how to best plan for transition of that value. There are many opportunities and
complexities in planning for internal ownership transition, and these will be the subject of a future blog
post! We also teach a full day course on ownership transition for A/E firms and upcoming locations are listed
at www.dmconsulting.com/seminars/.
MERGER OR OUTSIDE SALE TO ANOTHER FIRM
Sure, most firms are not actively being marketed, however for the right price just about any owner would
consider a deal! It is important to understand the value of your firm so that you can evaluate any offers you
might receive. The A/E industry has been very healthy in recent years, and this has increased firm values and
the ability of acquiring firms to consummate an acquisition.

ACQUISITION OF ANOTHER FIRM

Yes, it is also important to know the value of your firm if you are looking to acquire another firm. How you
view the value of your firm will help you to understand the potential value of a target firm. In addition, an
acquisition might be paid for with your firms stock so a value will be needed to determine the number of shares
to exchange.

Determining the value of your Design firm

There are a number of different ways that A/E firms determine the value of their stock. These range from
educated guesses to values based on an established formula to detailed valuation reports prepared by qualified
appraisers. Following is a summary of some common methods for valuing A/E firms along with comments on
their application and usefulness.

BOOK VALUE
It is very common for small A/E firms to use book value as their method of determining the value for share
transactions. However, an A/E firm is usually worth much more than its book value! Even if your accounting is
properly performed on an accrual basis, book value only in cludes tangible assets and represents nothing more
than liquidation value if you collected your receivables, paid your payables and sold off other assets. Surely
your firm is worth more than just its liquidation value!

CAPITALIZATION OF EARNINGS
A/E firms can also be valued by assigning a valuation multiple to capitalize the historical or projected future
earnings of the firm. Depending on the type of earnings that is utilized in this calculation, an appropriate
valuation multiple might be in the range of three to seven times. This type of valuation will only be effective if
a firms earnings are normalized to addback discretionary expenses and adjust for other nonrecurring income
or expense.
THE A/E APPROACH
While book value is not by itself sufficient to determine value, consideration must be given to the value of the
assets retained in the firm. Under the A/E Approach, the adjusted book value represents the floor value or
starting point in determining value. To this base value, an earnings or goodwill factor is added to determine the
overall value of an A/E firm. The earnings factor is most often determined by capitalizing the weighted average
earnings of the firm for the most recent five-year period. This hybrid approach was developed years ago by
Dannible/McKee and Associates and is commonly known as the A/E Approach. It has been successfully
utilized to value hundreds of A/E firms across the U.S.!

INDUSTRY RULES OF THUMB

There are a number of rule of thumb valuation multiples that are often talked about in the A/E
industry. These are generally not sufficient to rely upon in determining value as they ignore many of the
individual characteristics of a firm. However, they can provide a great sanity check in support of other more
detailed valuation methods. The most common industry rule of thumb indicates that A/E firms are valued in the
range of 45% to 60% of annual net revenue. Another useful statistic shows that values fall into an average
range of $60,000 to $70,000 per full-time equivalent employee.

Conclusion
I hope this article has helped to show the importance of knowing the value of your A/E firm and provides at
least a starting point to understanding how that value might be determined. Please visit our website
at www.dmconsulting.com/business-valuation for more information about A/E firm valuation. If you would like
to discuss the valuation of your A/E firm, feel free to reach out to me anytime!