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PROJECT MANAGEMENT AND RAPID GROWTH: LESSONS LEARNED Scott F. Lockhart, PE, David L. Richards, PE, and Julie Kasper INTRODUCTION Hull & Associates, Inc. (HAI) is an environmental engineering consulting firm, headquartered in Toledo, Ohio, with branch offices in Cleveland, Cincinnati, and Columbus, Ohio. Founded as a sole proprietorship in 1980, HAI was incorporated in April, 1987, with seven employees, including three support staff. Today there are over 90 full-time employees, offering professional services to private industry, attorneys, municipalities and other governmental entities primarily in the Midwest. In line with its entrepreneurial culture, revenue growth has always been a primary goal. HAI grew rapidly, almost doubling in size each year until reaching a plateau in early 1992.However, after having experienced growing pains, the focus on profitability has become more important and a good project management program will continue to be an essential tool in maintaining profitability levels within a strong growth environment. Interestingly, the company consists of an unusually young professional staff, with many project managers having begun their careers with HAI. Few have formal project management training, and many have had to "sink or swim" with "trial by fire" project management training. This autonomous environment offered entry-level employees the benefit of accelerating their career growth with early exposure to project management basics, including client relations, proposal preparation, and problem-solving. This helped develop confidence in project managers and built a diverse experience base. While navigating through crises builds character and confidence, this approach has drawbacks. Because of the level of autonomy granted whether the employees were ready or not, quality control processes sometimes suffered. The lack of regularly updated project billing data and unsophisticated accounting processes hindered financial tracking of projects, often resulting in budget overruns and inefficiencies. While perhaps the only alternative for a start-up organization, the trial by fire method of project management becomes less desirable for larger, more established firms. The purpose of this article is to share some of our lessons learned about managing projects and growth, focusing on automation of financial management and project control FINANCIAL MANAGEMENT Financial management includes payroll, billing, accounts receivable and accounts payable, which, until a few years ago, was not well automated at HAI. Project accounting practices that worked fine when the firm was small were proving ineffective as the company grew. A key to successfully managing a project is accurate and timely access to its financial status. Ideally, a project manager should know where an activity within a project stands with respect to the proposed budget, percent completion and original scope. Accurate and complete timesheet information is essential in maximizing the effective billing of services and being immediately aware of out of scope work. Timely and efficient monitoring of costs is critical to the profitability of a project and ultimately the firm's Background What happens when a firms grows so rapidly that there are bottlenecks in the flow of project control information? Time and project chargeables went unbilled, the scope of projects crept without a project managers knowledge, excessive project hours accumulated and billing was delayed, affecting cash flow and sometimes resulting in lost revenues. Handwritten time sheets were faxed to a central office where data entry clerks coded the number of hours worked on each project. A descriptive summary of tasks were not however automated into the invoicing system. Generally one number was assigned to a project, for all tasks or activities. Timesheets included the project number and a brief description of the task or activity. Legibility was a problem, slowing the posting process and creating difficulties in properly assigning costs to a project. This occasionally resulted in billable hours being cut because the project manager or accounting staff could not assign the time to a project. Payroll was processed on the 15th and 31st of the month, so time sheet collection was twice per month, at slightly different times each month. Project managers were given a draft invoice by the middle of the following month for each project they were responsible for, but were not given any descriptive timesheet or budget information. Each draft invoice showed only the total hours by employee and other project expenses. The project manager then provided an explanation of services and returned the draft invoice to accounting for final processing. Questions regarding who did what and when had to be resolved by referring to timesheets and due to multiple office locations, sometimes timesheets were not easily retrieved. This placed a heavy burden on the project mangers at times, particularly when responsible for multiple projects, involving personnel from other locations. Project managers dreaded trying to make sense out of the limited data presented to them, thus billing was often avoided until the last possible minute. In addition to timesheet data, other incidental project costs needed to be promptly and efficiently billed and collected. The accounts payable system was not however linked with the project billing system. Hence, data were entered separately and occasionally invoices which should have been "passed through" to the client, were inadvertently not applied to a project, yet were paid by HAI anyway. Sometimes by the time these mistakes were discovered, it was too late for the project manager to recover the costs. Vendors became impatient with the cash flow delays. When the firm was smaller, the volume of invoices being processed was relatively small and most personnel knew the projects the company was working on. If there was a question, usually a project manager or a principal could identify the source of the charge and apply it to a project. However, as the company grew and multiple office locations emerged, so did the client base and the volume of payables to be processed increased dramatically. It became clear that a means to integrate the financial management system was imperative to successful project management. Current State of Affairs Analogous to a sales organization, HAI's product is an hour of time spent on a project, and project management is the key to maximizing the productive use of resources for our clients. In moving from a small, cash based business to an accrual based system, the bulk of our efforts in improving our operations were focused on automating the timesheet and project expense information to provide project managers with better project monitoring and budgeting tools. We found that by upgrading our existing accounting system and more fully utilizing its features, coupled with changing some operating procedures, we were able to implement significant improvements relatively inexpensively. Upgrading of the accounting system brought more timesheet and accounts payable data on-line with a job costing / invoicing system. Although making the upgrade created short term chaos, the resulting financial management process was worth the pain. A revised time sheet management program was set up. Instead of assigning one job number which encompassed an entire project, a process to develop separate phases to identify categories of tasks within a project was implemented and a separate budget attached to each phase by the project. For example, a typical Phase I environmental assessment may include a records review, site walkover, interviews, telephone consultation with the client or information sources and a final report. A separate phase, ie. 01.RPT can be established to track time spent on preparing the report document. In this manner, a project manager can develop a data base of project expenditures by type of task, which is useful for budgeting on future projects. For all monies spent, a job and phase number is required. A timesheet entry system allows employees to electronically enter project timesheet information and expenses, which eliminates hours of payroll processing time and vastly improves the quality of information entering the billing system. A front-end job number and phase code table is incorporated into the timesheet collection system, ensuring that proper job numbers and phases are being used. This also provides an added measure of control for the project manager. Phases can be closed upon completion of a task, preventing inadvertent posting to a project. Employees can not enter time on a project unless the project manager has set up the project phases and authorized billing to the project. All data flows to payroll processing and job costing systems, providing the ability to give greater description of services detail on invoices. Weekly, rather than bi-monthly, timesheet collection became a requirement, which disciplines employees to record work descriptions while the memories are still fresh in their minds. Continual timesheet editing is allowed and encouraged up until the due date, when time sheets are approved, and posted to the job cost system. Naturally, this resulted in a change to bi-weekly paycheck distribution, which is slightly more expensive, but the benefits of having more current and accurate information far outweigh these incidental processing costs. Billing periods were also shortened from once monthly to every 4 weeks, creating a 13th billing cycle. In addition to the billing cycle being initiated every 4 weeks by accounting, particular bills can be sent out as directed by the project manager, with information that is current up to the end of the prior week. Job Status Reports (JSR), which are updated weekly with payroll posting, are available to project managers so that actual, current information can be compared to budgets by phase. Amounts cut from bills or during proposal preparation are also maintained on the job status report, as a constant reminder of non-billable expenses incurred on projects. Along with more detailed project budgeting requirements, employees at all levels were made more aware of budget and utilization expectations as utilization levels were more frequently tracked and reviewed against budgeted goals. Employees are more aware and accountable for the time they spend on client projects and internal, administrative time. All of this information eventually helped employees improve their abilities to estimate project costs. In addition, with the automated reports available, the information is on hand to allow for a detailed review of project budget overruns, which is a valuable quality control tool. PROJECT CONTROL It became clear that as the company grew and projects became more numerous and complex, managing scope, budgets, and project personnel was becoming more difficult for project managers. The lack of an automated financial management system often hindered the efficient preparation of proposals and accurate budgeting. As an informal hierarchy developed and project managers began directing a larger number of resources, communication and control of project scope became more difficult. Personnel used to doing the work had to become accustomed to managing. HAI recognized the need for a more formal mechanism of monitoring proposal preparation costs and establishing project budgets, controlling scope changes, and improving internal communications. Proposals and Budgets Prior to the implementation of the automated timesheet and project phase code system, hours spent preparing technical proposals and qualifications packages were lumped together in a single category entitled proposals. HAI often prepared proposals that involved a significant amount of technical input, clerical support and reproduction, all of which contributed to project costs. There was however no mechanism to track these costs or actual time spent preparing the package, hence recovering some of these overhead costs when preparing project budgets was not possible. The upgraded and automated the timesheet / job cost system allows a separate phase exclusively for proposal preparation to be created within a project code. This benefits the project managers by providing information for evaluating the level of effort going into a proposal such that these costs can be considered when establishing the project's budget. A secondary benefit is the generation of data which can be added to a database of similar projects which is a useful tool when preparing budgets. Scope Control The availability of detailed timesheet information and JSRs has greatly improved the project manager's ability to identify work that is out of scope and track the associated costs. Where before it could be a month before a project manager saw financial data on a project, with the automated job cost system, a JSR is typically available within three days after timesheets from the previous week are posted. This provides an incredible amount of control over project costs as a project manager can react quickly to potential budget overruns and work that is out of scope. Change orders can be more quickly processed with greater effectiveness as the data are available to support the request. Phases can be added at any time to track additional tasks and the project budget updated accordingly. Recognizing the relationship between scope management and profitability, HAI developed a project briefing form which the project manager is to complete at the initial team briefing. The form identifies project specifics including the project billing code, project team responsibilities, and is intended to remind the project manager to answer four basic risk management / project control questions. Is the scope of work defined? Is a cost estimate/budget in place? Is a contract in place? and has a project schedule been established? This fulfills both project and risk management objectives. Completing this form at the initial project team meeting provides a record of discussions and clarifies the initial project scope for all team members. A team awareness of the project's scope increases the probability that out of scope work will be more quickly identified and brought to the project manager's attention. Internal Communications With growth of the company, instances of miscommunication or lack of communication between work groups and project personnel became more frequent. Project personnel from different disciplines and separate offices working on multi-task projects needed a mechanism to enhance project communications to minimize duplication of effort, improve project efficiency and to share lessons learned with others. HAI developed the group leader concept in response to this need. Each office has designated group leaders, responsible for managing staff activities within their respective groups. Groups are basically assembled by discipline or job function. When leveling resources or communicating project information, group leaders will interact to assign personnel or respond to project demands. Meetings of individual groups with the group leaders are scheduled on a fairly regular basis. On going projects are discussed, along with potential project leads. Manpower requirements are reviewed, schedules examined and any project difficulties which may require additional management support are solicited. Valuable information regarding project successes and demands can be brought to light in these informal gatherings. Group leaders, who for the most part are project managers as well, attempt to meet on a regular basis as well. This forum is more focused on issues rather than specific projects. The exchange of information between groups is useful in identifying potential market areas, job leads, and risk management needs. SUMMARY Growth brings challenges which need to be anticipated before they become hindrances to the effective and profitable operation of an entrepreneurial endeavor, such as a consulting engineering company. Early identification of the potential pitfalls we have discussed in this article and proactively planning for growth are essential to perpetuating a successful business organization. We have found that key to successfully managing projects is accurate and timely access to its financial status. At any point in time, a project manager should know the current status of any phase within a project and be able to compare this to the proposed budget, scope of work and percent complete. Accurate and complete timesheet information, as well as other project costs incurred, must be available to the project manager in order to control project budgets. At HAI, we found that the timely and efficient flow of data has resulted in several benefits, including project managers having better control of project costs and a heightened awareness needed to anticipate costs when budgeting. As the company grows, maintaining regular and clear internal communication, in combination with complete project financial data, is essential to project managers as tools critical for quality control. These improvements have been vital in maintaining the company's positive cash flow, overall profitability, and ability to continue to grow more profitably without adding overhead. Scott F. Lockhart, PE (Michigan, Ohio), Principal since 1993, Member ASCE, B.S. Geological Engineering, 1985 and B.S. Civil Engineering, 1987, Michigan Technological University, 10 years professional experience David L. Richards, PE (Ohio), Principal since 1997, Member ASCE, NSPE, B.S. Civil Engineering, 1986, Ohio Northern University, 11 years professional experience Julie Kasper, Controller since 1995, B.S. Business Administration/Finance, 1984 and MBA 1990, 13 years professional experience Return to the List of Articles |
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