June 21st, 2021 (Originally appeared on Deltek's blog on August 14, 2020)
As Architecture, Engineering (A&E) and Consulting firms find their way through the current economic climate, finance teams are being put under significant pressure. Revenue streams are being disrupted, issues in the supply chain may be affecting contracted jobs, and margins are growing smaller by the day. As your organisation shifts to remote/flexible working, even day-to-day operations are being turned on their head.
So how do you adapt your finance operations to the current economic climate – and ensure you’re managing the new challenges effectively?
With the right processes in place, you can take the pressure off your team and ensure smooth financial operations. In this blog, we’ll look at three areas you should focus on first.
1. DON’T ONLY LOOK BACK AT PAST PERFORMANCE – GENERATE CRITICAL FUTURE INSIGHTS
Your organisation’s standard budget routine may be a solid, well-trodden process, but we’re hardly going through standard times right now. It might be time to rethink your budget approach.
In a rapidly shifting business landscape, past performance data won’t help you prepare for the future. Generating future insights will be critical to success, so adopting a weekly or bi-weekly revenue forecasting routine could be your best move. Get it right, and you’ll get constant forward-facing insights – but it’s no easy task.
First, you’ll need full transparency of your pipeline. Start by finding out what orders are incoming, then add discrete stages. You’ll need to add the probability of each project and predict when it will kick off and be delivered to ensure that you’re being as accurate as possible.
Once you’ve got insights into your pipeline projects, you can combine this information with your project backlog to more accurately forecast revenue. This could be a week-by-week process, or a month-by-month one. And if you can look ahead multiple months, you should. The further ahead you can look, the longer you have to respond to new challenges.
Once you have an accurate revenue forecast, you’ll also want to match it against your capacity to ensure effective resource planning. During this period of disruption, where revenue fluctuations are bigger than you might be used to, many Architecture, Engineering and Consulting firms are using more freelancers or subcontractors. Maintaining a flexible capacity in this way can help you stay on track with projects – without draining resources.
2. MANAGE YOUR WORKING CAPITAL AND IMPROVE CONTRACTUAL STANDARDS
It may be that your revenue streams are largely unaffected by recent events. However, managing your working capital could still play an important role in maintaining business operations and enabling future growth.
By getting your time sheets in every week, invoicing frequently and effectively managing your work in progress, you’ll reduce the risk of losing client revenue. Creating smaller contracts can also help, especially considering the challenging financial period. With clients paying more often, you won’t risk running up a large bill that could potentially go unpaid.
Managing your backlog of accounts receivable (AR) and accounts payable (AP) can also safeguard working capital. Start by establishing a clear view of what your AR and AP looks like, and what invoices are outstanding, then approach them one by one. The sooner you can focus on getting agreements in place for minimum payments, the better. We’re in a challenging situation, and in a few weeks’ time you may find your clients’ situations have changed.
Take the time to revisit old contractual standards, too. Organisations across the world are having to find innovative, creative ways of working – and that includes AE and Consulting firms. By rethinking your contract methods with clients and suppliers alike, you may find new ways to remain competitive and protect working capital.
3. EMBRACE FLEXIBLE WORKING; IT’S HERE TO STAY
Flexible working can bring big business benefits. New, digitally-dependant ways of working have accelerated essential digital transformation for many firms, while working from home offers new cost-efficiencies for others. But to ensure your workforce is productive, you may need to establish concrete remote working rules, transition to paperless operations and update your business model.
Working remotely requires a lot of self-discipline and motivation, and with many people having to balance work with childcare responsibilities or other home distractions, you may need to set new rules for work. That could be by allowing more flexible working hours, providing more leeway with deadlines or offering new incentives.
Communication is key to smooth project delivery, so make sure you are updating your delivery model, and that you and your team have the technology in place to host remote sessions.
Finally, digitalising your organisation’s finance and project solutions – whether that’s pipeline management, resource planning, invoices or workflow processes – can streamline remote working. And the benefits of transitioning to a paperless approach are two-fold; you support the remote workforce more effectively now, and you also lay the foundation for more flexible working in the future.
By optimising key processes, effectively managing your working capital and providing your remote workers with the correct support, you can alleviate the pressures facing finance teams and streamline operations amid disruption.
In the meantime, take a look at our best practice guide for financial management in the Architecture, Engineering and Consulting industry. In it, you’ll find practical advice on how to control costs, provide accurate reports, and manage working capital and month end.
Whether it’s smartly allocating staffing resources or gaining a full, accurate scope of the project setting the right baseline for your project is vital. Without one, you could run into significant budget or resource allocation challenges down the line.
Establishing a control point for cost is a key part of this planning process. While sales teams use a sales price, project managers should have a self-approved price estimate and cost estimate that they can deliver against. This is a critical reference point for controlling costs throughout the project lifecycle.