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Borrowing to purchase firm shares T R E N D L I N E S W W W . T H E Z W E I G L E T T E R . C O M A p r i l 3 0 , 2 0 1 8 , I s s u e 1 2 4 6

Differentiation in a crowded field

According to Zweig Group’s 2016 Principals, Partners & Owners Survey , 51 percent of owners did not borrow money to purchase shares in their firm. Of those who did, 14 percent borrowed from another shareholder , 12 percent borrowed from a bank , 6 percent used another source of funding , and 25 percent of respondents borrowed money from the firm . The average interest rate on funds borrowed from the firm was 3 percent. Totals exceed 100 percent because answers were not mutually exclusive. OPEN FOR PARTICIPATION zweiggroup.com/survey-participation/ F I R M I N D E X Carlson Studio Architecture.....................4 Gensler...................................................4 Gunda Corporation.................................6 Hees and Associates. .............................4 Holst Architecture. ..................................2 Joseph B. Callaghan, Inc.. ....................10 Quest Engineering...................................4 WithersRavenel.......................................8 WR-Martin. .............................................8

I t is a widely-accepted idea that one of the defining characteristics of a successful enterprise working in a mature market is differentiation from all the other firms that provide similar products or services. Yet, in spite of this, so many architects and engineers are running their businesses so mired in tradition that they are afraid to do something that hasn’t been done a hundred times before. The result is predictable – they look like everyone else. There are so many ways a firm can be different. Here are some examples: ❚ ❚ Pricing. Why price your services like everyone else – as either a percentage of construction, hourly, cost plus fixed fee, or fixed fee? Are there any performance-based options that might be more attractive to a client and more valuable to you? If so, you might want to con- sider trying them out so you’re different. ❚ ❚ HR strategy. Do you have to do annual or semi-annual raises like every other firm? Do you have to use performance appraisals like every other firm? Do you have to pay refer- ral fees to employees like everyone else does? Do you have to have set work hours like every other company? Maybe raises should be any time they’re deserved. Maybe you should drop performance appraisals, not pay employee referral fees, and instead donate to a charity or cause in their name, and let 95 percent of your staff work any hours they choose. I know that may sound crazy, but maybe it isn’t. ❚ ❚ Information sharing. Do you still share fi- nancial information only on a need-to-know

“One of the defining characteristics of a successful enterprise working in a mature market is differentiation from all the other firms that provide similar products or services.”

Mark Zweig

MORE COLUMNS xz FROM THE CHAIRMAN: After landing the job Page 3 xz GUEST SPEAKER: Mission: critical Page 9 xz GUEST SPEAKER: When disaster strikes Page 11

Conference call: Ramesh Gunda See MARK ZWEIG, page 2

Page 6

T H E V O I C E O F R E A S O N F O R A / E / P & E N V I R O N M E N TA L C O N S U L T I N G F I R M S

BUSINESS NEWS NEW HOLST-DESIGNED YOUTH CAMPUS COMPLETE IN ROCKWOOD Three non-profit organizations – Open School, Boys & Girls Club of Portland, and New Avenues for Youth – came together to create a two-building, three-and-a-haf-acre non-profit campus to support Rockwood’s underserved youth. The recently completed campus includes Open School East, the Rockwood Boys & Girls Club, the New Avenues Youth Opportunity Center, and outdoor sports courts. The campus, designed by Portland-based Holst Architecture , delivers safe and inspiring places for kids of all ages to learn, play, and socialize. The design of each building supports and elevates its mission. The entrances of both buildings face the re-established continuation of Oak Street, now a through street, creating a safe drop-off area away from busy Stark Street. The concurrent development of the buildings enabled the organizations to create shared facilities that reduced capital investment. The final piece of the phased development, the New Avenues Youth Opportunity Center, opened in March. Located in a tenant space within the Boys & Girls Club building, the Center provides services and resources for homeless, at-risk, and foster youth. Just outside the Portland city limits, Rockwood is among the most diverse and lowest income areas in the metro area. With the largest concentration of youth under the age of 18, Rockwood has also led the state for the lowest academic performance and graduation rates. The new Rockwood Boys & Girls Club aims to attract and inspire youth outside school hours. The club includes a secure entry with interior bike parking, gymnasium, kids’ café,

Take your advice from Mark Zweig to-go.

teen lounge, juniors center, youth and family services space, and an art studio. While Boys & Girls Club programs make use of the café, gym, and other spaces during after school and weekend hours, the synergy of uses enables Open School to use those areas during school hours. The new Boys & Girls Club balances safety and security with attractive, “grown-up” design that appeals to the Club’s members. The gym and classrooms on the ground floor feature fritted glass with supergraphics that allow views out but not in from the outside. A ribbon of yellow painted walls and ceilings leads members through the building and connects the major spaces, signaling to members of all ages that they are a part of a unified club. Open School East is an innovative college- prep school that prepares students who have struggled in traditional public school. Serving grades 7-12, Open School features a robust program that supports students at risk of dropping out to reengage them with academics. The design of the building reinforces the school’s model of support and openness: it provides eleven classrooms, two science labs, an art studio, and administrative spaces arranged on two floors around a double-height gathering space. The physical form of the building supports the school’s approach. The classroom volumes are shifted along the edges of the central space, creating informal seating nooks off the corridors at the building’s four corners. These spaces bring daylight into the hallways and accommodate small-group instruction, individual tutoring, small staff meetings, and informal check- ins.

thezweigletter.com/category/podcast/

1200 North College Ave. Fayetteville, AR 72703 Mark Zweig | Publisher mzweig@zweiggroup.com Richard Massey | Managing Editor rmassey@zweiggroup.com Christina Zweig | Contributing Editor christinaz@zweiggroup.com Sara Parkman | Editor and Designer sparkman@zweiggroup.com Liisa Andreassen | Correspondent landreassen@zweiggroup.com

MARK ZWEIG, from page 1

basis? Maybe you can share everything with your people and they’d be more careful with their time and other resources as a result. And maybe they’d learn something about the business of your business they wouldn’t learn otherwise. ❚ ❚ Bonus program. Is once a year, deciding who gets how much in a meeting of the firm’s principals, really the BEST way – the most motivational way – to dole out bonuses? So what if every other firm does that. Maybe you should be doing it monthly and come up with a formula that distributes the money for you. ❚ ❚ Marketing. Maybe every other firm does the same stuff – such as having open houses, announcing who gets licensed in the local business news, putting out a quarterly news- letter, and going to trade shows and professional meetings. But is that the best way to market your firm? Maybe your money would be better spent buying everyone a new red Prius with a full body wrap, sponsoring a local TV show, renting billboards, and doing other things. “Differentiation” means being different! There are MANY other ways an A/E firm can differentiate itself as either an employer, service provider, or both. No company’s work environment or offerings have to be viewed necessarily as a commodity unless they choose to operate as such. It’s time to differentiate! MARK ZWEIG is Zweig Group’s chairman and founder. Contact him at mzweig@zweiggroup.com.

Tel: 800-466-6275 Fax: 800-842-1560

Email: info@zweiggroup.com Online: thezweigletter.com Twitter: twitter.com/zweigletter Facebook: facebook.com/thezweigletter Published continuously since 1992 by Zweig Group, Fayetteville, Arkansas, USA. ISSN 1068-1310. Issued weekly (48 issues/year) $250 for one-year print subscription; free electronic subscription at thezweigletter.com/subscribe Article reprints: For high-quality reprints, including Eprints and NXTprints, please contact The YGS Group at 717-399- 1900, ext. 139, or email TheZweigLetter@ TheYGSGroup.com. © Copyright 2018, Zweig Group. All rights reserved.

THE ZWEIG LETTER April 30, 2018, ISSUE 1246

O P I N I O N

After landing the job

So you got the position you wanted, but that’s just the first step. You have to (help) create something bigger than yourself.

L ast month I wrote about my good fortune of meeting Art Gensler and intuitively sensing there was a philosophical fit with his fledgling firm, where I ultimately spent a fulfilling 34-year career. I labeled that first blog installment “How to find a Job.” With this installment, I turn to what I did after landing the job, when the work really began.

Edward Friedrichs

together to do the same. When I became president in 1995 and then CEO in 2000, I realized I needed to add a dimension as the steward of our culture and values. Sure, I was watching the firm’s finances closely. And I worked hard on staying close to our clients and their goals, the people in the firm, and our recruiting efforts. But the most “I spent my career at Gensler, from 1969 until 2003, helping to make the principles a reality and ensuring everyone else in the firm was working together to do the same.”

In my case, when I first joined Gensler, I felt aligned with this new organization and where Art and others in the firm wanted to take it. There were some core principles I wanted to support and build upon. I knew that for both the firm and for me to be successful, I had to be part of making those principles a reality through the culture we built at Gensler. This is about building an enterprise that works so consistently to a set of values that, as it grows, clients as well as employees know what to expect. This was particularly important as we grew to a large number of offices scattered all over the world. I spent my career at Gensler, from 1969 until 2003, helping to make the principles a reality and ensuring everyone else in the firm was working

See EDWARD FRIEDRICHS, page 4

THE ZWEIG LETTER April 30, 2018, ISSUE 1246

BUSINESS NEWS CARLSON STUDIO ARCHITECTURE AND SARASOTA AUDUBON ACHIEVE ZERO NET ENERGY The design for Sarasota’s Audubon Nature Center has earned Zero Net Energy Building Certification from the New Buildings Institute. The announcement was released by Michael Carlson, principal of Carlson Studio Architecture . The project was also published in NBI’s 2018 Getting to Zero Status Update and Zero Energy Buildings List. The project was recognized and honored at the Getting to Zero National Forum on April 17-19 in Pittsburgh, Pennsylvania. Zero net energy buildings are ultra-efficient new construction and deep energy retrofit projects that consume only as much energy as they produce from clean, renewable resources. The Audubon Project completed construction

in January 2016, and the project team provided detailed information in addition to a full year of electrical use data to NBI to document the ZNE performance of the building. The design team included Sarasota Audubon, Carlson Studio Architecture, Brilliant Harvest for the Solar System design and installation, Quest Engineering for the mechanical and electrical design, and Hees and Associates for structural engineering. Roger Landry of ESC LLC, provided commissioning services. Willis A. Smith Construction was the contractor. The project also achieved LEED Gold Certification in the LEED for New Construction, from the U.S. Green Building Council. New Buildings Institute is a nonprofit organization driving better energy performance in commercial buildings. NBI works

collaboratively with industry market players – governments, utilities, energy efficiency advocates, and building professionals – to promote advanced design practices, innovative technologies, public policies, and programs that improve energy efficiency. NBI also develops and offer guidance and tools to support the design and construction of energy efficient buildings. Throughout its 20-year history, NBI has become a trusted and independent resource helping to drive buildings that are better for people and the environment. NBI’s theory of change includes setting a vision and defining a path forward. NBI then sets out to create the research that serves as the basis for tool and policy development necessary to create market change.

EDWARD FRIEDRICHS, from page 4

1) We’re in the business of using design as a business tool, not to win design awards, although those are gratefully accepted. Something that pragmatically solves a client’s business prob- lems can also be “pretty.” We were thrilled if a magazine chose to publish our work, touting the design, but most important was that the client’s business performed better. 2) We should make each design solution suit our client’s culture, both for the employees and the clients or customers. 3) As the firm grew, we realized we had an enormous body of talent throughout the company. The most qualified person to work on any aspect of a project may not be sitting next to you or may not even be in your office. We asked everyone to adopt a collaborative attitude, reaching out within the firm to bring the most qualified person to the team for a specific aspect of the task that aligned with their expertise. For us, it was about using the aggregated talent of the firm for each client. 4) We were all in this together with a common goal: the best business solution that meets a client’s needs and goals. To be clear, this never precluded making the solution aesthetically pleasing. Aesthetics have a strong influence on clients’ and customers’ attitudes about the company and product, but also affects people’s behavior and performance. 5) We carefully documented our clients’ performance goals. We established success metrics before we initiated design, and we measured results after occupancy and periodically after that. This helped our clients justify expenditures to their board, their banker, or governing body and gave us some wonderful stories to tell future clients. It was a practice in the firm to start each design meeting with a client with a review of what their stated performance objectives were and ask if those ob- jectives had changed. Design presentations specifically noted how each design element was meant to enhance one or more of the client’s performance goals. Part Three of this blog series will demonstrate how these principles were applied at Gensler with real-life client examples. Visions, missions, values, and principles are easy enough to list on a laminated card, but they are unbelievably powerful in the application, leading to job satisfaction and success. EDWARD FRIEDRICHS, FAIA, FIIDA, is the former CEO and president of Gensler. Contact him at efriedrichs@zweiggroup.com.

important issue for me was that all of this supported the reasons we were in business for our clients. At a point early in my career, I took on the responsibility of documenting the firm’s vision and values. I began carrying a notebook at all times, particularly as I traveled to our other offices. I asked people what they thought the values of the firm were. I tagged several people around the firm whom I thought understood what I was trying to accomplish. Each time I had a draft, I would send it around to them and ask, “What do you think?” “This is about building an enterprise that works so consistently to a set of values that, as it grows, clients as well as employees know what to expect. This was particularly important as we grew to a large number of offices scattered all over the world.” I got terrific feedback. Sometimes it was “right on;” other times items would come back annotated, “That’s not us, what we should say is …” One day I seemed to have achieved a consensus. We published the result as a statement of “Vision, Mission, and Values,” and asked everyone to operate by these values. I knew we had nailed it a few years later when we were in a period of particularly rapid growth and one of our partners during a management committee meeting said, “We’ve strayed from some of our values. Let’s republish our ‘Vision, Mission, and Values’”. That’s when you know you’re in the right place, working beside people who share the same values and within a culture that speaks to your professional and personal fulfillment. Here are the five principles that guided Gensler during my tenure and are said to guide the firm today:

THE ZWEIG LETTER April 30, 2018, ISSUE 1246

ALL 2018 ZWEIG GROUP AWARDS ARE NOWOPEN FOR REGISTRATION

2018

SEE YOU IN DALLAS!

hotrm.com/our-awards/

THE ZWEIG LETTER April 30, 2018, ISSUE 1246

P R O F I L E

Levy Park, Houston

Conference call: Ramesh Gunda Founder and president of Gunda Corporation (#32 Hot Firm for 2017), a 60-person engineering consulting firm based in Houston.

By LIISA ANDREASSEN Correspondent

“I ’m not a big fan of utilization rates,” Gunda says. “I believe teams do better when you re- ward them by their accomplishments rather than utilization rates. I think this practice encourages more learning, more bonding, and more efficient time management.” A CONVERSATION WITH RAMESH GUNDA. The Zweig Letter: The talent war in the A/E in- dustry is here. What steps do you take to create the leadership pipeline needed to retain your top people and not lose them to other firms? Ramesh Gunda: Employee retention and leader- ship development are an integral part of our stra- tegic plan. We revisit the plan on an annual basis to re-examine needs and action items. To develop staff into the leaders of tomorrow, it’s essential

that we provide training and mentorship from the leaders of today. It was with this ambition in mind that we hired a COO, director of client services, and human resources/organizational development manager, who are not only veterans in the indus- try, but also have a passion for watching employ- ees grow their skills. As you can imagine, creating a leadership pipeline and maintaining a high level of employee satisfaction is a marathon, not a sprint, and we’re happy with the results so far. TZL: As you look for talent, what position do you most need to fill in the coming year and why? RG: While we’re looking for good people at all lev- els, mid-level engineer positions seem to be the most difficult to fill right now. We’re diversifying our firm in terms of services and need experienced engineers to allow us to better compete with firms

Ramesh Gun- da, Founder & President, Gunda Corpo- ration

THE ZWEIG LETTER Ap

RG: Our formula matches with Zweig Group research. We believe every team member has a responsibility for busi- ness development. We really don’t have a traditional marketing team; we have a business development group which fo- cuses on long-term growth strategies and supporting our engineers’ business development efforts. “We believe every team member has a responsibility for business development. We really don’t have a traditional marketing team.” TZL: Diversifying the portfolio is nev- er a bad thing. What are the most re- cent steps you’ve taken to broaden your revenue streams? RG: Our diversification efforts include adding new services, attaining new cli- ents, and opening new office locations. TZL: The list of responsibilities for project managers is seemingly end- less. How do you keep your PMs from burning out? And if they crash, how do you get them back out on the road, so to speak? RG: There are a lot of expectations for PMs these days as their duties now ex- tend beyond the technical realm into business. You can almost make a case for anything to be included in a PM’s job description, from pursuing work to collecting payments and everything in between. Avoiding burnout is all about providing support resources, training, and mentoring. To support our PMs, we assign a principal-in-charge and a depu- ty PM to each project. These people are kept in the loop on each project’s pro- gression and serve as dual backups. It’s the responsibility of principals and de- partment managers to monitor PMs closely so that we’re hopefully able to avoid any impending burnout situa- tions. That said, there’s no silver bullet for putting a crashed PM back on the road. You have to spend time under- standing the cause and learning about how we can better support them going forward. Sometimes burnout may be the result of a personal situation and the fix may be as easy as reassigning them to a different job duty that works better with their personal situation. See CONFERENCE CALL, page 7

that are already established in these new disciplines. TZL: While plenty of firms have an ownership transition plan in place, many do not. What’s your advice for firms that have not taken steps to identify and empower the next gener- ation of owners? RG: I once heard from a veteran in the field that you only have three options for ownership transition: 1) Transition ownership internally 2) Sell the firm to an outsider 3) Close shop if you didn’t plan for either of the first two options Unless you’re comfortable with the third option, it’s crucial to have a strate- gic/ownership transition plan in place, even for firms that are young or small. The plan will help your team under- stand where the firm is going and what opportunities are available to them. TZL: Monthly happy hours and dog friendly offices. What do today’s CEOs need to know about today’s work- force? RG: Workforce motivations evolve with each generation. While it took 20 to 30 years for a generational change in the late 1900s, you now see a genera- tional shift in what feels like every five years. The most important thing that a CEO can do is to keep an open mind be- cause with up to five generations work- ing alongside each other, flexibility is key. I like to take a big picture approach to employee satisfaction and leave the particulars of how to keep people happy and drive performance to team manag- ers (with HR support). Managers are in the trenches with their team and have a better pulse on what motivates their team members. TZL: Zweig Group research shows there has been a shift in business de- velopment strategies. More and more, technical staff, not marketing staff, are responsible for BD. What’s the BD formula in your firm? “To develop staff into the leaders of tomorrow, it’s essential that we provide training and mentorship from the leaders of today.”

YEAR FOUNDED: 2001 HEADQUARTERS: Houston, TX NO. OF EMPLOYEES: 60 FIRM PROFILE:

Civil, traffic, and transportation engineering, public works and municipal services, and program and construction management. CERTIFICATIONS: ❚ ❚ Certified as a Minority/ Disadvantaged Business Enterprise (M/DBE) ❚ ❚ Small Business Enterprise (SBE) ❚ ❚ Historically Underutilized Business (HUB) PROJECTS: Gunda Corporation worked on the Master Plan development for George Bush Intercontinental (IAH). Gunda was involved in assessment of the existing conditions at IAH which included designated roadway lanes, decision points, and curbside allocations. This effort was converted into the production of a comprehensive set of drawings and plans which formed the base for subsequent plans and analyses. CORE VALUES: ❚ ❚ We aim to be proud of every decision we make. ❚ ❚ We are committed to providing an inspirational and flexible work environment. ❚ ❚ We pursue continuous improvement.

pril 30, 2018, ISSUE 1246

TRANSACT IONS MARTIN-MCGILL, INC. JOINS WITHERSRAVENEL WithersRavenel announced that Martin- McGill, Inc. is officially joining its team. By bringing in WR-Martin ’s personnel and resources, WithersRavenel has supplemented and strengthened its portfolio of service offerings, adding resources in grant and loan application and administration assistance, planning and facilitation, economic development, management strategy and operations. This organizational unification also achieves WithersRavenel’s vision of expansion into new markets in North Carolina. WithersRavenel has added Asheville to its list of office locations, which include

Cary, Greensboro, Pittsboro, Raleigh, and Wilmington. They now serve clients in Western North Carolina in addition to the Piedmont- Triad, the Triangle and the Coast, making WithersRavenel a true mountains-to-sea firm. “The joining of our two firms represents a milestone in our commitment to both firms’ common goals of continuous improvement and unwavering client commitment,” said Jim Canfield, WithersRavenel president. “Our team is now better positioned to serve both our current and future clients. By bringing the management consulting services in-house, we now serve as a one-stop-shop for helping our clients realize their goals and objectives.”

The inclusion of WR-Martin’s management consulting services in particular bolsters WithersRavenel position as a leader in the engineering consultancy field. “Having worked with professional engineering firms, local governments and private companies for 30 years, WR-Martin has a passion for helping our clients succeed. We are excited about what the future looks like for our clients and our people with WithersRavenel by our side,” said WR-Martin president, Jessica Martin-Lane. “Our passion and commitment will translate seamlessly into WithersRavenel’s sound company philosophy and core values.”

CONFERENCE CALL, from page 7

when results could take months, or even years, to mate- rialize? Do you track any metrics to guide your market- ing plan? RG: Yes, it’s difficult. We develop goals and metrics for all of our efforts including marketing at our end-of-year strategic plan retreat. We are improving our strategies and metrics with time, but as of now, the most useful metrics we have for tracking the success of these efforts are related to an- nual revenue goals, opportunities generated, and new cli- ent acquisition. TZL: The last few years have been good for the A/E indus- try. Is there a downturn in the forecast, and if so, when and to what severity? RG: Like every other market, A/E is cyclical. Yes, there will be a downturn in the near future. If the lack of interest in re- investing in infrastructure doesn’t change soon, the down- turn will come sooner than later and will be severe. TZL: They say failure is a great teacher. What’s the big- gest lesson you’ve had to learn the hard way? RG: Delegation does not excuse you from responsibility. TZL: While M&A is always an option, there’s something to be said about organic growth. What are your thoughts on why and how to grow a firm? RG: Organic growth is preferable to M&A. Organic growth controls the rate of growth and allows for less cultural and integration challenges than the alternative by allowing you to hire teammembers who believe in the same mission, core values, and culture. TZL: Do you use historical performance data or metrics to establish project billable hours and how does the type of contract play into determining the project budget? RG: We use historical data as a base and make adjustments for complexity, client, and risk. We estimate project bud- gets the same way for all contracts, except we may add more project management time if the client needs lots of back up in terms of timesheets, expenses, or reports.

TZL: What is the role of entrepreneurship in your firm? RG: We encourage and support entrepreneurship in our firm and have several budding success stories. We provide a stage for entrepreneurial development by having a sea- soned team of leaders/mentors and other resources in place to help our people build the skills and momentum they need to open new doors. I’m confident that each of our staff that has shown promising entrepreneurial initiative is fully ca- pable of building a team of a dozen or more and I’ll give them full personal and corporate support to do so. TZL: In the next couple of years, what A/E segments will heat up, and which ones will cool down? RG: I predict office and institutional campus development and defense contracts will heat up thanks to recent tax cuts and an increased defense budget. Conversely, I foresee transportation and infrastructure suffering due to less fed- eral funds allocated to those markets and a possible political stalemate in mid-term elections. “As you can imagine, creating a leadership pipeline and maintaining a high level of employee satisfaction is a marathon, not a sprint, and we’re happy with the results so far.” TZL: With overhead rates declining over the last five years and utilization rates slowly climbing back up to pre-recession levels, how do you deal with time manage- ment policies for your project teams? Is it different for different clients? RG: I’m not a big fan of utilization rates. I believe teams do better when you reward them by their accomplishments rather than utilization rates. I think this practice encour- ages more learning, more bonding and more efficient time management. TZL: Measuring the effectiveness of marketing is diffi- cult to do using hard metrics for ROI. How do you evalu- ate the success/failure of your firm’s marketing efforts

TZL: What’s your prediction for 2018? RG: It may not end up as great as it started.

THE ZWEIG LETTER April 30, 2018, ISSUE 1246

O P I N I O N

Mission: critical

The first steps in taking control of your firm’s financial success should center around the billing cycle, timesheets and, most importantly, the backlog.

D ecember 28, 2015, was the beginning of my new path as the financial controller at Joseph B. Callaghan, Inc., a small consulting engineering firm specializing in repair, restoration, and waterproofing of buildings and facades in the Philadelphia area. JBCI had just celebrated its 50th anniversary and the company had just been sold to its second-generation leadership.

John McCardell GUEST SPEAKER

fiscal year. Without these processes, you’re working in a reactive mode. You’re not able to get ahead of the data and you start using it to make financials and operations to help this already healthy company take it to the next level?” “I stepped into a stable business with an incredible amount of potential. But how could I use

My predecessor, an accomplished professional with no formal financial training, but years of industry experience, was focused on the transactional aspects of the position – mainly paying bills and collecting money. Both extremely important for a healthy business. Upon her retirement, I stepped into a stable business with an incredible amount of potential. But how could I use financials and operations to help this already healthy company take it to the next level? The best way to begin to create your company’s financial success is to set up processes. These should be intentional processes that align with natural fiscal periods – end of month, quarter,

See JOHN MCCARDELL JR., page 10

THE ZWEIG LETTER April 30, 2018, ISSUE 1246

PROJECT BACKLOG. Your firm’s backlog is a combination of all unbilled portions of awarded contracts. I believe this to be the most important financial metric, since this is the figure that drives revenue, profitability, labor resources (hiring), proposal targets, contract targets, etc. “For the past three years, I’ve been tracking these basic metrics and our firm has been able to have a clearer understanding of what’s coming, when we need to hire, and what projects and employees are most profitable.” Once you have some historical data, this metric is useful for projecting the firm’s future financial health when used with outstanding proposals and conversion rates. This offers decision-makers time to allocate resources and seek additional employees and resources before it’s too late. Our firm’s most essential report is a combination of the following metrics by project manager. This weekly report helps look for billing opportunities, locate stale projects to eliminate from backlog, and find unbilled hours, among other uses. ❚ ❚ Backlog ❚ ❚ Billed to date and billed percentage ❚ ❚ Project effort to date and project effort percentage ❚ ❚ Last invoice date ❚ ❚ Subtotal It is also important to remove subcontractor portions of the contract from the backlog. If your firm’s fee, for example, is $20,000, which includes $5,000 for a subcontractor pass-through, then you have artificially inflated your firm’s backlog by 25 percent on this one project. Understanding backlog makes it easier to assign new projects to project managers. By reporting each project manager’s monthly billing totals, take the backlog by each project manager and divide by the average monthly billing revenue to estimate how much backlog in months each project manager has. These three financial processes of billing cycle, reliable and accurate time reporting, as well as project backlog reporting, are the first and most important processes to get correct before utilizing new financial metrics and reporting. For the past three years, I’ve been tracking these basic metrics and our firm has been able to have a clearer understanding of what’s coming, when we need to hire, and what projects and employees are most profitable. It has been both rewarding and fun to bring this knowledge and financial stability to our firm and I’m happy to pass this on to other firms so they can experience the power of finance. JOHN MCCARDELL JR. is the financial controller at Joseph B. Callaghan, Inc., a consulting engineering firm based in Philadelphia. He can be reached at jmccardell@jbciengineers.com.

JOHN MCCARDELL JR., from page 9

decisions. Mission: critical, if you do not have these three processes up and running in your firm. BILLING CYCLE. Do you have a consistent billing cycle? If the answer is no, this is your first mission critical item. Billing needs to be a routine process; therefore, all of the correct information is flowing to the proper channels and at the correct times. Every AEC industry-specific software has some form of billing instructions where the project manag- ers communicate how much to bill and when to bill. Utiliz- ing this module of your software is crucial and should be your first step to financial success. For our purposes we bill our fixed fee projects biweekly and we bill all of our hourly projects once per month to ensure all timesheets are reflected in these billings. Not having a recurring cycle each month will not only delay the invoicing, but it will also delay your cash collections. Also, it is important to remember when invoicing it is not only for the benefit of your own firm’s financing but also for the client as well. Progress billing allows the client to break up the contract fee in smaller increments each month, rather than a large invoice quarterly or even worse one large invoice toward the end of the project. It is also usually easier for the client to approve small invoices which means getting your money quicker. RELIABLE AND ACCURATE TIME. As you know, time is money for professional services. The definition of accounting is the system of recording and summarizing business and finan- cial transactions and analyzing, verifying, and reporting the results. The whole process begins with recording the transactions, i.e. time. Without up-to-date timesheets you cannot analyze, verify, or report any meaningful reports in the AEC industry. Tracking and understanding where em- ployee time is spent and how much time is spent on each project is another main building block to understanding company profitability. There is a common misconception that the timesheets are a tool for the finance department, but tracking time allows real-time reporting for project managers to analyze their project budgets to ensure it is on target. “The best way to begin to create your company’s financial success is to set up processes. These should be intentional processes that align with natural fiscal periods – end of month, quarter, fiscal year. Without these processes, you’re working in a reactive mode.” Some tips to implement a consistent timesheet submission for your company: ❚ ❚ Keep the template simple ❚ ❚ Raise awareness as to why timesheets are important ❚ ❚ Use clear and consistent deadlines and publish deadlines pub- licly

THE ZWEIG LETTER April 30, 2018, ISSUE 1246

O P I N I O N

When disaster strikes

Are all your processes in place in the event your firm is waylaid by a wildfire, earthquake, hurricane or flood?

T hings were pretty much business as usual in early December with sunny skies and strong Santa Ana winds projected in Ventura, California, when a brush fire broke out 15 miles to the east. It never occurred to me that within hours my neighborhood would be on fire and that the corporate headquarters of our company, Rincon Consultants – as well as much of our city – would be under a mandatory evacuation.

Mike Gialketsis GUEST SPEAKER

The evacuation order for what would become the largest fire in California history lasted three days, followed by several weeks of unhealthy air quality. It’s fair to say that the lives of all our staff were affected by the event, some much more seriously than others. The Ventura office serves as the headquarters for 10 branch offices spread throughout the state and houses key computer servers, all of which have off-site back-ups and some cloud-based resources. The office is not in a high fire hazard area and never appeared to be at risk from storms or other natural disasters, with the possible exception of earthquakes – this is California, after all. While we are very fortunate to have navigated this event with limited negative effects, we did gain several important insights along the way. PREPARING PHYSICAL OPERATIONS. Think of your office without electricity or potable water, inaccessible due to road closures or evacuations and then im- pacted by poor air quality. In advance of such an event, you must ask yourself the following:

❚ ❚ Have you identified the highest priority items to evacuate, such as servers and other high-value por- table equipment and corporate documents? ❚ ❚ How will those items be recovered and where will they be taken? Can servers be reestablished in a secure and safe location to offer work continuity within a short time? Where is that location? ❚ ❚ Can company command and control tools (e.g., serv- ers, databases, email systems, phones) be reestab- lished in another office or location? How long might that take? Will electricity be available? ❚ ❚ In the absence of electricity, do you have lighting that will allow you to evacuate key items? ❚ ❚ Who is responsible and how will communications be achieved in the absence of the traditional office infrastructure? Are all team members’ emergency phone contacts accessible? ❚ ❚ Are there contractual obligations or client expecta- tions that need to be met regardless of the disaster? How will those key business priorities be managed?

See MIKE GIALKETSIS, page 12

THE ZWEIG LETTER April 30, 2018, ISSUE 1246

AVAILABLE? When our disaster unfolded, our IT manager was out on paternity leave. We had to ask: If a task is delegated to a staff member by a manager, are they familiar enough with the IT configuration to know what needs to happen in an emergency? We have a third-party IT vendor as an added redundancy measure to support IT services. This vendor was able to jump in to supplement efforts, taking our endangered server to a secure location within a couple of hours and getting staff in the rest of the state back on- line and in communication. This same vendor also provides an emergency number, posted in every office, that can be called 24/7. CYBER, BUSINESS PERSONAL PROPERTY, BUSINESS INTERRUPTION, AND OTHER INSURANCE POLICIES. Be familiar with the particulars of your insurance policies with regard to specific disasters like floods or fires and then make sure your policies are updated to accommodate the value of your equipment plus the time or materials lost. Do you know who to notify and are there any procedural steps that must be followed to initiate a claim in an expedited manner? Ongoing updates and communication of key information to administrative managers will ensure that redundancy covers this impor- tant area, too. A SINGLE POINT OF CONTACT OR A CONTACT HUB. When the disaster strikes a pre-established chain of communication will make spreading the news about what to do much easier. Decide early on who should disseminate information and who will be a point of contact for key staff to streamline communi- cations to the rest of the company. Set expectations among staff not directly affected by the event regarding how time will be managed, communications forwarded, and projects completed. Figure out ahead of time if expectations need to be re- calibrated or if staff should work any differently because of the situation that has unfolded. If someone is evacuated can their work be picked up by another staff person? Prepare for the transition back to normality by creating a timeline. Plan ahead by establishing who will be responsible for the timeline and how it will be communicated to staff. The timeline should consider whether there will be impacts to certain portions of the business network but not others. CONCLUSION. A little preparation paid significant dividends for Rincon in minimizing operational interruptions during the Thomas Fire – one of the worst natural disasters to hit the region. Decisive factors that permitted us to weather the crisis included built-in redundancy among our key staff and critical IT assets such as servers. Our flexible approach made it possible for employees to log into systems remote- ly, from home or other locations. Our IT vendor’s excellent customer service also contributed to our ability to mini- mize impacts from the disaster. A combination of proactive communication allowed management to better respond to the needs of personnel, the company as a whole, and our clients. The importance of defined roles and preparation of corporate and operational management, administrative, HR, and IT staff, cannot be underestimated. MIKE GIALKETSIS is a founding partner at Rincon Consultants, Inc., an environmental consulting firm with offices across California. He can be reached at mike@rinconconsultants.com.

MIKE GIALKETSIS, from page 11

❚ ❚ How does the disaster affect work programs, deliverables, and critical business concerns? ❚ ❚ Have you established redundancy in keeping key accounting functions in order, such as billing and payables? ❚ ❚ During the disaster, as difficult as it may be, are you thinking ahead to the next day, week, month? Early foresight allowed us to plan for and implement an aggressive cleanup response that included air scrubbers along with devising work strate- gies to assist staff being productive in the aftermath of the fire. CONSIDERING THE HUMAN IMPACT OF DISASTERS. A disaster of any kind is traumatic and can have a pronounced effect on those people who are affected. Managing the need to keep focused on business operations and productivity while be- ing highly sensitive to that trauma is a unique challenge. Some suggestions to help staff through this difficult time are as follows: ❚ ❚ Utilize proactive communication with staff regarding the disaster. Articulate the need to continue business operations as much as possible while still being sensitive to how circum- stances may be impacting each individual. ❚ ❚ Check in with all employees to determine how events have affected them, assess their ability to accommodate their work- load commitments, and transition workloads when necessary. ❚ ❚ Form a strategy to account for disruptions in employee work hours. Staff impacted by the fires were eligible to take up to 24 hours of paid leave under our personal special leave pro- gram as this event was deemed an extraordinary emergency. ❚ ❚ Keep in mind the importance of redundancy with critical tasks such as processing payroll or producing deliverables on fixed schedules. For us, having staff in other geographic locations cross-trained on essential tasks and functions was especially important. ❚ ❚ Several schools in our area were shut down for a month as they were in mandatory evacuation zones, suffered from un- healthy air quality, and then had the normally scheduled win- ter break. How will you support staff with children who can’t go to school for more than a month? ❚ ❚ Look to crowdfunding to help those who have been finan- cially impacted by the disaster. In our case, two employees lost their homes and staff raised several thousand dollars via crowdfunding on their behalf. INFORMATION TECHNOLOGY AND CREATING A SEAMLESS EXPERIENCE FOR SISTER OFFICES. Prior to the Thomas Fire, our IT team ran multiple drills to prepare for a worst-case scenario disrup- tion in the event of a natural disaster. They devised redun- dancy measures for key assets, including off-site backups and failover devices. The headquarters being off-line entirely for multiple days, however, was an “even worse” worst-case scenario. This prompted an evaluation of the value of lessons learned regarding IT. Though we didn’t experience any single points of failure per se, the redundancy our firm judged as being sufficient – an exchange server plus an exchange backup, disaster, and recovery device – only existed at one office. A lesson learned was that we needed at least one more level of redundancy than we had originally anticipated. REDUNDANCY FOR KEY IT STAFF: WHO FORMS THE CORE TEAM AND ARE THEY

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