Updating the Business Plan

Dec 19, 1994

Now is the time of year that many A/E/P and environmental firms are taking a look at what’s to come and what needs to be done in the year ahead. Budgets are being set, goals established, strategies reviewed, and new action plans drawn up. We spend a lot of time with business planning. Management literature is filled with advice on the issue. And while there may be more than one efficient formula, a business plan can only be judged by whether the company grows, is more profitable, or the owners feel they have more control over the business. If the answer to all of these questions is “no,” it’s a flop. Regardless of your process, here are some things you ought to be thinking about as we enter 1995 and you get ready to either develop a business plan for the first time or update your existing plan: Express your mission in simple language. Why is that so many mission statements are made up of glowing accolades and “thousand dollar words,” instead of plain language everyone can understand? Technical and professional staff are turned off by what they perceive (and probably rightly so) is B.S. Also, a lot of the missions I see being used by A/E/P and environmental firms could serve a fried chicken joint, nuclear materials supplier, or luxury hotel equally well. They are too broad and too vague. The mission is supposed to communicate why you exist. Come up with one that does just that, one that you and your employees can actually remember and recite upon demand. Work out all your philosophical differences when you set up your strategies. You have to confront some of the fundamental issues that all firms face if you are going to get everything out of the new year that it has to offer. I’m talking about dealing with questions such as: Who will do the selling? What kinds of clients does the firm really want? Who reports to whom? How will the current owners get the most for their equity when they sell it? What’s the best way to grow— by adding staff to the payroll through hiring or by buying another company? How will the company attract and retain the best possible staff? What will the company do to really reward those people who are clearly the ones responsible for its success? How will new technology be integrated into the firm? These and many other philosophical issues must be worked out before even one single implementation step is taken. The price of not doing so is wasted time and money, and more likely than not, inaction and resulting loss of opportunity. Set up some quantifiable goals that are realistically achievable, but are also ambitious enough. I just came back from planning update sessions with two of our clients. We worked with both firms to develop business plans at the beginning of 1994. Both were successful in that they made major investments in systems at the same time as they more than doubled their profits to levels far beyond industry norms. Yet, in spite of their success, when it came time to set the goals for 1995, both companies initially had what I would consider extremely low expectations. Make your goals lofty enough that people have to stretch to meet them. But don’t make them so high that failure is inevitable. Setting the goals too low is nothing more than a self-imposed limit on your success. Build a budget that starts with your revenue expectations. Get your managers— your team leaders, project managers, discipline heads, and office heads— to tell you what they think they can do revenue-wise in 1995. Start with the existing backlog of work under contract. Once you have a revenue number, use historic earned multiplier and calculate how many direct labor dollars you’ll need to earn that much revenue by dividing the revenue forecast by the multiplier. Then figure out (based on reasonable utilization expectations) how much total labor you’ll need by dividing direct labor by utilization rate. The rest of the budget falls out from there by loading in other costs, which for the most part are fixed, giving you your bottom line P&L (or contribution). Put together an action plan or implementation plan that clearly spells out what you’ll be doing all year. Planning in itself is worthless if it doesn’t lead to action. Here is where you decide how you are going to implement your strategies and hit those lofty-but-attainable goals. I’m talking about things such as: What, specifically, will you do to improve “teamwork” between offices or disciplines? What steps will be taken to either get “old Joe” off his duff or out the door this year? What needs to be done by whom and by when to get the RFP 255 generator used as well as it could be? Who is going to be responsible for putting together the badly needed project management training program, what will the steps be, and what is the schedule for doing it? Many firms face the same issues year after year. Yet too often, their business plan doesn’t have one concrete action step in it to deal with them. With the new year within sight, isn’t it time for you to finally come up with a decent business plan? Originally published 12/19/1994

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