Using probability theory

Mar 18, 2019

“Even if you don’t apply it to your business, knowing probabilities of success will at least keep you from buying scratch tickets or blowing your cash in a slot machine at a casino somewhere!”

It’s funny how engineers – well trained in statistics and probability theory as it relates to the chances a piece of property will flood – or when certain types of materials are likely to fail – or when structures are likely to collapse – completely forget this stuff when it comes to other aspects of their business.

There are many uses for probability theory in an AEC firm. Here are a few:

  • Marketing. There’s a specific probability that any given piece of direct mail or email sent out will elicit an inquiry. There is also a specific probability that any inquiry will result in a project opportunity. It is useful to have this information, so response expectations are realistic, and enough mail and email pieces are sent to generate the number of inquiries you feel you need to sell one or more projects. My experience is that most people in this business have greatly exaggerated ideas about likely response rates. As a result, they don’t put out enough mail and email to get the inquiries they hope to get.
  • Selling. There is a certain probability that a given proposal or SOQ for a specific service or project type will make a short list. Then there is a certain probability that any given interview will result in being selected by the client. It’s good to know this information because it’s very useful to predict your future sales and workload. Again, the problem for most firms in this business is to have too few project opportunities needed to sell the amount of (profitable) work they hope to get. It’s popular among many marketers today to say doing less is more, that fewer responses increases the overall quality of their efforts, and thus equates to better sales. If this thinking is taken too far, you run the risk of not selling the amount of work you need to sustain your business.
  • Collections. There is a particular date when you have the highest probability of collecting any given account receivable based on your history with that specific client and/or client type. It’s good to know this information so you can do accurate cash flow forecasting. And although we all live and die by cash flow – successful AEC firms and struggling firms alike – the majority don’t do any forecasting that employs the historical collection data they have at their disposal.
  • Hiring. There are certain probabilities that any given job offer we make as a company will be accepted. It is critical to understand these odds so we don’t make the mistake of wasting too much time with one job candidate when we really need more than one to get the odds in our favor of having someone accept the offer. We see this situation all the time.

Yes, my friends, understanding probability theory is useful indeed. And even if you don’t apply it to your business, knowing probabilities of success will at least keep you from buying scratch tickets or blowing your cash in a slot machine at a casino somewhere!

Mark Zweig is Zweig Group’s chairman and founder. Contact him at mzweig@zweiggroup.com.

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About Zweig Group

Zweig Group, three times on the Inc. 500/5000 list, is the industry leader and premiere authority in AEC firm management and marketing, the go-to source for data and research, and the leading provider of customized learning and training. Zweig Group exists to help AEC firms succeed in a complicated and challenging marketplace through services that include: Mergers & Acquisitions, Strategic Planning, Valuation, Executive Search, Board of Director Services, Ownership Transition, Marketing & Branding, and Business Development Training. The firm has offices in Dallas and Fayetteville, Arkansas.