Happy New Year and Welcome to January 2009 edition of the AEC Managing Partner Newsletter.

As we start the new year it is increasingly clear that the economy is in the toilet. Many A/E firms have gone through an initial round of layoffs and for many firms that will not be enough. While there is hope that the Obama Administration will act to stimulate the economy through public works programs, the positive effect of this funding is at best months away. Continuing layoffs will be the norm for most A/E firms - not the exception.

This already difficult situation is compounded by the fact that our clients are also having financial difficulties. Our prompt paying clients will become slow payers and our slow payers will take even longer. Some will stop paying altogether.

With this reality in mind, this issue will offer some advice on the strategy of staff reductions and improving collections.


In this months issue:

1. Six Common Mistakes in Reducing Staff
2. Incentive Compensation is not for Everyone
3. Solving the Aging Accounts Receivable Dilemma - Andy Harmelin A.I. Consulting
4. Are you Tired of Paying $445 to PSMJ or Zweig White for Industry Surveys?
5. Are your Tired of Paying $297 to PSMJ or Zweig White for Industry Webinars?
6. Reprint Rights to Articles

Six Common Mistakes in Reducing Staff

1. Waiting for the Perfect Time
There is no perfect time to lay-off staff. In fact on a personal level, every time is a lousy time. However in order to save the company and as many jobs as possible, it must be done in a timely manner.

2. Believing the Big Project Will Proceed Next Month
You know the project I am talking about - the one that has been starting next month for the last six months. Many firms use this as a rationale to avoid lay-offs. Trust me when I tell you the "Big Project" will not be starting next month either. In the unlikely event it does proceed, there are a lot of talented people available for hire.

3. Only Reducing the Junior Staff
It is a critical and even perhaps fatal mistake to concentrate your staff reductions on the junior staff. Being left with a top-heavy staff results in billing rates that are too high in relation to the tasks performed. Before deciding which staff will be let go, take a look at your staff ratios of Principals to Project Managers, Project Managers to Technical Staff, Senior Staff to Junior Staff and so on... Do your best to maintain the staff ratios.

4. Waiting to do it All at Once
Many firms delay immediate staff reductions under the guise that may need to lay-off more employees next month. They don't want to send a signal that lay-offs will happen every month and demoralize the staff. While I am sympathetic to their reasoning, the fact is that staff will be demoralized no matter how you handle it. It is far better to cut earlier than later.

5. Being Afraid of Discrimination Lawsuits
It sometimes seems that almost every employee is in a protected class of employees. People can file discrimination lawsuits based upon age, gender, race, disability, sexual preference and so on. Far too much management time can be wasted with worrying about discrimination lawsuits. Do yourself a favor and purchase employment practices insurance and run your company based upon merit - not upon fear of being sued.

6. Waiting Too Long
The longer you wait to reduce staff, the deeper you have to cut. For the sake of easy math, consider a firm of 120 employees that has a need to make a 10% staff reduction (12 employees). If the decision is delayed by 1 month, a 13 person reduction is needed to save the same number of dollars in year 1. A 2 month delay means a 14 person reduction to save the same number of dollars in year one. The case can be made that timely staff reductions can save jobs.

Incentive Compensation is not for Everyone!

That's right! Incentive compensation rewards results and makes people accountable for their actions. Employees that fly under the radar of accountability, blame others for their non-performance and believe that good design & profit are incompatible will not want to work for a company that has an effective incentive compensation program. They prefer a more socialistic form of compensation where everyone shares in the profit regardless of performance.

If you want to attract top-performers, I can think of no better way than the establishment of an incentive compensation program. Effective programs will attract self motivated, talented and ambitious professionals who are anxious to be rewarded on the results they achieve. They don't make excuses - they create satisfied, repeat clients while making money for themselves and their company.

Solving the Aging Accounts Receivable Dilemma

By: Andy Harmelin
President, A.I. Consulting, LLC

We were recently engaged by a 60 person Architectural firm in the Philadelphia area to assist them in reducing their aging accounts receivables. The near term goal would be to realize significant amounts of older receivables and bring the firm's A/R within normal industry parameters.

Prior to this assignment we had successfully provided contingent fee collection services to the firm. At our kickoff meeting it became apparent that certain strong procedures needed to be implemented to accomplish the near term goal. It has always been my belief that Project Managers should be responsible for their entire project from providing quality deliverables to meeting company financial expectations. I have also found that routine telephone contact with clients is very valuable.

Working together with senior management and Project Managers we formulated a three-pronged approach:

Project Manager & Principal in Charge Action: Each PM or PIC was given an aged accounts receivable list of his projects. They were tasked with contacting every client by phone or e-mail on a weekly basis. During contact they were to find out how the project was progressing, ask if there are any issues with services provided, ask if client expects additional services for out of scope items, determine if billing has been received and when the account balance will be paid.
I met with PMs and PICs on a bi-weekly basis in a round table format so that everyone was made aware of the group's progress. We went over each and every client project, noting payments, promises to pay and assigning action items for the next meeting. At the end of the third bi-weekly session we began to see real results.

Routine Telephone Calling: A mid-level member of the accounting department was given a list of the previous month's invoices over $2500.00 and tasked with contacting clients to ensure that their bills had been received and that it was in for payment approval to meet stated contract payment terms. These outcomes were also tracked and followed up as necessary.

Year-end Collection Initiative: On or about December 1 we sent out a balance confirmation letter to selected clients. This effort was supplemented and supported by the foregoing PM and PIC duties.

Outcomes:
PMs and PICs more responsible for their entire projects from start to finish, and help tie their project profitability into year-end company bonuses.
Clients were made aware of payment responsibilities.
Mechanism was set up to deal with slow paying clients.
Established year-end internal collection program which exceeded expectations 2 consecutive years
Year 1 actual results were 112% of target
Year 2 actual results were 118% of target
Reduced bad debt ratio by 70%
A.I. Consulting, LLC is a Credit and Collection firm serving over 95 Architectural and Engineering firms in Pennsylvania, New Jersey, New York and Delaware. Andy Harmelin, President can be contacted at (610) 667-3422, or info@ai-consutingllc.com for any inquiries.

Tired of Paying $445.00 to PSMJ and Zweig White for Industry Surveys and $195 for Webinars?

Well you should be tired of paying these outrageous prices for information. AEC Management Solutions will be launching our own series of Webinars and Industry Research Surveys - at a price that will save our clients substantial dollars.

Our first survey will be:
Incentive Compensation and Benefits
The survey questionnaire will be available at the end of January

The second survey will be:
Financial Performance
The survey questionnaire will be available at the end of February

If your are interested in participating in our Surveys - please send an e-mail to survey@aecmanagementsolutions.com and we will get notify you when the questionnaires are available.

Our First Webinar Recording "Cash Flow & Collections - Strategies for Dramatic Improvement" will be available in February.

As a publisher of a print or web-based publication, you are hereby granted the right to reprint any article contained in this newsletter with the following provisions

1) The words "By Herbert M. Cannon" must be included immediately following the article title.

2) The following "resource box" is included following or preceding each article.

Herbert M. Cannon, President of AEC Management Solutions, Inc. and Publisher of AEC Managing Partner Newsletter, is a management consultant, seminar provider and speaker exclusive to the A/E Industry. He is available to speak at company meetings and conferences. For more information contact Herb via e-mail hcannon@aecmanagementsolutions.com. Or visit his website at www.aecmanagementsolutions.com

3) You quickly notify us of any publication, either in print or on the Internet. Notification may be made via e-mail at hcannon@aecmanagementsolutions.com

4) You send us a hard copy of any printed publication in which one Herb's articles appear. Printed issues may be sent to 183 Higgins Road Matawan, NJ 07747

I am looking for guest writers for my monthly newsletter. I you have an idea for an article, please send an e-mail to hcannon@aecmanagementsolutions.com

I hope to see everyone at one of my seminars or speaking engagements.

Regards,

Herb Cannon

President

AEC Management Solutions, Inc.