How to Build Financial Accountability with your PMs

Posted by June R. Jewell on February 26, 2016

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By June Jewell

Note: Join June Jewell, CPA and President of AEC Business Solutions, for the Deltek webinar, 9 Places Your Firm is Losing Profit and How to Find It”  <Learn more or register>

Do you hold your project managers accountable for delivering profitable projects?  How is that working?  Have you put the appropriate measures in place to ensure that it happens?

Oftentimes, accountability at the PM level is vague and unstructured, which can lead to negative consequences. Part of this issue has to do with the many responsibilities given to PMs, and a lack of true visibility into what they are really doing every day. This leads to PMs being given many tasks and little guidance as to how to be successful.

The other big challenge is measuring results. The majority of firms that we work with are not tracking individual performance, or worse, failing to implement consequences even if it is being measured. This has the unwanted effect of grouping good and poor performers together, and the less desired result of passive aggressive behavior on both the PM’s part and the firm’s leadership.

The following are practices that I often see in many A&E firms that undermine their ability to achieve profitability goals. If you recognize any of the following issues in your firm, they could be costing you a great deal of money! Lost Dollars can be found by ensuring that every project hits target profits. If you see any of these practices in your firm, they need to be addressed as soon as possible:

PM Performance is Evaluated in an Annual Review – The annual review is a dreaded process in many firms. Even with top performers, many employees don’t feel adequately recognized, and feedback is often provided too late to make a difference to performance results. A more frequent process of project review can improve financial results and engage employees more in the process of improving their own performance.

All PMs are Given a Raise and / or Bonus Regardless of Performance – With the war for talent gaining intensity these days, many firms are afraid of “calling out” mediocre performance. This has the double negative outcome of dis-incentivizing both top performers who don’t see the benefit of going the extra mile, as well as not giving consequence to poor performers for failure to hit goals. Bonuses and raises need to be tied to financial results in order to impact behavior.

All of Our Offices Do Things Their Own Way – This is a common problem in firms that have remote offices, and especially when there has been an acquisition. Many offices take on their own culture, and create their own new processes – from proposals and estimating, to project budgeting and billing. This has the negative impact of making it difficult for leaders to compare one office to the other, determine what is working and not working, and share best practices between groups. It is critical to a profitable firm to get everyone following best practices and operating the same way.

We never fire anyone – The combination of a family-oriented firm culture along with difficulty finding technical staff has created an environment where many firms tolerate poor performance. This leads to keeping PMs and staff that are actually hurting the profitability of the firm rather than contributing to it. The message that is being delivered to staff is that mediocre or poor performance is acceptable and the ultimate consequence – being terminated – is not a possibility. Without this consequence, it will be very difficult to change behavior or increase profitability.

We Do Not Have Metrics to Measure Our PMs – How you report on performance is a big indicator of how employees will perform. Many firms choose to measure profit centers, business units, offices, etc. rather than focus on individual results. Without metrics and financial targets, it is much more difficult to evaluate PM performance, and hold them accountable for results. Looking at project profit margins is the most effective way to compare PM performance and the first step to holding them accountable.

All of these flawed business practices add up to lost dollars. So what is the cost of ignoring or even rewarding mediocre or poor performance? It may be much larger than you imagine. On top of the measurable costs of project overruns, rework and scope creep, consider the intangible costs of frustrated staff, unhappy clients and failure to retain your best PMs. This can add up to thousands and even millions of dollars per year in some cases.

Focusing on and improving your firm’s performance management practices can have a huge impact on all of the key metrics you use to measure the health and results of your firm. Special attention should be given to creating a regular rhythm of feedback, establishing clear measures for individual performance and implementing meaningful consequences for attaining financial targets.

 

Join June Jewell, CPA and President of AEC Business Solutions, for the Deltek webinar,

9 Places Your Firm is Losing Profit and How to Find It

Is your firm losing every day because processes are not well established, people are not held accountable and the systems in place are not supporting their efforts? This webinar will focus on how to assess people, processes, and systems including what questions to ask and how to ask them. Discover how you can improve your business management and operational practices to find the lost dollars in your projects.

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