Minor efficiency gains produce major profits

In this post I’d like to use some basic math to demonstrate my point – that reducing your project production cost by just 5% increases project profit by 50%.  With that understanding it becomes easily apparent that modest changes can have a very dramatic effect on a firm’s overall bottom line or ultimate survival.  Surprisingly or not, our profit is not something Autodesk puts much emphasis on.  Instead they boast that despite a tough economy their 2011 revenue was a record 2.2 billion representing an increase of 14% over 2010 (also a very good year).

Louis Kahn died of a heart attack in a men's restroom in Pennsylvania Station. He went unidentified for three days and despite his long career, he was deeply in debt when he died.

As an architect and having been in the field for more than 25 years, it’s no secret architects consider themselves artists more than they do “bean-counters.” There is a tendency to look down on the accounting department or even the firm Principal that reminds staff of the need to watch the project budget.  Among most architects the emphasis is on doing our best work while believing in at least one of the following diametrically opposed myths:

1. If we do our best work we will be financially rewarded for it.
2. Or, believing that if we produce good work, living in relative poverty is the inevitable price we pay as an artist.

My point is that neither is necessarily true.  Not that there isn’t a relationship between good work and good business, but that there are other factors at stake.  These factors should be exploited to help ensure survival, improve profit and also allow for better design.  We all know architects that defy either of these two widely held beliefs.

Here is the simple and perhaps obvious math to satisfy the original premise:  Traditionally architecture firms strive for a profit margin that ranges from 10 to 15% on any given project.  In the current economy many firms are satisfied to break even and survive in order to outlast the recession.  For the sake of this example let’s assume the project target profit margin is 10% and that it would ordinarily be met.  In order to achieve this profit, total cost of producing the project, from initial marketing through completion of construction administration, should be 90% of the architectural portion of project fees including all office overhead divided among other projects.

In the extreme example above, 10% of total project production cost is saved during the CD phase, effectively doubling profit from 10 to 20%.

Now looking at 100% of the architect's total project cost through the 5 (or 6) phases of a project, if 1% could be saved from each of these phases you would add 5% to your 10% profit margin, or viewed another way increase your profit margin by 50%.  Alternatively any combination of savings from phases in even small amounts could do the same assuming in all cases you don't exceed the budget of the other phases - frequently a problem.  Any savings helps to offset loses or make a project that would otherwise break-even or lose money, a potentially profitable project.

If you are using Revit you have probably found that you are saving man hours during the CA phase with fewer Change Orders etc, and are very possibly saving in other phases as well.  New users will find that the learning curve causes a net loss in productivity and may see no benefits during CA with their earliest use of Revit.  If this is the case, don’t give up now, you're almost there and a recession is the best time to take on the challenge of learning anything new.

The guiding principal behind ARCxl is to participate in improving the profitability or survival of architecture firms also believing that we will be rewarded for the effort.  Our first venture has been to provide non-proprietary Revit detail (and CAD) content that we share among architects to assist in improving efficiency.  The content provided by manufactures is understandably intended to steer architects towards their products but does nothing to improve that architect's bottom line.  Historically architects have done very little to share resources among themselves, frequently repeating the same tasks over and over.  Even within a single office a staff member will redraw a detail rather than search through an office library.  While nothing can prevent the mismanagement of time, we believe that it is possible to offer alternatives to those that would like to.

It is quite possible that among some project types that include typical details, the ARCxl detail library will save 5% of total project cost during the construction document phase thus increasing project profit by 50%.  In an economy that provides little opportunity for profit, here's one you should take advantage of.

Further, using the same simple math, it should be apparent that offering similar opportunities for modest gains in other phases could effectively lead to doubling or even tripling traditional profit margins.  The only question is, how many architects are willing to suspend their belief in myth 1 and 2 (identified above) to participate in a collective effort that makes us all more competitive here and abroad?

ARCxl is looking for Beta testers located within North America for our next efficiency improvement project.  To participate you must be a verifiable registered architect and Principal of an architecture firm.  If you are interested, from North America phone me at:  One, eight hundred, five three three - zero two nine seven.