Most AEC leaders are aware of the common causes of scope creep, but there are also some subtler internal causes to consider.
Scope creep – that vicious blood-sucker that steals your project profits. When the scope of the completed work exceeds what is promised in your contract, and you don’t get more money, you pay for it. It comes straight from your profit margins and, in the end, can leave a project at a loss. Just think: You are paying your client for the privilege of working for them!
We are all well versed on what causes scope creep – at least we think we are. Your client asks for something outside the scope and you don’t get approval for a change order. There are many reasons for this and these are the most common:
- Employees are trying to keep the client happy and the client does not like change orders
- Employees are afraid to ask the client for a change order (conflict stinks!)
- Employees don’t know how to ask for a change order (very common)
- Your client says you are “nickel and diming” them if you get a change order for every small change (in fact, these changes could cost hundreds and thousands of dollars – not nickels and dimes)
Many of these common reasons for scope creep happen because of your firm’s culture and your project managers’ unwillingness to ask for money. With a culture focused mostly on technical excellence and client satisfaction instead of business excellence, these common reasons for scope creep will continue to drive profits down right out in the open.
In fact, these common causes of scope creep are actually easier to deal with because they are so common. You can put change order processes in place, teach employees how to ask for money, and work with clients closely to set better expectations up front.
The real danger lies in the subtle everyday issues that cause scope creep that don’t get as much attention. What is so insidious about most of these secret scope creepers is that your client has nothing to do with them. Most of them are internal issues that require specific attention, focus, and training to overcome. These are the seven causes of scope creep that secretly steal your profit margins:
- Scope not detailed enough. When it’s time to get a change order, it is critical that the scope is well defined and clearly details assumptions, inclusions, and exclusions. Without this level of detail, conflicts with clients can arise and the AEC professional is usually on the losing end of the argument.
- Staff doesn’t know what is in the scope. If your staff has never been told what is in the scope, they may mistakenly make assumptions of their own and perform services that were not included in the contract.
- Staff ignores scope. Believe it or not your staff may actually ignore the scope on purpose. Again, this is because of a culture that focuses on quality above all else. Unfortunately, not every client has enough budget to afford the level of quality that your employees wish to deliver.
- Too many meetings. Meetings tend to multiply or run way longer than planned, especially in times when project schedules get extended or projects get delayed.
- Turnover at client’s office. Turnover with your key contacts at your client’s office may require you to spend a great deal of time orienting the new client reps about the project. This is scope creep – it is unexpected and outside the scope but hard to get reimbursed for.
- Time held too long. Your well-meaning project managers may put extra services time on hold thinking that they are waiting for eventual approval or they can bill for it later after they see if there is extra money in the budget. This is why so many firms have huge write-offs! The longer time is on hold the lower the chance of collecting it.
- Time not tracked on time sheet. In order to bill against a change order you must track the time against it, but employees don’t always fill their time sheets out correctly and the time just goes against the base contract.
Each of these secret causes of scope creep can be addressed and corrected with new processes, employee education, and better communication. However, if you are not looking for it, you won’t find it.
Focusing like a laser on causes for scope creep – both common and hidden – can make a huge impact on your firm’s profitability. Some of the remedies are quick fixes and can add up to several percentage increases per year. Get your team on board with working toward reducing scope creep and your firm can join the ranks of the top performing firms in the AEC industry.
June R. Jewell, CPA, is a leading expert on business success in the AEC industry, and author of the best-selling book, Find the Lost Dollars: 6 Steps to Increase Profits in Architecture, Engineering, and Environmental Firms. Jewell and her team guide AEC firm leaders to reach top level industry profits by getting their employees to take ownership in their firm’s success and be financial guardians for their projects and clients. Through her extensive work with hundreds of AEC firms over the last 30 years, Jewell has discovered that the key to business success is the firm’s employees and what they do every day that either waste time and leak profits or help the firm to grow and prosper. Jewell and her team at AEC Business Solutions have developed a proven program to change employees’ mindsets and daily behaviors to increase productivity, financial performance and project success. Learn more about Jewell and her company at aecbusiness.com