THE PATH TO PROFIT: SELECT THE RIGHT CLIENTS AND THE RIGHT PROJECTS

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1 THE PATH TO PROFIT: SELECT THE RIGHT CLIENTS AND THE RIGHT PROJECTS Bob Van Arsdall Design Professional unit of XL Group Ken Tichacek PSMJ Resources, Inc. March 28, 2013 This presentation contains proprietary information protected by XL Group plc companies copyright and PSMJ copyright. All rights reserved. 1 Using the Technology XL Group plc companies. All rights reserved. MAKE YOUR WORLD GO 1

2 Webinar leaders Ken Tichacek, Associate AIA Senior consultant and seminar leader for PSMJ Resources, Inc. since Trained as an architect and urban planner and active in the A/E/C industry for over 35 years. Served in senior management positions at leading A/E and construction management firms. Client for over 10 years. Focuses on helping A/E/C firms understand their clients better in order to get more work, minimize risk, and ensure client satisfaction. Known as The Proposal Doctor, Ken has helped clients achieve a success rate of over 75% on proposals. Frequent guest speaker for AIA, ACEC, and SMPS organizations across the US and Canada. Bob vanarsdall has worked in engineering and consulting since 1983 and has been with XL Group s Design Professional unit since He came to Design Professional from The IT Group, a $1.4B per year NYSE-traded environmental engineering company, where he was the director of government programs. Before The IT Group, he was the national accounts manager for ENSCO Environmental Services, a national hazardous site remediation company, where he was responsible for client relationship management, new technology introductions, and marketing strategy. As an author, vanarsdall has contributed to national and international business publications, and is called on frequently to speak on marketing and management issues at industry, national, and international forums. He has been a frequent speaker at the US national and regional AIA conferences, ACEC conferences, and at GLOBE in Canada. 3 About XL Group s Design Professional Unit Specially designed loss prevention for today's A/E firms Having served both large and small A/E firms for more than 40 years, we understand the challenges today's design professionals face, and we've tailored our solutions to their unique risks and requirements. Our mission is simple: to bring policyholders the resources and protection they need to run a successful business. Our innovative professional liability insurance programs offer broad, costeffective coverage that's tailored to your firm. Industry-leading educational programs draw on real claims data to help you implement proven risk management techniques. Through a dedicated national network of underwriters, claims consultants, agents and loss prevention specialists, we work with each of our clients to reduce the cost of loss and preserve valuable business relationships XL Group plc companies. All rights reserved. MAKE YOUR WORLD GO 2

Developing a client selection strategy t Not all project types are alike.

3 About PSMJ Content Providers of Management Information Focused Exclusively on the A/E/C Industry for over 30 years 5 Agenda Not all clients are alike. Developing a client selection strategy t Not all project types are alike. How can you maximize the potential for profit while minimizing your own risk? Evaluating your client/project portfolio XL Group plc companies. All rights reserved. MAKE YOUR WORLD GO 3

To analyze your own firm capabilities against the demands of specific client and project types.

4 Learning objectives After participating in this webinar, you will learn: To identify the client and project types that present more risks to designers, and how to guard against those risks. What mistakes designers frequently make in prequalifying clients and before taking them on. To analyze your own firm capabilities against the demands of specific client and project types. How best to prepare your firm for changes in client and project demands. 7 Why are client and project selection important? XL Group plc companies. All rights reserved. MAKE YOUR WORLD GO 4

5 Changes in US & CN architectural sector 90% 80% % 60% 50% 40% 30% 20% 10% 0% Small Mid-Sized Large Jumbo Total Percent of Firms in Sector Total Percent of Firms in Sector Percent of Revenue by Size Percent of Revenue by Size Design Professional group Risk Drivers research 2013, XL America, Inc. All rights reserved 10 Changes in US & CN Engineering Sector 90% 80% % 60% 50% 40% 30% 20% 10% 0% Small Mid-Sized Large Jumbo Total Percent of Firms in Sector Total Percent of Firms in Sector Percent of Revenue by Size Percent of Revenue by Size Design Professional group Risk Drivers research 2013, XL America, Inc. All rights reserved XL Group plc companies. All rights reserved. MAKE YOUR WORLD GO 5

6 XL Risk Drivers Top 4 non-technical risk drivers 45% Percentage of Claims Affected 40% 35% 30% 25% 20% 15% % 5% 0% Negotiation and Contracts Client Selection Project Team Capabilities Communication Design Professional group Risk Drivers research 2013, XL America, Inc. All rights reserved. 11 XL Risk Drivers: Client Selection 4% 7% 4% 3% 1% Client Inexperienced in Design Issues 43% Client Has History of Claims Litigation 21% Client in Poor Financial Condition 17% 43% Client Behind in Fee Payments 7% 17% Contractor Selection 4% No Formal Review of Client 4% 21% Other 3% Client Not Receptive to ADR 1% Design Professional group Risk Drivers research 2013, XL America, Inc. All rights reserved XL Group plc companies. All rights reserved. MAKE YOUR WORLD GO 6

The spectrum of risk DISCIPLINE TYPE OF PROJECT LOW MEDIUM HIGH Electrical Civil Mechanical Architecture Residential Interior Design Landscape Architecture Survey Architecture Commercial

Universities CLIENTS Industrial Government Developers Design Professional group Risk Drivers research 2013, XL America, Inc. All rights reserved.

7 The spectrum of risk DISCIPLINE TYPE OF PROJECT LOW MEDIUM HIGH Electrical Civil Mechanical Architecture Residential Interior Design Landscape Architecture Survey Architecture Commercial Environmental Structure Geotechnical Roads/Highway Commercial Hospitals Residential/Condos Malls Waste Water Bridges/Tunnels Retail Schools Industrial Bldg. Universities CLIENTS Industrial Government Developers Design Professional group Risk Drivers research 2013, XL America, Inc. All rights reserved. 13 Today s realities Risk management begins with client & project selection All clients are not created equal Clients pay your fees, not Most firms chase, not clients There are some clients you cannot afford to have XL Group plc companies. All rights reserved. MAKE YOUR WORLD GO 7

People hire people Relationships lead to, not the other way around.

avoid claims. Relationships trump everything.

flexible and to not focus on mistakes and problems.

8 People hire people Relationships lead to, not the other way around. That means doing good work isn t enough to keep clients happy and avoid claims. Relationships trump everything. When people know one another, they are much more likely l to be flexible and to not focus on mistakes and problems. 15 Chasing is a never ending dance XL Group plc companies. All rights reserved. MAKE YOUR WORLD GO 8

Chasing makes each job a pig in a poke 19 Serve clients, don t chase

work Better chance of winning competitive contract awards Less chance

quirks More profitable work Ability to work together seamlessly

10 Chasing makes each job a pig in a poke 19 Serve clients, don t chase Relationship-building breeds trust, confidence, and loyaltylt Repeat work Better chance of winning competitive contract awards Less chance for surprises-- you understand client expectations, preferences, and quirks More profitable work Ability to work together seamlessly Referrals XL Group plc companies. All rights reserved. MAKE YOUR WORLD GO 10

12 Importance of the client review process No formal review of client 10% Other 16% Client not paying design, contractor fees 10% Client history of claims and litigation 16% Contractor selection: Low-bid vs. QBS 22% Client not knowledgeable in project/ design issues 16% Client in poor financial condition 10% Design Professional group Risk Drivers research 2013, XL America, Inc. All rights reserved. 23 Who is the client? Reputation, financial condition and claims history Experience/sophistication level Realistic budget and schedule Project team selection criteria Dispute resolution philosophy Communication style Design Professional group Risk Drivers research 2013, XL America, Inc. All rights reserved XL Group plc companies. All rights reserved. MAKE YOUR WORLD GO 12

Importance of financial condition and claims history No formal review of client 10% Client not Other paying design, 16% contractor fees 10% Client history of claims and litigation 16% Contractor

All rights reserved. 25 Reputation, financial condition and claims history What is the client s reputation in the design community? What is the client s financial condition?

13 Importance of financial condition and claims history No formal review of client 10% Client not Other paying design, 16% contractor fees 10% Client history of claims and litigation 16% Contractor selection: ect Low-bid vs. QBS 22% Client not knowledgeable in project/ design issues 16% Client in poor financial condition 10% Design Professional group Risk Drivers research 2013, XL America, Inc. All rights reserved. 25 Reputation, financial condition and claims history What is the client s reputation in the design community? What is the client s financial condition? Does the client have a history of filing claims and suits? Has the client been sued? Design Professional group Risk Drivers research 2013, XL America, Inc. All rights reserved XL Group plc companies. All rights reserved. MAKE YOUR WORLD GO 13

Importance of client experience No formal review of client 10% Other 16% Client not paying design, contractor fees 10% Client history of claims and litigation 16%

QBS 22% Client not knowledgeable in project/ design issues 16% Client in poor financial condition 10% Design Professional group Risk Drivers research 2013, XL America,

14 Importance of client experience No formal review of client 10% Other 16% Client not paying design, contractor fees 10% Client history of claims and litigation 16% Contractor selection: Low-bid vs. QBS 22% Client not knowledgeable in project/ design issues 16% Client in poor financial condition 10% Design Professional group Risk Drivers research 2013, XL America, Inc. All rights reserved. 27 Client experience Does the client have experience with: Design and construction? This project type? Budgets of this size? Design Professional group Risk Drivers research 2013, XL America, Inc. All rights reserved XL Group plc companies. All rights reserved. MAKE YOUR WORLD GO 14

29 New directions Clients - Future State Unprofitable Clients - Current State Unprofitable FIRE Manage Discipline Reward and Invest

15 Other client review areas Realistic budget and schedule Project team selection criteria Dispute resolution philosophy Communication style Design Professional group Risk Drivers research 2013, XL America, Inc. All rights reserved. 29 New directions Clients - Future State Unprofitable Clients - Current State Unprofitable FIRE Manage Discipline Reward and Invest Design Professional group Risk Drivers research 2013, XL America, Inc. All rights reserved XL Group plc companies. All rights reserved. MAKE YOUR WORLD GO 15

1. Hold onto your best existing clients It costs 7 times more to get a new client than keep an existing one. Existing clients are a known entity in terms of risk.

17 1. Hold onto your best existing clients It costs 7 times more to get a new client than keep an existing one. Existing clients are a known entity in terms of risk. 33 Most firms get most of their revenues from repeat clients. What s the right mix for your firm? Architectural Architectural/Interiors Engineering (Prime) Engineering (Subconsultant) Engineering (Survey) * Source: 2012 A/E PSMJ Fees & Pricing Survey % 35% 45% 55% 65% 75% 85% 95% XL Group plc companies. All rights reserved. MAKE YOUR WORLD GO 17

2. Choose the right clients to focus upon Strategic Clients Critical to

Quality Clients Strong potential for good contracts, excellent working

Non-Quality Clients Potential problems in contractual and working 35

18 2. Choose the right clients to focus upon Strategic Clients Critical to long-term success of your firm. Quality Clients Strong potential for good contracts, excellent working relationships. Non-Quality Clients Potential problems in contractual and working relationships. 35 Cultivate clients Plant only the crops that give you the best chance of a high yield Control or eliminate the weeds XL Group plc companies. All rights reserved. MAKE YOUR WORLD GO 18

19 Develop client evaluation criteria Decide what is important to you Quality Client Demands and willing to pay for quality services Conduct their business with integrity Achievable expectations Pay promptly Accept reasonable contract terms Substantial longterm need for our services Some examples Strategic Client Essential in meeting strategic goals Serious damage if client is lost Affects multiple business units 37 Using the Quality Client Concept Step 1: Develop criteria for: Step 2: Determine course of action for non-quality clients Step 3: Develop marketing plan for current quality and strategic clients Step 4: Research, select and prioritize potential new clients Quality clients Strategic clients Stop spending BD $$$ on them Change engagement conditions Keep them happy and loyal Expand your services How much work will they have? How profitable is that work? Walk away Are they litigious? XL Group plc companies. All rights reserved. MAKE YOUR WORLD GO 19

Focus your efforts on clients who are or may become loyal Values relationship with you Has desire and ability to hire you for future 39 Examples of sectors with lots of non-quality clients Condo

20 Focus your efforts on clients who are or may become loyal Values relationship with you Has desire and ability to hire you for future 39 Examples of sectors with lots of non-quality clients Condo developers Independent d power producers International clients who pay in foreign currency Design-build clients who select on low bid Industrial clients whose products are commodities Clients who have only one project Clients comprised of multiple independent organizations Not all clients in these sectors are bad. Just be aware of the market characteristics and make sure you can handle its inherent risk XL Group plc companies. All rights reserved. MAKE YOUR WORLD GO 20

cost for sales Identifies risk to be avoided or mitigated 43 Consider clients 1 st Projects 2nd The default for non-quality

22 Go/No Go Go through the process every time, for every opportunity no exceptions and no excuses Focuses resources on the best opportunities increasing your chances of winning Tool for sales strategy refinement Strengthens proposals Reduces overhead cost for sales Identifies risk to be avoided or mitigated 43 Consider clients 1 st Projects 2nd The default for non-quality clients is NO GO The default for strategic clients is GO XL Group plc companies. All rights reserved. MAKE YOUR WORLD GO 22

It s a process not an event When should you be thinking

You first see a list of a client s upcoming You see

project to you Before you invest marketing effort in

Before you go to an interview Before you sign the contract

23 It s a process not an event When should you be thinking about Go/No Go? You first see a list of a client s upcoming You see publicity about upcoming A client first mentions a potential project to you Before you invest marketing effort in pursuing a project Before you respond to an RFQ or RFP Before you go to an interview Before you sign the contract 45 Why are we pursuing this? Profit Margin Our Expertise XL Group plc companies. All rights reserved. MAKE YOUR WORLD GO 23

24 Why are we pursuing this? Profit Margin Knee Jerk Reactions Low Margin / Little Fit Falls into our lap Just say NO Our Expertise 47 Why are we pursuing this? Profit Margin Bright Shiny Objects High Margin / Little Expertise Worth exploring selectively Knee Jerk Reactions Low Margin / Little Fit Falls into our lap Just say NO Our Expertise XL Group plc companies. All rights reserved. MAKE YOUR WORLD GO 24

25 Why are we pursuing this? Profit Margin Bright Shiny Objects High Margin / Little Expertise Worth exploring selectively Knee Jerk Reactions Low Margin / Little Fit Falls into our lap Just say NO Comfort Zone Low Margin / Strong Expertise Proceed with caution Our Expertise 49 Why are we pursuing this? Profit Margin Bright Shiny Objects High Margin / Little Expertise Worth exploring selectively Knee Jerk Reactions Low Margin / Little Fit Falls into our lap Just say NO Sweet Spots High Margin / Strong Expertise Great fit target aggressively Comfort Zone Low Margin / Strong Expertise Proceed with caution Our Expertise XL Group plc companies. All rights reserved. MAKE YOUR WORLD GO 25

(25-33% is threshold) What is the likelihood we ll be happy with a GO decision after the

26 Quick Pocket Go/No Go Evaluator What is likelihood this project will go forward? (75% is threshold) What is likelihood our firm will be selected? (25-33% is threshold) What is the likelihood we ll be happy with a GO decision after the project is done? (75% is threshold) 51 PSMJ s Go/No Go Evaluation Tool XL Group plc companies. All rights reserved. MAKE YOUR WORLD GO 26

com/learnmore Download our entire Top 10 series Test drive our Contract eguide copy/paste recommended

29 Learn More. visit xldp.com/learnmore/ondemandwebinars The entire 2012 XL/PSMJ Webinar series is OnDemand. Each earns one free learning unit. Get More. visit xldp.com/learnmore Download our entire Top 10 series Test drive our Contract eguide copy/paste recommended contract language directly into your documents. 2012, XL America, Inc. All rights reserved XL Group plc companies. All rights reserved. MAKE YOUR WORLD GO 29

PSMJ Business Development Products & Tools A/E Marketing Journal PSMJ s monthly industry publication to transform your firm's marketing and business development success Save $100 off our regular

Strengthen your proposals and win more with solid, well-researched pricing data Save 15% off our regular retail price (now only $397) How to Get the Best Clients at the Highest Fees Secure your most

30 PSMJ Business Development Products & Tools A/E Marketing Journal PSMJ s monthly industry publication to transform your firm's marketing and business development success Save $100 off our regular subscription (now only $279) 2013 A/E Fees & Pricing Benchmark Survey Report Newly published for 2013! Strengthen your proposals and win more with solid, well-researched pricing data Save 15% off our regular retail price (now only $397) How to Get the Best Clients at the Highest Fees Secure your most desirable clients for the you want! On sale now for $52 (regularly $69) Call PSMJ at PSMJ (7765) and mention that you participated in this webinar to receive these special offers for a limited time only. Offer ends April 12th! 59 AIA Certificate of Completion This webinar is registered with the national AIA, and units earned by architects are directly reported to the AIA by PSMJ. Engineers can, in general, use certificates of completion to self-report tprofessional ldevelopment thours. Not all llstates t and licensing boards accept these programs for learning units. In order to receive a copy of the Certificate of Completion, please send an to: education@psmj.com U i t f il l t i PDF i f th tifi t ill b t Upon receipt of your , an electronic PDF version of the certificate will be sent to you XL Group plc companies. All rights reserved. MAKE YOUR WORLD GO 30

Thank you Call us if you need further information or help: Ken Tichacek Bob vanarsdall PSMJ Resources, Inc. XL Group Phone: (802) 989-0873 Phone: (919) 928-8002 ktichacek@psmj.com Robert.

31 Thank you Call us if you need further information or help: Ken Tichacek Bob vanarsdall PSMJ Resources, Inc. XL Group Phone: (802) Phone: (919) In the US, the insurance companies of XL Group plc are: Greenwich Insurance Company, Indian Harbor Insurance Company, XL Insurance America, Inc., XL Insurance Company of New York, Inc., XL Select Insurance Company, and XL Specialty Insurance Company. Not all of the insurers do business in all jurisdictions nor is coverage available in all jurisdictions. The information contained herein is intended for informational purposes only. Insurance coverage in any particular case will depend upon the type of policy in effect, the terms, conditions and exclusions in any such policy, and the facts of each unique situation. No representation is made that any specific insurance coverage would apply in the circumstances outlined herein. Please refer to the individual policy forms for specific coverage details XL Group plc companies. All rights reserved. MAKE YOUR WORLD GO 31

GETTING PAID: 10 STEPS THAT CAN SAVE YOUR ASSETS

GETTING PAID: 10 STEPS THAT CAN SAVE YOUR ASSETS Bob Van Arsdall Design Professional unit of XL Group Dave Burstein, P. E. PSMJ Resources, Inc. May 22, 2012 This presentation contains proprietary information