Production Control
2.11 Production Control
Once a project is undertaken, the work involved has to be completed regardless of time or cost. Still,the ?rm must operate within a budget so design can be performed ef?ciently. A designer does not deal with a tangible product for which the ?rm can establish a cost per unit and operate on a production line basis. Nor should the ?rm go to the extreme of establishing a control in such a manner that the cost becomes more important than the
product.
Cost control in its simplest form is a matter of bookkeeping. The ?rm should keep records of all costs relating to each project. At the end of a project, therefore, the ?rm should know the costs and income received and whether the work was done at a pro?t or loss. When a ?rm undertakes a new project similar in nature and size to one completed previously, a record is available to guide the new activities. Such cost accounting can be re?ned to varying degrees.
Also, it is well to know ones ?nancial standing as to work on hand before completion of the work since it may be years before some projects are completed. During the course of a project, the ?rm should project the costs and income based on percent completion at a particular time to determine whether they are in line. Such projections should be made periodically to gain a picture of the ?nancial condition of the ?rms operation at a
particular time.
Many engineering ?rms use computerized ?nancial control systems to monitor costs and help to manage projects. These systems allow a project manager to monitor personnel and expense costs charged to their speci?c project on a weekly or monthly basis. This allows the project manager to compare the actual cost expended to date versus the budgeted cost. If the actual costs are less than the budgeted costs, the project manager can be
assured that the project is in good ?nancial health.
However, if the actual costs exceed the budgeted costs then the project manager must determine what elements are over budget and develop a corrective action plan to bring the project back to within budget.
Cost accounting serves an additional purpose: it establishes controls during the programming of the work. These controls enable the ?rm to determine where productivity and ef?ciency need improvement before the end of the projectwhen it is too late.
A professional ?rm, like any business, is concerned with making a pro?t. Maintaining a
proper pro?t margin is essential to survival and growth. Such a pro?t margin varies with the size of a ?rm and number of principals; whether principals are on a salary, as in a corporation, or not, as in a partnership. Cost control is an important tool for helping managers ensure the required pro?t margin to keep the ?rm operating ef?ciently.
(T. G. Hicks, Standard Handbook of Consulting Engineering Practice McGraw-Hill Book
Company, New York.)
2.12 Internal Organization of a Design Firm
Basically, an engineering ?rm consists of technical departments and administrative and support staff. Figures 2.2 to 2.4 illustrate typical consulting ?rm organizations.
Technical Departments n Depending on the size of the ?rm, the technical department can be divided into divisions, such as structural, civil, mechanical, and electrical engineering and architectural. These divisions can be subdivided and overlapped under the direction of a job captain, project manager, or project partner for particular projects. (In very small ?rms, many functions are performed by one individual, including the proprietor.)
There are numerous ways of organizing a technical department (see, for example, Figs. 2.2
to 2.4). The most important consideration in any organization is communication.Whenever a ?rm is formed or expanded or new departments are established, communication should be considered of prime importance. The ?ow of information between line levels should be well-de?ned.
Furthermore, there should always be one individual who acts as project manager or captain in a position to coordinate all activities whether they are only those of departments within the organization or those of outside contractors or consultants involved in the project.
Many ?rms also have a separate construction or construction-management department, which consists of the project and construction managers, resident engineers and inspectors required on a project site, and project engineers rendering ?eld consultation services and coordinating the efforts of ?eld personnel. Instead of establishing a separate department for this function, some ?rms have the project engineers for design in the various
design divisions continue in the same capacity through the construction phase; they draw on a nucleus of ?eld personnel for backup, as necessary, for on-site inspection.
Computer-aided design and drafting (CADD) offers designers multiple options and ?exibility in design organization. Designers can draft their designs at their desks, using appropriate design software, and need not rely on drafting support. Primary support functions are new business development, human resources, accounting, and
of?ce support services.
New Business Development n Professionals do not sell services directly; theymust apprise
the market of their availability. The ?rm has to prepare quali?cation data (Arts. 2.3 and 2.5), which can range from completion of standard prequali?cation forms to preparation of elaborate brochures, supplemented with extensive project descriptions and photographs. Although a new clientmaymake the initial contact and retain a design ?rm without
prior communication, a design organization cannot rely on this manner of receiving new business. As a consequence, client contact is an essential part of an organizations operation.
Client contact can be limited to impersonal contact by mail or range to active sales efforts, where an employee or principal (or even a staff if the size of the ?rm warrants it) makes personal calls on potential clients. The name of a ?rm has to be promoted continuously, which requires good public relations. Sales efforts, however, should not be a substitute for quality of service.
In the face of intense competition and the need for growth and diversity of a ?rm, the search for new markets and development of new business are vital functions.
Employee Compensation n Employers have speci?c legal obligations. They must pay
payroll taxes, such as Social Security and state unemployment and disability, and they must withhold taxes from employees earnings. These requirements result in administrative burdens involving the ?ling of forms and reports. There are insurance obligations and statutory requirements, such as workers compensation. Also, an employer has obligations mandated by federal and state laws, including labor laws affectingminimum
wages and overtime and regulations governing working conditions, equal employment, and safety.
Employers may wish to give employees the opportunity to subscribe to medical and other
forms of insurance as a group, and theymay pay all or part of the costs for other bene?ts including 401K and pension plans. In the competitive market for skilled personnel, such fringe bene?ts must be added to the basic wage.
Employers should have ?rm wage and salary policies. Besides paying a competitive wage, they must establish policies for salary reviews and increases, salary ranges for various types of positions, bonuses, and whether to include a pro?t-sharing plan. Primarily, however, employers should give employees opportunity for advancement. Also, they should give recognition for efforts on behalf of the ?rm. If employers can instill the
pride of accomplishment and profession, they will have ef?cient and happy workforces.
Accounting n To operate ef?ciently, a ?rm must be able at all times to evaluate and analyze its ?nancial position. For this, the ?rm has to maintain proper accounts. The compiling and recording of all transactions relating to the ?nancial aspects of a
business are the basic responsibility of accounting.
The recording of ?nancial transactions has to be orderly for proper interpretation, to make possible preparation of ?nancial statements and to provide information on the economic health of the business. (See also Art. 2.11.) The method or extent of bookkeeping varies
with each ?rms size and needs. Normally, the double-entry system (classi?cation of accounts into assets, liabilities, and net worth) is used. Each ?rm maintains journals and ledgers. The journal is a daily record of all transactions, debits, and credits; the ledgers carry the journal entries in speci?c accounts. Again, the number and extent of ledgers
required vary with the ?rm.
A consulting ?rm has to decide how it is going to maintain its books for tax purposes, whether on a cash or accrual basis. On a cash basis, income is recorded when cash is received and expenditures are recorded when they are made. On an accrual basis, income is reported when earned and expenditures (or debits) when incurred, regardless
of the time the cash transaction takes place. When tax considerations are signi?cant in the business operation, the choice of accounting system is of primary importance; as is evident, a ?rms cash and accrued statement at the same time could be
quite different.
Although it is poor business practice to take a particular action solely because of the tax consequences, tax considerations are important in a consulting ?rms business practice. The initial decision of which form of organization to operate under should take into account the different tax consequences on individuals, partnerships, and corporations. Depending on income, a corporation may pay a large federal income tax; in addition, its
dividends are taxed. A partnership pays no tax on its income, but the partners, who receive no salaries, are taxed as individuals on their share of the ?rms earnings. State and local taxes should also be considered when establishing and operating a design practice.
Payroll is a consulting ?rms largest expenditure. Payroll costs should be identi?ed as direct
(technical) and indirect (administrative). Records of direct costs, preferably by department, should be maintained for each project. Also, identi?able direct expenses, such as travel, subsistence, and other allowances, long-distance telephone and telegraph, and reproduction costs, should be accounted for and identi?ed as a job expense. Major indirect or overhead expenses should also be identi?able to enable management to analyze indirect costs and their relation to fees earned during a speci?ed period.
In addition to internal accounting, it is customary and advisable to have an audited ?nancial
report prepared by a certi?ed public accounting ?rm at the end of each ?scal year. For ?rms of any size and especially those not closely held (public), such certi?ed audits are essential. Also, ?rms, regardless of size or type of ownership, that work in the public sector must undergo independent and certi?ed audits.
From its inception on, an engineering ?rm is concerned with ?nances. For one thing, a consultant is not reimbursed for a ?rms services the day after they are rendered. Terms of payment depend on contract conditions. Payments may be monthly, or the ?rst payment may not be due until 25% (or another percentage) of the work has been completed. Also, the ?nal payment may not be received for a long time after all expenditures have
beenmade. This sums up to one basic need: capital.
Consulting engineers must have capital to start and operate their organizations. The source of capital may be a loan or earnings. But regardless of the source, there must be proper ?nancing to meet ?nancial obligations that cannot be deferred until accounts are paid. In particular, when interest rates are high, ?nancial management becomes a critical
aspect of all businesses, including that of a design ?rm.
Insurance n A ?rms insurance portfolio normally includes coverage for general liability,
property damage, automobile accidents, and professional (errors and omissions) liability. For design ?rms, all insurance requirements are dominated by the professional coverage. This insurance, which is written by a few insurance carriers, protects a designer fromliability resulting froma design error or omission. Because of the extensive litigation
prevalent in the construction industry, with designers being named as defendants for alleged design error or as third-party defendants, the cost of this insurance is high. (This is also true in other professions, such as medicine.) This has resulted in a need for many practitioners to reevaluate the extent of their activity, to increase their fees to cover
such costs, and, in limited instances, to forego this liability coverage.
Of?ce Support Services n The administrative staffs primary function is internal operation
of the ?rm. Personnel on the administrative staff may include an of?ce manager, secretaries, word processors, receptionist, ?le clerks, and of?ce employees. The number of employees and degrees of responsibility vary with the size of ?rm. However small the ?rm may be, the basic administrative duties have to be ful?lled: Letters have to be word processed; so do reports. Files have to be maintained, telephones answered and
messages taken, and plans reproduced. Although all the elements that constitute of?ce management are secondary to design, the primary function of the ?rm, they should not be neglected. Even with electronic communication, an unattractive letter can make a poor ?rst impression on its recipient, who may be a potential client. A ?rst impression of
a ?rmcan also bemade by the manner in which the telephone is answered. So although the
administrative duties are routine in most of?ces, they should be handled as competently as the technical work. The administrative positions should be ?lled by competent, properly trained
personnel.
In an engineering ?rm, there is a substantial amount of reproduction of plans and speci?cations and duplication of reports. The mechanics of providing the necessary reproductions is best handled by a separate department within the ?rm.Whether
the work is done on of?ce-owned equipment or sent out to a printing company is a matter of economics determined by the ?rms volume. In addition, of?ce services must encompass selection of the most economical and ef?cient of?ce systems for the ?rm. For ef?cient, economical operation, a design of?ce should be equipped at least with computers (personal or servers and workstations), plotters, high speed Internet connections, modems,
fax (telefax) machines, and copiers, in addition to the usual desks, record-storage facilities, telephones, and good illumination. Of?ce managers should be familiar with current electronic systems, innovations, and be able to judge their applicability to the ?rms needs.
2.13 Professional Societies
The role of professional societies, such as the
American Society of Civil Engineers and various associations of consulting engineers, initially was determined by their existence as organizations of individuals rather than ?rms. At ?rst these societies were concerned mainly with technical matters and very little with business affairs.
Although the medical, legal, and accounting professions each have one major society that
speaks for them, this is not the case for civil engineers, who are generally represented by the
American Society of Civil Engineers, American Consulting Engineers Council, or National Society of Professional Engineers. These societies, however, collaborate with each other on matters of common interest.
In a complex and progressive economic society, few ?rms other than industry giants have the resources to stay abreast of all the latest developments; keep informed of all current legislation, state and federal; and be aware of all administrative rules, regulations, and factors in?uencing their day-to-day activities. An association can ?ll these needs, and by serving these needs, professional associations are playing a more important
role than previously.
In prior years also, a design ?rm was on its own. It had little knowledge, if any, of the
activities of its competitors or even of its closest associates. Today a ?rm still is on its own in the competitive marketplace, but it can pool its resources in associations that represent the profession and industry. United action and sharing of information advance the interests of individual ?rms.
Activities of professional groups now include:
Legislation n Maintaining database on current legislation; representing and ?ling position papers with Congress and state legislatures on pending bills in which association members have a vital interest.
Government Relations n Liaison with various administrative agencies, federal, state,
and municipal. This area could include assistance to member ?rms interested in capitalizing on opportunities abroad.
Liaison with Industry n Maintaining contact with other organizations and establishing joint
committees to study and evaluate areas of common interest.
Publications n Initiating and distributing to members documents reporting current activities
and areas of importance and concern.
Insurance n Establishing group insurance policies (life, accident, health, and so on) to give
smallermembers advantages of larger group plans; advising member ?rms in ?elds of common concern, such as professional-liability insurance, an area of increasing concern because of numerous third-party suits against consulting engineers.
Engineering Practice n Acting as a pool and distribution center for information on the latest
technical developments and areas of interest to the profession; sponsoring continuing education programs.
By : E-book Standard Handbook for Civil Engineers
