Page 10 - index
P. 10
to say but it is not going to happen so best for those with enough stomach for it is to ride out the storm, wait for the
dam to empty and then restart from scratch again. This time we must build on solid foundations, so if we get that
right then we will be able to withstand many a flood in future. On the positive side I don’t think that we can reach
lower lows than where we are at this point in time.
In simplistic business terms many of our members cannot comprehend what the difference is between turnover and
marginal contribution. Whilst the projects roll in the over draft is taken care of, immaterial of whether the projects
actually generate profit or not, so long as the cash flow is taken care of the rest is immaterial and business is lekker.
Wrong. When you hit a period of work scarcity and cannot really reduce your overheads in any meaningful way
(unless you hive off 50% of your senior staff and partners) you approach the proverbial brick wall at an alarming
speed (been there done that got the badge for it which is why I don’t work for a large firm anymore), so to rescue
the overdraft the only solution left is to get work at whatever cost it comes (reducing costs by retrenching senior
staff who are usually the most productive staff members is like trying to extinguish a fire by pouring petrol over it).
And so the cancer spreads.
In the previous firm I worked for (the largest multidisciplinary firm in SA for quite a while) we employed pilots,
owned planes and helicopters and all sorts of luxuries and expensive appendages which did very little in the form of
generating income (they sure cost a lot of money to keep though); when the work started to slow down the helicopter
and one pilot went first, then the plane and the second pilot, then the costly unproductive offices but alas we were
still bleeding like pigs (because all the unproductive partners were still there).
The firm eventually just about disintegrated with all sorts of blame being apportioned to the exuberant architects and
their expensive habits, the lack of reliable Client contacts (the marketing department carried the can for that) etc.
etc. The most fundamental cause of the inevitable disaster though was never acknowledged notwithstanding that
two of the partners were accountants (CAs for that matter): you cannot run a business on turnover alone you have
to look at marginal contributions so that when times are tough you have a nest egg to rely on (Aesop’s fable of the
cicada and the ant comes to mind).
Until the mind set of those members who still believe that turnover is king changes, nothing will change and reduced
fees will remain until in the next downturn, when enough firms hit the brick wall and realise that the business
principle on which they relied to operate was fundamentally flawed. If they have a big brother they may get bailed
out but usually big brothers prefers to bail out themselves rather than sink more money into hopeless ventures.
I don’t even want to touch on the absurdity of the bureaucracy and pyramid structures in some companies (you
wonder what their real business is, whether it is consulting engineering or something else) enslaved by ISO
standards, driven by forms and who signs for what so that when something goes wrong someone else can be
blamed (rather than finding out why it went wrong to start off with). That could be an altogether lengthy discussion
as well (a lot easier to fix though).
I hope this does not sound like a boring lecture but I am a firm believer that if you fix the profitability of a company
the rest fixes itself. We run our practice in very simple terms if we have more money in the bank than what we owe
others, then we are on top of things if not then we do not spend any money on what we do not absolutely need. None
of us has fancy office furniture but we have what best we can afford in terms of IT, software and office equipment.
Chairs don’t make money, staff using computers do.
If you are ever in EL give me a shout even if by then I may be with my feet up.
Best regards,
Michele Rivarola PrEng PrCPM BSc (Eng) EngPEUR FAArbSA
MAFSA MSAIMechE MSAIRAC MSAMA MCorrISA MSAFHE MASHRAE MNFPA MFPSA
10