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Considering Finance & Operations in Decision-Making

By Jen McGovern, CPSM and Nancy Usrey, FSMPS, CPSM

FEATURE

VOLUME 43 ISSUE 1

At its core, leadership is about making decisions to achieve your firm’s goals. When you lead a proposal, you’re deciding the outline, the assignments, and the schedule, with a goal of putting together a compliant, winning proposal.

To be viewed as a leader, you need to make informed decisions—carefully considering the costs, risks, and trade-offs inherent in any decision. For that proposal assignment, you might be asked to adjust the schedule to allow a contributor more time to write a section. Saying, “Sure thing!” is easy—but understanding what that delay does to the budget, the schedule, and the final product is more complex. How much time can you allow this person? Where do you adjust the rest of the schedule? Can you reduce the time reserved for proposal layout? Do you cut into time allocated to quality control? Does someone have to work overtime to make up the schedule delay? If it’s a hard-copy proposal, does this mean you’re now paying rush fees for printing or delivery?

All of these decisions have direct impact on your specific proposal—but they can also have broader impacts on the firm’s operations or finances. Maybe your firm leadership budgeted $2,000 for the proposal because the estimated fee for the project is only $50,000, and spending any more on the proposal development cuts into the potential profit for the project. Maybe the graphic designer is booked this week, and the change in schedule will negatively impact another proposal. Maybe your trusted print vendor is unable to keep up with your firm’s constant last-minute print demands and decides to end the contract entirely. As the leader of the proposal, you need to understand the ripple effect of seemingly small decisions—the contributor asking for an extension is only thinking about their personal schedule, while you’re orchestrating the actions of an entire team.

This same decision-making process applies to every leader in your firm, up to and including the CEO. The only things that change are the scale and potential ramifications of each decision.

Becoming a leader means changing your mindset from “me” to “we”—at the individual contributor level, you’re focused on “getting my assignment done;” the C-suite is focused on “keeping our doors open.” And that means focusing on finances and operations: all of our firms need to make enough money each year not only to pay our bills and our people, but also to reinvest profits back into the company.

As a leader, it’s critical to use a return on investment (ROI) perspective when making decisions—thinking through the trade-offs and focusing on what the decision does for the company’s profitability. To gain this skillset, you need to build your understanding of your firm’s operations and finances, and the costs and benefits inherent in each decision. Let’s consider four scenarios from the financial and operational perspective—and if these aren’t scenarios you’ve faced yet in your career, talk to your supervisor, finance manager, or another firm leader for their perspective!

Scenario #1: More Meetings, More Money

You’re a proposal lead, working on a strategic pursuit that is critical to achieving the company’s business plan for the year. You know the proposal would benefit from a Red Team review, with leaders from across the firm weighing in. How many people should attend? And should it be in person or virtual?

First, think about the operational aspects of such a meeting. An in-person meeting can make it easier to brainstorm ideas and solutions—and having everyone in the same room means people are more likely to be focused. A virtual meeting can keep everyone on the same page—literally, if you’re sharing your screen—and you may be able to get a broader range of attendees to the virtual meeting. A hybrid meeting could be another option, with local staff meeting in a conference room and remote attendees calling in, or with some attendees attending only certain parts of the meeting.

Then, consider the financial impacts. Most of the time, we think solely about direct expenses, like travel (flights, hotels) or ordering lunch for the meeting. But there is a cost for each attendee’s time, as well—both direct in terms of labor (each attendee’s hourly salary rate multiplied by the number of hours the meeting is scheduled to last) and indirect in terms of impact to billability (every hour spent in your Red Team meeting is an hour the attendee isn’t spending on a billable project).

Balance these considerations against the anticipated revenue the proposal will produce for your firm. Typically, proposal costs should be around 5% to 10% of the anticipated revenue—anything over that can cut into the firm’s profit margins on the project. Maybe you’re planning to have 10 local people attend the 4-hour, in-person meeting at a cost of roughly $4,000—but your anticipated revenue for the project is only $80,000. That $4,000—5% of the revenue—is for only one meeting in your entire proposal development process, and it doesn’t include the time the reviewers spend reading the draft prior to the meeting, so you’re likely spending more than 10% of the anticipated revenue on the overall proposal.

So, how do you cut costs in this scenario? Consider the roles and expectations for each attendee. Can anyone be removed from the meeting, or have more limited involvement? Maybe someone can come in for a specific discussion and not spend the entire time. Think about the agenda as well—do you need the entire group to review the entire proposal, or can you focus in on specific sections worth the most in terms of evaluation criteria? Maybe that will cut your 4-hour meeting down to 2 hours.

There’s no right answer—there are many firm-specific variables in a decision like this one. The key is to think about these financial and operational considerations—if the meeting is worth investing in, then find ways to make it productive!

Scenario #2: Is It Time to Hire?

You’re a marketing manager, and your team is overloaded—you’re seeing lots of overtime on timesheets and are seriously worried about burnout. Your firm is in a growth mode, so it feels like it’s time to hire. What information do you need to consider?

Of course, there’s the financial component: What is the salary range for a new hire? But it’s more than just the salary—investing in a new hire also means investing in benefits, training, and onboarding. It means purchasing new equipment (computer, software) and likely investing in space (desk/work station). It also impacts your firm’s billability, as each marketing (overhead) hire impacts the overall billability of the entire staff. And that is all compounded if your firm is in a growth phase, as other teams/departments are asking for hires as well … which could get your firm to the point where you’re looking at investing in additional office space to accommodate everyone.

And then there are the operational considerations. What will this new hire’s responsibilities be, and how will those impact the responsibilities of the rest of the team? How will the new hire impact your availability? Will your time and attention be taken away from critical initiatives to train the new hire? It might seem to make financial sense to bring on an entry-level hire, but from an operational perspective, maybe spending more on salary for a mid-level hire would shorten the learning curve and have the bigger impact on your team’s strained workload capacity. Or maybe you were planning to hire a generalist marketer. Since most of the firm’s anticipated growth is in a new market sector, perhaps a specialist in that market may be a better fit in the short term, giving your existing team more time to learn about the new market.

How would you proceed in this situation? Think about your current marketing team—if you could hire another person tomorrow, what responsibilities would you assign them? What level of experience would they have? What would the immediate and long-term impacts be of adding this position? Consider how that new hire will enable your firm to increase revenue and profit as well as improve retention and morale for your team.

Scenario #3: Cutting Costs, Protecting Profits

You’re a marketing director. Your client just found out they lost funding for a major project your firm had been helping them with (the revenue from which your firm had been counting on to reach its financial goals). Now, the COO is asking you and the rest of the leadership team to identify ways to trim overall costs by 20%, providing cost-saving ideas and potential implications within the week.

Of course, no one wants their department to face cuts. Your colleagues start throwing out ideas: Cut staff by 20%, reduce benefits, cancel advertising and sponsorships, stop purchasing food for company meetings, put a freeze on travel, sublease office space, increase billable goals—the list is long and varied. As a leader, how do you guide your colleagues to make solid, responsible decisions, especially related to marketing?

Use that strict ROI mentality. What are the biggest marketing expenditures? Maybe your firm is “always” the premier sponsor for a large industry conference, costing your firm $20,000 each year just for the sponsorship. You also have a booth and a special client dinner, and 10 people from your firm attend. From a pure financial standpoint, maybe you skip that conference this year entirely. It’s close to $50,000 in cost savings when you total up all the direct and indirect costs!

But the operational considerations make that decision a little more difficult. If your firm is well known for being that top-tier sponsor, what does your departure from the conference signal to the rest of the marketplace? Will people start questioning your financial solvency, which could cause more clients to pull away from your firm or cause candidates to look for other employers? Will clients question your dedication to the professional organization? What longer-term impacts might skipping the conference have?

Perhaps you suggest a more conservative approach of continuing the sponsorship and client dinner, but skipping the booth, limiting how many attendees you send, and making the dinner a smaller event this year. Then, you can look at all the conference, sponsorships, and advertising costs your firm is planning to spend this year—what is the ROI for each? Maybe you put a freeze on sponsorship of any new professional organizations or conferences, and set a limit on expenditures for existing commitments.

Whenever a firm needs to “tighten its belt,” all eyes turn to overhead spending—which always includes marketing. As a marketing leader, it’s critical to understand the ROI of any marketing expenses. This type of cost-cutting exercise can be a valuable scenario planning activity—it may lead to identifying efficiencies you can implement right away!

Overhead refers to the ongoing costs to operate a business, excluding the direct costs associated with creating a product or service. For most firms, marketing is considered overhead and is seen as a cost center—not a profit center. Yes, marketing is critical to securing new business and bringing in the new contracts that generate profits. But marketing as a business unit doesn’t make money—it’s a company cost, like rent or benefits.

Firms look to decrease overhead costs to improve profitability, increasing the amount of money that can be reinvested back into the company. For example, a firm may decide to decrease marketing costs for two years, so they can save money to pay for the launch of a new service line or building a new headquarters—the shorter-term pain for one group can then lead to longer-term gain for the company as a whole.

Scenario #4: Making the Most Difficult Decision

You’re the COO. Over six months, your firm hired a large team to enter a new market based on market potential—however, the market didn’t materialize as quickly as anticipated. The team of technical folks-in-waiting was quickly draining reserves, as they weren’t billable and there wasn’t enough other work to assign them to while the new market developed. You ultimately decide that 80% of the team had to be let go.

This type of decision has major ramifications across the entire firm. When your firm develops its business plan for the year, it’s based on a certain number of employees achieving a certain billability target. Just like hiring more overhead staff than planned impacts your firm’s profitability, letting technical people go means fewer employees are contributing to that billability target. This puts your firm in a deeper hole and makes it harder to recover from a financial perspective. And that’s in addition to the financial impacts like paying rent on now-empty office space or covering benefit payouts/severance.

There are also operational impacts. Large-scale layoffs damage employee morale (you just hired and/or relocated all these people, now you’re letting them go; other people in the firm begin to worry about their jobs). There can be damage to your firm’s reputation and positioning in the marketplace (such as rumors that the firm is going under, new clients not considering your firm for work, existing clients wondering if their work will be done).

This is why firms think so carefully about adding new services, pursuing new markets, or operating in new geographies. These larger-scale decisions have larger risks associated with them—so it’s critical to consider all angles and think about a back-up plan if the anticipated revenue doesn’t materialize.

Look at the markets, services, and geographies your firm serves. Which are most critical to continued operation? Which have the most risk? Think about opportunities for cross-training, cross-selling, and diversifying your client base to minimize some of these risks.

Closing Thoughts

As firms continue to grow and evolve in the A/E/C marketplace and competition heats up, many firms turn a critical eye to efficiencies—which often impacts marketing. Think about how you can transform your business through marketing leadership. As a marketing leader, take a focused look at how your firm can become more effective in the marketplace.

Focus on how you can reduce the accumulation of things that “have always been done that way”—is there another, more efficient way they could be done that would have positive financial or operational impacts? What would you do as you were building your 2025-2027 strategic plan? What can you pay attention to in 2024 to figure out how to reduce the cost of doing business moving forward? By understanding the financial and operational impacts of your decisions, you’ll be better able to help lead your firm into the future.

Sources and further reading

Marketer contributing editor Jen McGovern, CPSM, is the mid-Atlantic regional capture manager for VHB in Tysons, VA. She is the Chapter Advisor for SMPS Washington, D.C. and a member of the SMPS Northeast Regional Conference Board of Directors.

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Nancy Usrey, FSMPS, CPSM, Design Build Strategic Pursuit Director for HNTB, also contributed to this article.

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