For better and worse, just about everyone in the design and construction community is feeling the financial impact of our new realities. While many firms are realizing savings as a result of the work-from-home transition, others are grappling with the cost to implement the infrastructure required to facilitate this new environment. In both scenarios, set against the uncertainty of how long this new way of working will last, firms are struggling to forecast how this will impact their business, their budgets, and their bottom line.
To gain deeper insight into the various perspectives, Cameron MacAllister Group conducted a study of AEC firm principals to better understand the COVID-19 pandemic’s financial impact in the industry and strategies firms are using to address it. Eighty-nine firms participated in the online survey, which was open from August 5 to August 13. Participants included principals from architecture, engineering, multidisciplinary, and construction firms from all regions of the country, and contributing firms ranged in size from less than 25 people to more than 500.
Below are some findings from the survey. The full research report can be downloaded here.
In Cameron MacAllister Group’s mid-May survey, firm leaders expected their 2020 revenues to decline an average of more than 15% as a result of the pandemic and resulting economic downturn. This average appears to be holding in August 2020, but nearly one-quarter expect revenues to decline up to 50%. On the other hand, things are looking up for about one-third of the firms surveyed last month.
Nearly all participating firms said they are pursuing more work with either existing clients or seeking new clients in existing markets as a strategy for counteracting declines in revenue. Additionally, some are offering more non-traditional services, often related specifically to post-COVID occupancy at the client’s workplace. More than one in four firms surveyed have reduced office expenses and/or reduced either staff or individual salaries to ease projected shortfalls for 2020.
Cost Reduction Strategies
Cost-reduction strategies fell largely into two categories: operational (office, utilities, travel) and labor (staff lay-offs, salary reductions, etc.). Pre-pandemic, working from home was being considered by many office-based businesses, at least on a part-time basis, up to two days a week. Beginning mid-March, non-essential businesses were forced to close as most offices around the country emptied, and working from home became a viable alternative to a complete shutdown. Fewer workers in the office meant less real estate would be required to get work done, resulting in significant savings, and, at some point, that may be true for the long term.
Saving from Work from Home Offset by Investment Costs
However, the adjustment to working from home has been somewhat slow and not without significant upfront costs. In the August survey, more than forty percent of participating firms said they have seen no savings at all, while nearly half experienced only minor savings. The hard costs of long-term office leases and the investment required to set up work-from-home environments for employees often offset any savings from utilities, travel, and/or internal office expenses. Most firms were caught off-guard and wound up having to make unexpected and significant investments in transitioning employees to working from home. The added expense of setting up employees at home seemed to offset any savings and was further exacerbated by a loss of efficiency and/or lower level of utilization. On the positive side, many firms noted reduced expenses (office and/or travel), and a number of firms claimed they were more productive and experienced a higher level of communication all around.
All AEC firms need to continue to replenish the work that is being done so they can remain stable over the longer term. For firms that are continuing to employ a remote work setting, there are especially difficult challenges: building a high-touch connection to a potential client via video; pivoting from market sectors that are depressed to others that have more potential; succeeding in a market place where multiple firms are competing for the same project and are willing to do almost anything to distinguish themselves. Ten years ago, during the Global Economic Crisis, design and construction firms desperate for work undercut their competitors on fee and created an expectation which has not fully recovered. We would urge AEC firms to not repeat that same mistake.
Caring for the Well-Being of the Workplace
The morale of staff who are working at home is at risk. Whether individuals are juggling childcare and education with the demands of their jobs or are feeling isolated and in need of social connection, the pressure of WFH is considerable. Leaders of AEC firms need to be especially attentive to the psychological and emotional needs of their staff. Calling them to inquire how they are doing and expressing personal concern is an important part of a leader’s role. Treat this as a key part of one’s responsibility; organize yourself to connect with some frequency—and don’t leave anyone out.
Creating an Exceptional Client Experience
It’s hard to thrill your clients if you’re not physically sitting with them, reading body language and working collaboratively. This situation is not going to change any time soon, and we as design and construction professionals need to find how to do our work for clients such that they are exceptionally pleased with the effort. Having the loyalty of a client is worth more than an extra day per week to do business development.