Diversify to increase profit, decrease risk

July 2009 » Columns » RISKY BUSINESS
John P. Bachner

So here you sit, reading this column in hopes of learning something that will be of value, especially in today’s economy. But all I can recommend is what you’ve probably already heard: diversify. Consider how you can expand upon an existing service you already provide to clients, especially those with whose representatives you have cultivated solid relationships. They typically are the most willing to help you try something new, and most forbearing when not everything goes as planned.

Try to figure out how you can expand an existing service to make things more convenient for your clients. Often the answer is to expand your single-source capabilities — do more — so a project becomes easier to manage, thus lowering the client’s risk while freeing up productive time that client personnel can apply to other pursuits.

For example, a number of ASFE members who’ve taken this route now offer design-build retaining wall services. And while you may think that this results in more risk, just the opposite is true, given what is becoming a sad but oft-told tale. It goes like this: An owner-client retains a geoprofessional to develop specifications for a retaining wall and then perform quality-assurance (QA) through construction materials engineering and testing (CoMET) services — a series of strategic spot-checks to evaluate the contractor’s performance. However, to lower costs, the client reduces the CoMET services scope, thus diluting the efficacy of QA. As it so happens, the completed wall fails to meet specifications because drainage was installed improperly, or because the wrong fill material was used, or the ground was not properly prepared. With luck, the problem is discovered immediately. More often, however, it is discovered months or even years after construction is complete, when the geoprofessional may be the only party available to sue because professionals are personally liable and purely corporate entities are not.

So what happens when the geoprofessional does retaining walls on a design-build basis? First, the geoprofessional is able to offer what many clients would regard as a more appealing, turnkey service; something that would be an important differentiator for a firm active in what has become a smaller, more crowded marketplace.

Second, the geoprofessional improves its profit, at least by increasing revenue and maintaining the same profit margin. Realistically, however, because the project is obtained on a lump-sum basis, the opportunity for a higher profit margin exists.

Third, the geoprofessional lowers risk due to what should be far better communication between those who design and those who build, and the spirit of cooperation that exists between those who build and those who perform the CoMET services.

Something could still go wrong, and were that to happen, all would be on your shoulders. But, if anything goes wrong with the conventional design-then-build approach, you would still be named (which is why some people refer to the process as design-then-build-then-sue). When it is far less likely that something will go wrong, you face far less risk.

Your clients should be happy with your new service. Dealing with one source rather than two, three, or four makes life simpler. And to simplify your client representatives’ lives even more, consider offering routine inspection/evaluation services, so that once or twice a year, or maybe more often, your firm will examine the retaining wall to assess whether or not it is performing as it should. Also consider offering routine maintenance, knowing that others may not perform it as well, which could lead to precisely the kind of problems you’re trying to avoid. (Providing a service that lowers your risks while increasing revenue and profit is a really good thing!)

Additionally, offer to guarantee the retaining wall’s performance for an up-front fee that also permits additional geoprofessional study, additional design review, additional CoMET services, and the ongoing inspection and maintenance needed to make the wall just about fail-safe, save for forces majeure. You could also guarantee that the project will come in at exactly the price you quoted.

Occasionally, you will lose money on projects like these. But over time, they should be highly profitable in the aggregate, and you will be able to offer what few of your competitors can. And when you start thinking about taking on retaining walls in this way, you may be able to take on other projects in the same way. As for the notion that the client will never pay for it, you need to speak with your client representatives. As it so happens, many are already paying far more for it than what you would charge, given the time they have to spend to engage and oversee two, three, or even more entities to move the project from start to finish — and given the far greater value of the time lost when things go wrong.

John P. Bachner is the executive vice president of ASFE, a not-for-profit association that provides programs, services, and materials to help geoprofessional, environmental, and civil engineering firms prosper through professionalism. Visit ASFE’s website at www.asfe.org


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