Case Study: Irrigation Engineering Firm Relies On Wind2 To Make Value Pricing A Success

Aqua Engineering has successfully implemented a value pricing strategy that ensures customers that the value of the project goes far beyond its cost. The key to the success of this approach lays with solid, real time financial management that allows managers to see exactly how much service can be delivered while maintaining a project's profitability. Providing employees with near real-time information on the status of all current projects helps them become active participants rather than passive observers of the firm's value pricing strategy. The improvements in financial management have also helped to better tailor invoices to particular clients' requirements and preferences.

Aqua Engineering, Inc., formed in 1975 by Stephen W. Smith, is an irrigation engineering firm specializing in water-conserving irrigation design and management. The company's services include irrigation design, for which complete buildable construction drawings, installation details, and construction specifications are provided; water feature design, which meshes the artistic aspects of water with engineering concerns of operation, management, and operating costs; and pump station design for specialized pumping systems used in irrigation and water feature projects. The firm also conducts engineering studies ranging from central control feasibility and selection, to alternative water source payback analysis, to weather station interrogation and irrigation scheduling programs.

Satisfied to Be Small
Aqua Engineering is a firm of 21 employees that enjoys being small. There is no mandate to grow simply for growth's sake. But company management is continually thinking about how to improve operations, both as a way of boosting profitability as well as for ensuring the highest standards of customer service. Recently the company adopted an "add-value" policy based on Frank Stasiowski's books, Value Pricing for the Design Firm, and Staying Small Successfully. Stasiowski promotes the idea that instead of selling time, firms such as Aqua Engineering need to base their pricing on value provided to the client rather than simply the number of hours spent on the project. However, Stasiowski points out that the optimal combination is to manage by hours, price by value. Hence, the price is determined based on value to the client, whereas the maximum hours allotted are monitored in order to preserve the built in "add value."

A critical element of the add-value strategy is that everyone involved in a project is aware of its status in relation to the budget. Without this knowledge, there is the risk that the amount of time spent on the project could exceed its value-based pricing. Normally, this would involve the use of a financial accounting program and a project budgeting system. It is difficult, however, to keep both systems up-to-date and delivering timely information to each person working on the project. Determining the numbers of hours spent on a project to date requires someone to compile data from time sheets and compare that data to a project budget. Determining expenses requires similar efforts using expense reports and the financial accounting software. By the time information becomes available, it is often too old to be valuable as a means of telling where the project stands in relation to its budget.

Use by Design Professionals
Aqua Engineering has found that accurate time allocation is a critical part of value pricing. This is done electronically with the software package that the firm uses for both project budgeting and financial accounting, the Wind2 Financial Management System (FMS) for Windows from Wind2 Software, Inc., Fort Collins, Colorado. During the week, employees enter their time directly into Wind2 from their respective work stations. On Fridays, employees print out their time sheets and submit them to supervisors to check for accuracy. Administrative staff then generates project by project reports based on the timesheets, ready for the Monday morning management meeting. Managers can see instantly where the company stands on every project. Having an almost immediate view of project status enables them to take action quickly if a project appears to be exceeding its budget.

Having accurate, timely information about project status also supports the company's add-value strategy. Most contracts with clients specify the dollar amount of the services that will be performed. That amount is translated into hours and entered into the project accounting software. Converting a dollar value into hours makes it possible for managers to balance the cost of the project relative to the value delivered to the client. Being aware of the project status empowers employees and makes them participants in the add-value approach. It also supports the company's profit-sharing plan by making employees aware of how closely the firm sticks to its budget.

Timely Information Pays Off
Aqua Engineering can get invoices out more quickly because the firm has instant access to project data. The firm has also simplified the task of preparing invoices to meet different clients' specifications. For example, some clients want a simple statement showing the percentage of the work completed with the invoiced amount corresponding to that percentage of the total fee. Others want to see who worked on the project, how many hours they worked, what percentage of each phase the project is complete, and so on. Aqua Engineering has created six basic invoice formats that, with a few simple changes, can meet every client's requirements.

The firm has customized many reports as well, mainly to pare them down so that they show only the information managers need. For example, by combining a budget analysis report and a labor and expense analysis report thus eliminating redundant information, they now have a single report that shows the time each employee spent on a particular project and compares that against the budget. The firm has also customized the accounts receivable report so that it can include notes from the staff accountant. When a client is late in paying, project managers are quickly alerted.

All businesses need timely information about the status of operations. This is especially true for a professional services firm such as Aqua Engineering because the hours spent on a project can easily exceed the budget unless they are carefully tracked. Software that monitors the time spent in relation to the budget allows this service business to complete projects profitably while still allowing for excellent customer service.

Source: Wind2 Software, Inc.