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Evelyn March

Evelyn March


Evelyn March is BST Global’s Group Director of Training and Development. Evelyn joined BST Global in 2006 as a Support Director, ensuring the satisfaction of the BST global client base. Combining the honed skills gained from her industry knowledge and coupling it with assessed internal needs to support client satisfaction, she began to develop learning criteria for internal staffing. The success of the training criteria has led to a successful on-boarding and ongoing training and development department.

Born Wired: How do we Retain Millennial Talent?

Evelyn March
EvelynMarch
Group Director
BST Global
While our current workforce covers three distinct generations – The Baby Boomers, Generation X, and Millennials – today’s toughest HR challenge seems to be in attracting talented Millennials and getting them to stay. Many in the talent development realm fight to crack the code of creating a workplace conducive to drawing and retaining the brightest talent. Companies want their team members to exude enthusiasm, collaboration, and hard work. In exchange, employees want promotions, flexible work/life balance, and reliable benefits. In all, we’re seeking to create an environment where everyone enjoys the prosperity formula where Happiness = Reality – Expectations. But, what does that mean to Millennials? This new generation was born wired. They come to the workforce with an inherent knowledge of using technology to leverage opportunities and customers on a global scale in near real time. And they have unbridled enthusiasm that drives it all. To keep that motor humming, they expect unremitted feedback, recognition, and collaboration. To them, there’s never too much information. Everything moves at a speed that has them trading spit-shined wing tips for worn-in sneakers. Careers are of no exception. They join organizations with an expectation of a clearly laid out career path paved with training that’s direct, to the point, and hopefully, on demand. In a relentless pursuit of happiness, Millennials look for new professional ventures everywhere. According to the Future Workplace “Multiple Generations @ Work” survey, 91 percent of Millennials expect to stay in a job for less than three years. This leaves companies figuring out how to evolve to meet these needs. Doing so reduces the task of re-investing capital to recruit, onboard, and train new talent, as well as the loss of revenues during the temporary down-turn in staffing. Perhaps the answer to the retention conundrum is in rethinking the talent of all three generations without singling out one. Baby Boomers came into the workforce in a post-war era that was filled with opportunity and prosperity. They sought new ventures, rolled up their sleeves, and worked to conquer them. This mindset has applauded Baby Boomers as consistent producers and loyal workers. The Generation X employees are challenged with raising children and caring for parents. They are the architects of successfully handling work/life balance and being great revenue producers. Tapping into the strengths of these three groups can create the perfect formula of inclusion and cultural growth. So, we’re now left with the question of how? Reassess your communication strategy.  Text, emails, and corporate meetings may mean redundant communication, but all generations will feel ‘engaged’ as management addresses their individual approaches to communication. Rethink your benefits package.  Baby Boomers who are dedicated producers may want to move to part-time. Offering benefits for those employees may reduce the cost of onboarding new talent. Generation Xers are fully aware of the state of Social Security and seek a robust 401K plan to win their loyalty. Millennials want flexibility to accompany their lifestyle. Flex time, telecommuting, and flexible schedules can be an attractive incentive for longevity. Offer mentoring and training, mix it up, and keep it fresh.  Baby Boomers are a wealth of information, and Millennials are sponges, while Generation Xers were raised in the era of collaboration. Introduce one-on-ones, knowledge transfers, blended learning forums, and discussion panels. Despite the era, everyone enjoys both giving and receiving knowledge. In our multigenerational workforce, traditional approaches are passé. Evaluating your talent and working to their strengths is the fastest way to graduate reality to expectations and achieve that happiness formula. What challenges have you faced with the incoming generation? What have you done to adjust? Please share your thoughts below.

Does Corporate America Hold the Key to Education Reform?

Evelyn March
EvelynMarch
Group Director
BST Global
We live in a time where shift happens. And it’s happening at an alarming rate. In 1900 human knowledge doubled every 100 years. In 1945 it doubled every 25 years. In 2014, it doubled at the rate of every 13 months. It is projected that by 2020, it will double every 12 hours! Every day, over 5.4 billion Google searches are launched. This is 100 times greater than the year 2000. The number of text messages sent daily double the number of humans that occupy our planet. The shift of knowledge is happening at an exponential rate. And our educational system is trying hard to fill the gap. From 2000 to 2014 the enrollment in undergraduate studies rose by 31%. Computer science, business, and engineering topped the list of studies – all the careers suited to conquer this shift in the paradigm. Yet according to a recent Forbes article, there are 4 million job openings that remain unfilled. While college campuses are revamping their majors to answer the jobs of the present and future, there remains a disconnection. Higher education prepares students for the hard skills to perform the job, yet employers are seeking soft skills such as critical thinking, problem solving, and proficiency in writing to complete the job. Coupled with that, employers may be missing that one in every five people own a smartphone which changes the criterion for how one communicates. According to a recent article on CareerBuilder, 86 percent of active candidates begin their job search on a mobile device, and 70 percent of those want to apply the same way. Not optimizing the node of communication for recruiters can potentially result in a loss of bright talent. Is there a lack of collaboration between businesses and educational institutions? If the two partnered to better define the starting and ending points and amalgamated ideals to create the road to success, what heights can we reach? For centuries we have put the ownership of career preparation on the educational system without including the desired outcome. Think of it this way – no one sets out to make a marinara sauce without an expectation that the tomatoes they buy are full of flavor.  Or, purchases a pallet of bricks without complex plans that defines the exact outcome of the house it will build. The misnomer of not teaching human capital skills at the secondary school level and beyond is fast becoming the lynchpin that is slowing corporate profits. The hard skill of education has been exemplar in the cornerstone of creating gender equality, reducing poverty, fostering peace, and creating a sustainable planet. Adding the soft skills of communication, leadership, influencing, creativity, and professionalism creates the new educational currency that maintains economic competitiveness and creates prosperity. Education and human capital are essentially inseparable in the definition of success – making a company’s human resource contribution the profit driving game-changer. In the workforce, sharing and collaborating is paramount to success. Yet in the educational system, discussion and partnering is deemed cheating. We have to recognize this oxymoron and make the changes that can and will foster success. Businesses that are willing to step into the community and offer reciprocity of soft skills for hard skills at the earliest working age are seeing that they can possibly close the educational gap.  It is recognized that the generation following millennials will shape the data that is projected to increase two fold daily.  While providing the opportunity to learn hard skills, in exchange these businesses are gaining insight to forthcoming trends allowing it to set its own course of exploration.  Incorporating things such as team projects, open discussion meetings and idea sharing teaches the much needed collaborative soft skills that benefit both the company and the individual. For those entering the work force, this soft skill offering creates the necessary upward mobility that turns today’s employees into tomorrow’s leaders. Have you implemented a training program that successfully bridged the educational gap? If so, we’d love to hear your ideas!

Creating a Culture Mix of Extrinsic and Intrinsic Motivation – And Who is Responsible?

Evelyn March
EvelynMarch
Group Director
BST Global
Let’s face it, there are countless articles in print and cyberspace that gives insight to the growing concern of tenure and turn-over. So, what really motivates employees to stay? Companies are adopting and promoting their extrinsic rewards as a reason to ‘work here’. Great pay, great healthcare, flexible spending accounts. Some companies have expanded their offerings to perks like gourmet meals, endless snacks, and on-site baristas. The package of extrinsic tangible rewards are appreciable motivators. However, even with such great extrinsic motivators, companies like Google are still experiencing a high level of turnover. A survey on employee tenure for the companies on the Fortune 500 list showed Google at number 462 with an average tenure of 1.1 years. On the other side, an article in Business Management Daily featured Synergis Technologies and its 108 employees have been with the organization for an average of 10 years. What’s the secret ingredient in Synergis’ secret sauce? The company’s core value mantra includes innovation. Employee innovation that is. The intangible intrinsic motivation of creative contribution is what makes it a bit harder to part ways. Who moved the cheese? Years ago when industrialization had taken the world by storm, work was primarily routine and guided by policy and procedure. Under that model, the extrinsic reward system were the motivators of the times. Today’s workforce is asked to employ critical thinking and problem solving in their daily tasks. These scenarios are not easily definable in a written manual. The freedom to express one’s creativity – that will in turn catapult the company in the marketplace – is a healthy, highly rewarding intrinsic motivator. With this change in landscape, it is imperative to see that extrinsic and intrinsic motivations are dually important in achieving successful employee engagement. Who's on first? Reading from a tattered corporate playbook, Human Resources is usually the kicker pulled off the bench to score the extra three points that scores the win for employee engagement. Though excellent in developing the extrinsic reward program, are they the best players to develop the intrinsic motivators required to keep employees engaged? Reviewing several companies studying the other side of the coin, they decided the answer is no. While invested in providing the talent for the company, they’re not necessarily engaged in the intricate details of the delivered product. The group that has come to the rescue is marketing. The marketing team is responsible for understanding what your customer needs, and why you and your product are the best choice to fulfill. Creating a two-way branding schema strengthens the allure of the company’s brand to both the receiver and deliverer. Do your employees really know what you do? Quality Bicycle Products, a Minneapolis company dedicated to bringing innovative ideas to the biking community understood that it was important to align the internal and external messaging of its values.  To foster the idea that we need to change our environmental footprint to its 185 employees, QBP offers a $2 per day credit to employees living within ten miles who choose to bike, bus or carpool to work. The marketing of an eco-friendly alternative to transportation was also marketed internally. Employees now feel that they are the greatest contributors to the company’s sustainability endeavors. Nike is best known the slogan ‘Just Do It’. Consuming their brand gives you the power to persevere. Whether you’re a cashier or an engineer, your intrinsic motivation to deliver that message is conveyed through corporate storytellers that act as internal marketers. Its rich heritage is conveyed through the stories of how Coach Bowerman created better running shoes for his team by pouring rubber into the family waffle iron, and that was the birthplace of the iconic Nike waffle sole. These stories of innovation provide archetypes that employees can pull from to create their own motivation toward greatness. These are just a few. Others like Starbucks, Disney, and IBM have great stories around creating intrinsic motivation by including the external branding to the internal teams. Creating a Success Story Balancing the two motivators is really about timing. Intrinsic motivation is inspired, not taught.  During the onboarding, introducing your product to your employee as you would your customer excites the intrinsic mind to work toward achieving a purpose. Continual sensory feeding is necessary to reignite the motivated employee. As you change your branding strategy are your employees engaged? Are they invested in the latest and the greatest that the outside world sees? When logos change and branding changes, are the employees also engaged in experiencing the change?  Are you taking full advantage of your extrinsic and intrinsic reward system to create the best employee experience? What motivators do you use at your firm? Tell us more in a comment below!

First Comes Diversity, Then Comes Inclusion

Evelyn March
EvelynMarch
Group Director
BST Global
In our micro-diverse society, many companies strive to mirror their peers, their clients, and the world at large. Creating a diverse work environment hones in on the cultural mix of experiences and acumens that team members bring. But after you've onboard this diverse community of talents, then what? The path to excellence I'm sure we all have a former teacher that made a statement that gave us an aha moment. Mine was my high school English teacher who memorably said 'Coming together is a beginning; keeping together is progress; working together is success.' That quote sums up the path to excellence and defines inclusion. Good companies market diversity and inclusion, great companies create a competitive edge by decoupling and then living the two. After bringing together a diverse staff, a company must define inclusion to forge the path to excellence. What's the difference? Inclusion integrated the myriad of individuals into one workplace – seamlessly and individually. Why is inclusion so important? People from diverse backgrounds challenge each other more. Challenge begets creativity. Creativity begets profitability. Getting it right first with diversity allows a company to peel back the corners of the world and how it may interact with your product through the eyes of your employees. Inclusive workplaces that create forums for individual contribution outperform competition and enjoy longer employee retention. The generations entering the workforce are raised believing it's unnecessary to downplay their differences in order to get ahead. They are proud of their differences and refuse to check them at the door. A Deloitte survey revealed that 86% of Millennials feel that differences of opinion allow teams to excel. Moreover, lack of inclusion can lead to a lack of engagement. And that affects a company's bottom line as disengaged employees cost companies up to $350 billion per year in lost productivity. Inclusion requires planning For many, inclusion is synonymous with chaos. But, it doesn't have to be. A forum for employee collaboration does require commitment and planning, but the reward is worth the investment. Align each position with the company's success. Every team member is essential. Understand where their insight is paramount and create the forum to extract their feedback. Create model leadership. Train your leaders to model ethical behavior. Accept input, admit mistakes, and express genuine concern for all staff members. Redefine ethics. Is your code of ethics a statement you expect from your employees or does it define what your employees can expect from you? Inclusion views ethics as bi-directional. Commit to training. First management, then employees. A corporate culture that creates standards on how to raise issues and resolve them and the consequences for deviation are setting themselves up for successful inclusion. If you're desiring the mix of employee engagement, reduced turnover, a clear picture on global outreach and increased profits – understanding your stance on inclusion may be your answer. Where do you stand on your inclusion policy? Let us know in a comment below.

Move Over Millennials, Introducing Generation Z

Evelyn March
EvelynMarch
Group Director
BST Global
Just when you learned to spell Millennials without a spellchecker, there's a new group emerging and entering the marketplace: Generation Z. Also known as Post-Millennials, the iGeneration, Founders, Plurals, or the Homeland Generation. While the definitive date of when this group starts is still up for debate, the litmus test is if they can clearly remember where they were on 9/11. If they're too young to remember – they're a Gen Z-er. This group is growing up in a time where terrorism is a reality, they have felt the effects of a global recession and the debate over climate change is all they have known. Their households, neighborhoods, and friend list is as varied as Joseph's Technicolor Dreamcoat. What they define as normal is more diversified than any generation before. And they will be the workers of the future – the near future. As the trickle of Baby Boomers retiring continues, the emerging presence of Generation Z will begin to flood the market. So, what does that mean for employers? Forget the textbook answers Every generation wants to inspire the next to do and be more. Baby Boomers taught their Gen X children to go to college, learn more, and thus earn more. With age and education came wisdom. Generation Z will call that passé. Generation Z are privy to much more information at a younger age. Their porthole into the world is often exposed before they're introduced to formal education. Tablets, smartphones, laptops, television, videos, and wearable electronics are piping data into their brains making them historians far beyond textbook knowledge. The qualifier for knowledge of yesteryear may not work in the future market. Global yet local If there was one word to sum up the Gen Z approach to life, it would be hypersensitive. Living in an era where 77% of the generation have internet access, they are enlightened to global events. Whether the event is global warming or terrorism, they understand the actions abroad and they are well versed in the needs and attributes of their local environment. Where there was a desire to go forth and conquer in previous generations, Gen Z will want to stay close to home, yet have a global impact in their careers. In short, they're ready to change the world. Pluralists Historically, diversity has been defined based on ethnicity and gender. However, this Pluralist Generation challenges conventional wisdom as they accept and experience diversity on a micro level. Mixed race, single-sex households, and diverse religious affiliations are standard to them and expected in a single society. Because of their progressive acceptance, a new expectation of diversity will emerge. The Pluralist Generation will push for and expect micro diversity from their future employers. Re-education Ten percent of the apps on the Apple store are geared toward Generation Z. Re-education is essential to their wellbeing. They have an endless capacity to seek and retain data – that quest will not end after they receive their first paycheck. If your training and learning environment isn't continuously creating micro-learning opportunities, you may experience a revolving door of bored Generation Z employees. It's clear that this new generation will change the prototype of employee engagement. Shaped by technology, history, and economics we will soon employ a generation with unprecedented attributes. Are you ready? We'd love to hear how you're redefining your workplace for the generations here today and those expected tomorrow.

Is Your Workplace Dope?

Evelyn March
EvelynMarch
Group Director
BST Global
Are you creating a dope workplace? And by dope, I’m sure you’re wondering if the slang is being used as an adjective, as in: very good. Or if the reference is to the noun, meaning an illegal drug taken for recreational purposes. While the word ‘dope’ carries several meanings, it’s similarity to the word ‘dopamine’ is purely coincidental. But the kinship is undeniable; they both spawn continual reward-seeking behavior. In 1958, the chemical dopamine was discovered by Dr. Arvid Carlsson. Essentially, it is a neurotransmitter in the brain, which controls the stored memory function that tells us we have completed something good, and to repeat that behavior to receive a reward. For patients with Parkinson’s, dementia, and Alzheimer’s diseases, Dr. Carlsson discovered that this neurotransmitter was in declination. His discovery paved the way for science to formulate the utilization of dopamine to lessen the effects of these disorders. Equipped with this core knowledge of dopamine’s effect on behavior, several deductions can be made. For example, dopamine helps us learn things quickly and permanently. But continued releases can cause a ‘seeking’ or addictive behavior. Finding Dope Employees In the business world, we as employers naturally seek out employees with adequate dopamine levels, whether we realize it or not. This is revealed by how well they’ve honed the craft or skill that makes them an employable candidate. Once we hire these candidates, it’s important to continue to excite this neurotransmitter through continual learning opportunities, as it leads to personal and professional successes. But, are there junctures where employers over-excite this chemical reaction? And if so, what are the consequences? A Connected World Take connectedness. Our world is connected. Our employees are connected. And that can be a good thing; after all, collaboration is the precursor to accomplishment. Having employees interact on ideas and problems leads to innovation and achievement. We send emails to those who provide the best input, often adding them to the top of the recipient list. What’s more, it’s not uncommon to see employees send a text or address a social media notification during work hours. We have accepted this practice as social norms that are a by-product of the instant information age we live in. Production Versus Disruption But when we see those email or social media notifications appear, the feeling of being sought after for interaction causes a rapid fire of that seeking neurotransmitter - dopamine. The dopamine rush creates an anticipation of reward that once ignited, the object that gave us that rush can become the object we seek. In this rapid-fire environment, the question arises: are we creating production or disruption? Is the portico to our dopamine rush allowed into work meetings? How many times have you been in a meeting and you or your neighbor glances at the buzzing phone on the table? Or listens with a half-perched ear as they respond to the email that just popped up on their laptop? Is the double dipping of time more productive, or creating a disruption in our ability to concentrate on the task at hand? Could we be the creators of our own oxymoron story by thoughtfully creating fulfilling roles, but making the workplace a dopamine-seeking society that makes one seek more, even when fulfillment is in their grasp? Creating A Truly Dope Place to Work Human Resource professionals have the arduous task of finding and retaining talent. As more employees enter the workplace looking for a career that fulfills an internal purpose, it’s not far-fetched to see talent leave because they just don’t find the work personally fulfilling. It’s time to evaluate if we are arbitrarily creating an environment that dopes employees into wanting more, over just creating a dope place to work. Some things to consider along the way: Make meetings phone and laptop free zones. Think: Does everyone need to be on that email? How about stopping by and having a conversation instead of the internal instant message? Is your training and development environment equipped to fire off the dopamine that spawns the desire to learn more? By creating a people-centric, collaborative learning environment, employees will surely feel that they’ve found the dope place to work. If you’d like to share how you’ve created a dope place to work, we’d love to hear from you! Share your thoughts in the comments below.

The Top 3 Concepts Every AEC Project Accountant Should Know

Evelyn March
EvelynMarch
Group Director
BST Global
If you don’t have profitable projects, you can’t have a profitable company – that’s what makes the Project Accountant’s role so important. With one foot in accounting and another foot in project management, these are the three main concepts every Project Accountant needs to know. Project Accountants need to speak two languages: accounting and project management. Picture this: on one end, when the accounting team reviews revenue for the firm, they may require detail of what projects contributed to that value. And on the other end, while the Project Manager is aware that their project produced revenue, they would like additional detail on the tasks that went into producing that revenue. But the two teams don’t speak the same language, making it hard to get the information they need from each other – that’s where your role as a Project Accountant comes in. You service both teams by providing a financial overview when needed, and project details when needed. Read on to see how I tapped into my 25 years of experience in the AEC industry and pulled together the three major concepts every Project Accountant should know in order to effectively communicate both financial and project overviews. Contract Fee Types As soon as your firm wins a project, the project planning begins, and both the project and accounting teams become interested. The project management team schedules, executes, and authorizes client billing for the project, and the accounting team recognizes the revenue generated from completed work on the project. But what determines the amount and method the project team must approve to get billed, and the amount of revenue that the accounting team is supposed to book? It’s the contract fee type. Let’s look at a few of the common contract fee types you might come across in an AEC firm. For example, if you’re dealing with a Cost Plus contract type (also known as Time and Material), this means all time and expenses charged to the project are to be billed and accounted for as revenue. On the other hand, if a contract is written as a Cost Plus Maximum contract, this will function as a Cost-Plus contract, but the amount of time and expense will be limited to a certain value. Those are pretty straight forward, but the next set of contract types can get a little tricky – so I’ll provide an example for each. For Lump Sum or Fixed Price contracts, these specify a fixed amount that will be paid for services based on a percentage of completion, regardless of the time and expense attributed to fulfilling the service. So, let’s say you have a fixed price contract of $10,000. Based on this contract, you will bill $10,000 for services rendered. Whether it costs $5,000 or $11,000 to complete the work, your firm will receive the fixed price of $10,000. As work is executed, a percent complete invoice can be generated. When a percentage of the work completed is selected, an invoice of percent complete multiplied by $10,000 is sent for payment. Only one more to go! For Cost Plus Fixed Fee contracts, these projects are built to reimburse your firm for two items: the cost of services and a fixed fee that is pre-defined by the contract. Here’s what I mean: Imagine that you’re planning for an upcoming project, and your team’s salaries average $50 per hour. Since the project is estimated at 100 hours – the labor cost calculates as $5,000. Next, you’ll account for the cost to run the business. In this example, it’s 1.8 times the cost of your payroll, so your overhead calculates as $5,000 X 1.8 = $9,000. This makes your total cost $14,000 ($5,000 + $9,000). Now for the fixed fee part. Your client gives you a fixed fee of $1,000, which brings your total cost plus fixed fee to $15,000 for the contract ($14,000 + $1,000). This is the project overview part you need to be able to communicate. By understanding which fee type you’re working under, you can monitor the time and expense project details and alert the Project Manager when charges are approaching the contract fee limit. This can be a tremendous benefit to the project management team since it helps avoid project overruns that can be detrimental to the profitability of a project. Once you’ve captured the time and expense details, it’s important to understand the meaning of revenue: Revenue, is the booking of income that is derived from completed work. In understanding the point at which your accounting team recognizes revenue, you can provide the proper revenue value they need for posting. Revenue Recognition Now that you understand how much can be accounted for as revenue based on contract type, the next step is to know when that revenue can be recognized. To know when to recognize revenue, the first thing you need to do is determine which accounting method your firm has adopted. We’ll explore three possible methods and see how each method builds on the previous one, adding more visibility to your firm’s revenue. Here are the three stages at which revenue can be booked: When the payment is collected When the invoice is sent When the work is completed The first method is called cash basis accounting, which states that revenue will be recognized when payment is received. Because revenue is booked only when you receive payment, this method mirrors your firm’s bank statement and provides a true picture of cash flow. Next, is accrual basis accounting based on accounts receivable. With this method, revenue is recognized when the invoice is sent. At this point, it shows when you requested payment from your client (the invoice), and when payment was received (cash basis accounting). Using the accrual method based on accounts receivable allows you to calculate how long it takes between sending an invoice and receiving payment – which the cash basis accounting method alone cannot give you. The last method, and the most comprehensive, is accrual basis accounting based on Work in Progress. Work in Progress For the most detailed overview of your firm’s revenue, the accrual-based Work in Progress method is used. In this case, revenue is recognized when the work is done. By recording revenue when work is completed, it allows you to monitor the time between completing work and invoicing the client, and then from invoicing the client to collecting payment. Now you’ve got the whole “revenue” picture! And because the project management team is already aware of when work is completed and billed, this method allows the accounting team to have that same knowledge. Having that information earlier on allows the accounting team to determine how those milestones affect the firm financially when each one occurs. When using Work in Progress, you’ve accounted for every stage of the revenue journey – providing the greatest level of insight of all three accounting methods. Are you starting to see why it’s so important for you to understand how to evaluate time and expense details of a project as they’re affected by contract types? Knowing this information helps you fulfill the two major responsibilities you have for each team: Checking in on Project Managers to ensure work is staying within contract limitations Reporting to Accounting Managers on the amount of income that can be earned based on completed work Conclusion In an AEC firm, money is mostly spent and earned because of projects. And with several projects going on at once, with all potentially different ways of earning money based on fee types – Project Accountants need to understand how to speak to both the project details, and the financial results of those project details. That’s why, as a Project Accountant, you’re tasked with a major undertaking: staying up to date with the relevant terminology in both worlds. Luckily, we created a tool to help you with this. Introducing: The Ultimate ERP Glossary for AEC Firms. As this glossary goes through the span of the entire project lifecycle, you’ll find 150 of the most commonly used AEC terms that cover accounting, project management, project delivery, and much more. DOWNLOAD GLOSSARY NOW

Cash vs. Accrual vs. Work in Progress Accounting: Which is Best for AEC Firms?

Evelyn March
EvelynMarch
Group Director
BST Global
Cash basis and accrual basis are two different methods of accounting. Each method tells a different story about revenue, but neither method gives the whole story – that's where the work in progress (WIP) method comes in. It’s an important question: which accounting method is most effective at providing insight into your firm’s revenue? Some say accrual basis accounting is more effective than cash basis accounting. But many times, if architecture, engineering, and environmental consulting (AEC) firms only leverage accrual basis accounting, they miss out on an even deeper level of insight of revenue that can only be achieved with the accrual based WIP method. While each method provides a snapshot of your AEC firm’s income, the WIP method provides the most accurate representation. The impact of this? Your team is able to get a clearer picture of your firm’s revenue journey. Before we dive into how WIP gives the level of revenue insight your AEC firms needs to be successful, let’s review the more commonly used cash and accrual basis accounting methods first. Cash Basis Accounting The end goal of any profitable business is to monitor cash flow. That’s why for the cash basis method of accounting, income is booked when money is received, and expenses are booked when money is paid. In other words, items are booked when money changes hands. While this makes the value of your firm’s revenue extremely accurate, it can also paint a misleading picture. If a large sum of revenue is received and recorded before bills are paid, your firm may falsely appear more profitable, as assets will be greater than liabilities. Of course, the reverse is also true. If a firm pays for expenses prior to receiving the money and recording this revenue, it can make a company look like it’s headed in the wrong direction. In this case, your balance sheet would show the value of your firm’s liabilities as greater than the value of its assets. Accrual Basis Accounting While cash basis accounting records the actual movement of cash, accrual basis allows for the prediction of revenue. With this method, if an invoice is received for completed services (expenses), or a bill is submitted to a customer (revenue), both are booked at that point to predict future revenue and expenses. So, while items are booked when money changes hands with cash basis, items are booked when an invoice passes hands with accrual basis. This prediction allows you to see the cash flow that’s already in motion once an invoice is sent – but what if you could predict revenue even before invoices are sent to the client? That would be the holy grail of data analysis. And yes, it’s possible… if your enterprise resource planning (ERP) software can calculate WIP. Work in Progress What is WIP? Accrual-based WIP is the value of work completed, but not yet billed. Since there are parameters that determine the contractual amount that you can bill, what if you used those parameters to figure out the value of work before you billed it? This additional layer of accrual allows you to book the revenue that comes from work completed in the month it occurred. By booking revenue at this point in time, it provides the truest picture of your firm’s forecasted income. Let’s explore this concept a little further. Since the accrual method means you book expenses when your firm receives an invoice or timesheet, you have a clear picture of your cost for a given month. No matter which accrual method you choose (accrual basis or accrual-based WIP), your expenses will always be booked in the month it occurred – this will not change. But with WIP, you have an additional option for booking revenue: your AEC firm can now book revenue in the month work was completed. We know it takes money to make money, so booking your revenue in the same month that you booked your expenses gives the truest picture of your firm’s financial standing. But by taking it a step further with the WIP method, the WIP value on your financial reports will show the value of work before you bill it in the future. So, how is this added benefit helpful to your AEC firm? We’ll take a look at that next. The Revenue Story with WIP In a scenario where WIP is not used, and expenses are booked in a given month yet billed months later, your picture of expenses versus revenue is skewed. The month of the expenses would appear with no offset of revenue, and when the invoice is sent, the revenue would appear with no offset of expenses. Because these values were booked in two separate time periods, it would be challenging to make the connection of how much expense it took to earn the amount invoiced. On the other hand, if the WIP method were used, you would accurately depict the revenue earned in the same month the expenses were booked. Seeing that this value was booked as WIP, it alerts you that this is your future billing amount. Are you starting to see the extra layer of analysis your firm would receive? Because WIP is a statement of what you expect to bill in the future, when an invoice is sent, that value is offset from the WIP account. By booking that value in WIP, you are now able to evaluate how long it took from completing the work to billing it. That same principle applies when cash is received. Noting the date of the invoice, and the date that cash was received, it shows how long it took for a client to make a payment. Thus, WIP gives you a complete timeline from work completed to billing, and then from billing to cash collected. Here’s another way to look at it: Say your team completed work in January. According to the WIP method, you would book that work in January. Then, if you were to review your firm’s WIP balance (reminder: this is work you’ve completed, but are waiting to bill) in March and saw there was a balance for WIP that was booked in January, this would immediately alert you that the work completed in January had not been invoiced yet as of March. Your firm can now proactively review WIP and give attention to projects that have fallen behind in invoicing, thus, having a positive impact on your firm’s cash flow. Conclusion While your AEC firm can choose to use any of the three accounting methods, it’s important to understand the added benefit of WIP in its ability to enable your firm to proactively analyze and maximize its profits. By incorporating WIP into your accounting practices, it opens communication between your Finance and Project Management team to discuss the time lapse between work completed and work billed. Opening this dialogue allows the project team to join in the ownership of a healthy cash flow and also aids in the dialogue with your clients as you manage the time from billing to payment. Want to learn other important AEC industry terms? We’ve created a glossary packed with 150 terms that covers the entire project lifecycle, all in the context of an ERP solution. Get your own free copy of The Ultimate ERP Glossary for AEC Firms by using the link below! DOWNLOAD GLOSSARY NOW