Ever since their first episode on March 22, 2015, we've been a big fan of BIM Thoughts. Bill and his team have done a fabulous job of sharing the best technology and techniques in the architecture, engineering and construction (AEC) industry. So, you can imagine how excited we were to share our thoughts on the future of project planning. As always, Bill and Charlie did a great job in getting the best out of their guest. In this case, it was JJ Brantingham, co-founder of Planifi. Go ahead and listen to a great podcast.
Also, if you're not a podcast fan, or just prefer to read, We've included the transcript of the podcast so you won't miss a thing. We think you'll really enjoy the conversation as they engage in some great discussion on project planning for architecture and engineering firms.
Here's what Bill, Charlie & JJ had to say:
Bill: Welcome to another edition of BIMThoughts. Today we are going to do an interview with JJ Brantingham. He's with Planifi. If you don't know who Planifi is, well, you've probably never used Newforma or anything like that. JJ has a great thing with the Planifi product, but we're going to be talking more about a talk that he did a little while ago at the Deltek Vision Large Users Group, where he talked about billing and things like that. I wanted to talk to him about that, and then we'll see where the conversation goes.
Also, we have Charlie Williams with us as well, and Charlie's becoming quite the regular, so we're proud of Charlie.
Charlie: Hello, everyone.
Bill: Well hello.
Charlie: Hi, Bill. How you doing? Hi JJ.
JJ: Good, how are you, Charlie?
Bill: Let's get started, JJ. We're going to ask you to define yourself.
JJ: Great. My background is in AE. I spent just shy of 20 years with an engineering firm called Sebesta. I was a CIO and partner there, grew with the firm from 50 employees to about 250, and went through all the life cycles in AE. It was a great experience. Since then, I've left to co-found Planifi with Tom Vandervort focusing on firm performance management with our software.
Bill: Let's get right into the nitty gritty here. I was at that Vision Large Users Group in San Antonio last year and saw a bunch of people get up there and talk about Vision, then you got up there and just messed up the whole thing. You didn't talk about Vision at all, it seemed like. You talked about billing and a new way that we should look at things. Of all the talks, I think yours stuck with me the most. I don't know if that's a good thing or a bad thing, but I think it's a good thing. Can you bring us up to date on that? I'm doubt everybody listening to BIMThoughts was at the conference. Yeah, I guess I'll let you get started and give us the background on that.
JJ: Sure. Just one point of clarification, it was the Power Users Group session.
Bill: That's right. Sorry, Vision large firm, it was the Power Users Group.
JJ: No, we're all friends. We host conferences together annually and I'm one of the four leaders of the Power Users Group. That topic was focused on the theory behind firms' management with regards to how they bill, how they price, and a little bit about how they're managing the firm. It's an underlying issue that we're managing our firms around hours. If you peel that back and look at how that started, it's sort of a wobbly foundation because it's not fundamentally sound.
The brief talk I gave starts with the history of the billable hour and its origin from Adam Smith and Karl Marx who both tried to quantify early labor theory around workers, largely factory workers and farmers, and trying to equate the value they spend on producing stuff, whether it's a chair or tilling the field, into an hourly rate. Adam Smith later struggled with that postulation and went away from it.
When we look at firms today, many have moved away from pricing services to clients on an hourly basis. We're doing fixed fee work more and more. I think that AIA number's around 70%, but there's still a lot of that hourly service work. Then there's the backside of that where we might price on a fixed fee, but manage on an hourly basis. The fundamental flaw with that approach is there's no value to an hour. When you provide an hour of service to a client, it might be worth five or five million dollars to the client. You can point out a cost savings program where they're ineffectively managing their energy services, heating their building too much and not cooling at the right time, all those things. I've seen great engineers do that in five minutes. That save clients tens of thousands of dollars, but we're not aligning the value to that client with the time we're spending.
There's lots of nuances to that, but that's the two minute summary of what I was trying to get at.
Bill: Right, so what I'm hearing is there's no value to the hour, and I understand that, but there certainly is a cost to the hour. I think that's why we started charging by the hour because we can cost by the hour. We just thought, "Hey, let's just charge by the hour as well," or try to give value in that. What I'm also hearing is the value to the client is in the project and getting the project done. "This is how much it's going to cost to get my project done, and it really doesn't matter to me, as the client, how many hours it's going to take. What matters to me is: I get the project done on time, on budget, and for a cost that I can afford."
JJ: Yeah, that's the general idea. There are some subtleties, in that we're missing the opportunities to maximize value to the client if we're still built on the foundation of the hourly system. For example, it gets to another theory that's called Parkinson's law, or maybe Parkinson's theory. This says work will expand to the hours provided. While it might not be a law, per se, it's pretty common. I think we can all see it. When you give someone 20 hours to do something, they take 20 to 30. That's the foundational flaw that I see.
Charlie: JJ, are you saying that a better way to start planning a project would be to look at outcomes versus how many hours it takes to complete a project?
JJ: Yes, correct, and it starts with a tough question to the client around aligning value and understanding what you're providing,. For example, "What piece of that building are going to be valuable to you?" It's different in every case, right? A campus building provides different value to them than and apartment building than an office space than a high rise. [It starts with] figuring out those pieces and identifying the key value to the client, then translating that into the project and communicating the key milestones, tasks, deliverables that your team is going to perform, and putting less focus on those hours
If our measurements are on utilization and hours, guess what you're going to get? More utilization and more hours. If your focus is on the key deliverables to the client, then you can align your team with focusing on those tasks, items, deliverables, etc. Does that make sense?
Charlie: I'm just trying to visualize how you would put together your project plan with that different way of looking at it. Right now we come at a project plan with, maybe, "I've got these phases and these disciplines involved and I want to separate them out over these various hours." As an alternative, perhaps, I go in the direction of what you're saying, "I have plans, sections, and elevations, but, again, it's back to hours." What do you conceive as the planning process if you come at it from your perspective? Do you try to say the end product is this building and this building is probably going to return a million dollars worth of value to you over the lifespan, so we have the means by which to charge you $500,000 to do that work? Is that what you're thinking?
JJ: A little bit. Yeah, that's the question you work out with the client: "How is this going to be of value to you?" Is it going to be 10 years of rent? Is it going to be higher tuition? How is it going to be valuable to you? I'm not saying you can avoid the cost aspect to the business. You need to make sure you can deliver that solution to the client in a way that's beneficial to your firm.
Today a lot of that can be seen through task lists. A lot of architects and engineers have the list of things they know needs to get done to deliver that building. Sometimes they put hours to it, and that's not necessarily a bad thing. That creates a baseline of how much effort it will take to deliver the project. Then when the project gets into execution, I think there's an opportunity to focus on deliverables and not necessarily the time. That's a change in management in saying, "I'm going to manage my people to outcomes, not to how much time they spend."
Charlie: In my previous life, in the reseller world, we had a product called BIM9, a cloud based virtualization of machines. When we first brought that to market, we priced it in such a way that, okay, we think our day is worth X amount of money and it takes us three days to do this project, on average. As time went on, we figured out how to do it better and faster. So, what took us three days in the first couple of months then dropped down to two days, then to a day and a half of actually getting it done because we found better ways of doing things. We started reusing some of our recipes and things like that.
What we decided early on is the value to the client for this product is the same. Just because we can get it done faster and it's cheaper for us to build it doesn't necessarily mean that the value of the product changed. Over time, we charged the same amount of money but we ended up making more money. Then we could use that money to better ourselves and better the product as well.
Bill: If I'm following what JJ is saying, there might have been an opportunity for BIM9 to charge even more. I think what he's saying is one installation of BIM9 is going to return $20,000 worth of value to that firm, so where BIM9 might have been changing $3,500, they could have maybe charged $5,000 because that still generates $15,000 worth of return back on the company, so there's finding that balance point because how much value can the provider take away from what the user can generate before it becomes an even deal.
Charlie: Right, and that's the hard part. It's trying to find how much money we don't want to leave on the table kind of thing.
Bill: Are we on the right track there, JJ, or did we just go off on a whole other tangent?
JJ: I think that's spot on and a great story because it reflects a few things in my mind. For one, you found a way to more effectively deliver those solutions, which is another opportunity for AE as a whole. If you specialize in certain spaces and certain practices or activities, you can be more effective in delivering those while still providing the same value, right?
Charlie: That's interesting. We were talking about compensation on an individual basis and it was a similar idea. I think people come at compensation as the firm trying to pay them as little as the firm possibly can. Then somebody changed my perspective on that and said, "Well, really the firm wants to pay you as much as they can because the more they're paying you, the presumption is that the more you're returning in value," so demonstrate how much value you're bringing to the firm, and that's a better argument towards, "How do I increase my compensation versus being need based, or just simply these are the things I did?" Demonstrating value is a really interesting idea.
Bill: Then the value becomes between the employee and the employer as, "This is how much value I think you're bringing to the firm, so this is how much I'm willing to pay you." Then the employee needs to determine their delivered value to the firm and the appropriate compensation for that value. Am I giving more value to the firm and wish to get a raise? I hope it doesn't turn into, "I'm giving more value to the firm, so now I'm going to do less work." That's where problems start to come into play.
JJ: I want to highlight two management challenges that I often see in the hourly based world. With BIM9, you were focused on delivering more effectively. In the hourly management system, you are incentivized to deliver at the same level of inefficiency, to some degree, to keep your utilization up. Then, on that same topic of employee compensation, you're aligned around utilization and how many hours people charge. In that case, we end up backing into that compensation number, rather than, what I'm suggesting, we start with the value delivered to the client, based on the feedback and the quantifiable deliverables. I'm not saying everything is going to be spot on, but it's a more constructive conversation and, I think, better aligns compensation to the value delivered.
The idea of this is not to be precise. There's a gentleman, Ron Baker, who inspired a lot of these topics that I'm speaking to. He has a great point of, "You're better off being approximately correct than precisely wrong." That's what I think about when we get to a utilization number times billability to calculate compensation, how much we can afford to pay you, that's a precisely wrong number. It's down to the cent, but it's not aligned to let's be approximately right, to how individuals are contributing.
Bill: Right, and I think I've listened to Ron Baker. That's the guy who's doing the Soul of Enterprise, right?
Bill: His broadcast, the Soul of Enterprise?
Bill: One of his early podcasts talks about this thing. Yeah, there it is, the law of ... Second one he did, it looks like. I think that's where I heard it again. I'll have a link to that in the show notes that nobody reads.
JJ: I do highly recommend that podcast as well as Ron Baker's books. They're top-notch.
Bill: Yeah, that's a good one to listen to if you're into that sort of thing.
Charlie: How do you see these theories making their way into how somebody plans a project or how they plan to execute the building of the model that's going to go into the construction documents?
JJ: Yeah, so that's a great question. It gets back to being approximately correct. I'm trying to find a firm that is either willing to try or is doing it today. I've yet to find one. I have had conversations with, ironically enough, accounting firms that are leading the charge on this as far as getting away from charging accounting services by the hour and charging commodity services. Frankly, they're even moving to giving away commodity services like tax services for free.
To answer your question, Charlie, I think it starts with being open to break down what you're doing and assign some value to it and figure out ... It's going to be multiple levels. It's going to take some effort to figure out what parts of the schematic design are valuable, but it's similar to estimating, too. Estimating is not a precise science. I think if we take it from that perspective, that would provide estimates to that, break down those task lists, and provide our ballpark value and start managing and tracking to that.
Charlie: When you take it to the modeling level where we're establishing a team that's going to build a model that's going to make the construction documents, are you saying that they have to make a case for how much their model is going to contribute to the value of the project or the drawings or are you saying how much that model is going to contribute to the value of what the owner receives at the end of the project?
JJ: It should be translated to the owner and client. I'm fascinated. I'd love to have this conversation with the team because I think it would drive all sorts of innovation about what else could we do with that BIM model to provide more value to the client because it's an interesting thing. To a lot of clients, the BIM model isn't of value. With others, it might be tremendously valuable. It all depends. I think you could challenge the team to figure out what else or what more could we do to this BIM model to make it more valuable.
Charlie: That's when you move into facilities management. There's always this case we're trying to make as people that are interested in BIM and understand the lifecycle of it. There's this third component of operate over and above design and construct that we're always trying to get to. I, personally, can't seem to get alignment with the clients very frequently, so coming to the table with a better story that says, "By giving you this model, we anticipate it can provide these types of features with your facilities management, which is going to save you a million dollars and therefore value of that effort of us putting in the information into that model, the constructing that model in a way that it's usable, if you're going to reap a million dollars from that in savings, then it seeps logical that the design firm should reap $100,000 of that."
I think that would be a really compelling story for a client to say, "Oh, you're right. I didn't realize I was going to reap a million dollars savings in that."
JJ: Another way to phrase that is, instead of saying, "We think it's going to be worth this," we could say, "And to get a model of that detail is going to cost this amount of money," because the model we build is for the construction documents, but if we're finding that owners are using the model in this way, in order for us to build a model in that way, it is going to take this amount of effort to do that.
Bill: I can see how that can help you arrive at the fee that you're proposing for the project because you can take the component parts of the project. The design has a contribution. The construction of the model has a contribution. The observation and construction has a contribution that returns this overall value of the building whether, like JJ said, it's increased tuition, more productivity, whatever it may be, to come up with your fee. I still haven't gotten to the point in time, and this hearkens back to an episode or two ago where we were trying to figure out how much time somebody should put onto doing a task, but I think JJ is saying, or the theory that JJ's talking about, is do whatever time is necessary to deliver that product that provided that value and then the architectural firm, the designer, is incentivized to do that in more effective time. It's pushing that pressure onto you that if you do it in fewer hours, then it returns value. You get more profit. If you do it in more, you're losing profit.
JJ: Right,and it's a two way street. One, we need to sell that service because, let's be honest, we're all trying to ... We're all salespeople and we're all trying to sell our what we do for a living, either we're selling it to the company to hire us or we're selling our design for someone to build it, is to add value to that design in such a way that it becomes more valuable to them. If I'm adding value to this model by allowing you to use it for facilities management or do some statistical analysis on something or energy analysis or things like that, in any of those cases, the model must be build in a different way than just construction documents in order to get that to work.
I think we're all leaving money on the table, if you will, by not offering that as an added service or an added value to the client.
Charlie: JJ, you said you'd be interested in working with a team to work through this. Let's say a team gets presented to you. What is the first thing you would challenge them to do?
JJ: We would break down everything: the cost based management, cost based accounting management. We'd want to dissect and look at how you're managing the firm as a whole, getting away from hours, talking about how to align effort with the value to the client. There's a lot to do. The challenge is going to be having more conversations with clients and becoming more client focused. I don't think most employees are going to have an issue or challenge not focusing on hours and, instead, focusing on the challenges that are being better articulated to them by the team leaders dealing with the client.
We'd have to break apart some of those things and look at ... Fundamentally, the way we manage in accounting, and I spent lots of time in accounting, so this hourly utilization target and everything sort of treats employees like they're part time workers and that it's not a fixed cost that can go up and down, like if I don't charge by hour, then it doesn't go to the bottom line or something. It's largely a fixed cost, I guess is my point.
Let's treat it as a fixed cost. Let's move into, then, how we focus on delivering projects to the clients. How do we break it down and value that work breakdown structure and go from there? It wouldn't be an overnight transition, I imagine. It would be a year plus transition for a firm, or at least a group.
Charlie: Let me ask a question that's going to go off of the theories that we've been talking about. What I'm hearing you say, you're challenging people to think about something different. You also said, when you defined yourself as Bill likes to say, you talked about your past history of being a CIO at a company and a lot of this, and I'm sure a lot of people who listen to this podcast, are responsible for motivating those changes. What are your tactics and how are you helping educate your clients, the software that you're selling now, and how did you work as a CIO to motivate people to make these ... What you're talking about here is really a drastic change, so how do you motivate people to do that? What's proven successful for you?
JJ: I don't know if we've achieved success yet, but what this opportunity has allowed me to do is to step back, work with a larger group of firms, and look at what they're doing. I think firms are doing this in different ways today, but they're doing it intuitively. Moving from hourly work to fixed fee is one example of that. Firms knew that charging by the hour with no upside and no alignment to the client was not the right way to perform work. Delivering work on a fixed fee basis makes a lot of sense and it is largely value driven. Now it's stepping back and saying, "Okay, let's not do this on an hourly basis. Let's start aligning to what we're delivering the client.
To some degree we also see that in time sheets. Most firms I go into now and look at time sheets, it's slammed with eight hours a day and no time sheet comments. The employees are mysteriously doing this work and doing great things, but who really knows what they actually did during the day. They were focused on just solving the problems of the clients.
To answer your question on what are we doing today, it's going to be a nudging, an evolving process for us, because we still support in our products all of the hourly based management. What we're starting to do is provide more ways to align the teams around the tasks that they're doing and managing those tasks, the tasks really being the deliverables that produce the final product and a little bit less focus on hours, we hope.
That's going to be an evolutionary process and it's going to be a part of this ongoing dialog with clients as to how we can do this better and more and maybe start even automating those time sheets, for example. There's some things that we're working towards, but it's not going to be an overnight change. I view it as probably, in an industry, probably a five to ten year shift, probably longer in different sectors of the industry.
Charlie: I guess another good question to ask you because you have exposure to so many different firms that you're working with, what do you see as characteristics of firms that can evolve and change more effectively? I'm sure you have some firms that you've worked with that the tool has fallen flat. You've had other projects that you've worked with and they're wildly successful. Do you see anything characteristic of firms that are signals to you that this firm is going to be successfully able to adopt change, whether that change is something as drastic as what you're talking about, changing your accounting method or changing from CAD to BIM or adopting some other new technology? Are there characteristics you see in a firm that signal a good or bad likelihood?
JJ: Yeah, I think they tend to be more holistic in their view of everything. That goes from everything from how innovation can fit in with having innovation departments and groups that will spend time in innovation, not delivering to client, and they view that innovation group as spending time to create more value, etc. That's a willingness to view how that innovation department fits holistically in the firm, just like another example would be project planning. A firm that views project planning as just sitting in for PMs to report back financials is not seeing the forest for the trees. They're doing this one little thing instead of looking at the opportunity to take what it would mean to do project planning to then look at capacity. Do they have the right people or enough people? Can they start hiring months in advance and have steady growth instead of bumpy growth? How many problems you can solve with just planning, it's not just reporting back financials and are we going to come in under budget or over budget. It's how we can project and manage an entire firm with planning.
Firms that can see the forest, if you will, and have a more holistic view tend to be able to adopt and lead the technology because they can explain it to their employees versus just saying, "We're going to be doing this because I say so."
Bill: I guess the first step is to get an accurate tracking of what it really costs and then try to figure out what it's worth as well, unless I'm completely wrong.
JJ: Fundamentally, Bill, it's pretty simple. Those two things need to be in alignment for value. The value in the sense that it's going to take the firm so much effort to create the value, if that's out of balance with what it takes to deliver to the client, it's a bad fit, right?
Bill: Right. We need to have a good way to track it. We need to have, also, a great way to analyze it, or to see the data in order to make any of this work. Getting at tracking is the hard part. I think analyzing it's fairly easy. There's good software to do that. I know a good guy who makes some. Getting them to track it right is the hard part, to track their time. Any final thoughts?
JJ: I think that the last point I would make, just around value to clients, is consider where risk fits in there. Risk is both an opportunity and a risk, so think about where that fits in that overall conversation. You could do more stuff at risk and get more value from your client through doing that. Then I would challenge firms to maybe take a step back and think about what are the fundamental theories underneath your business that you're basing thoughts and decisions around. They're misaligned, in my opinion, today, but I'd be happy to hear from others and be told otherwise. It's a conversation I'd love to have, so thanks for having me on to do that.
Charlie: Thank you. That was really insightful. It's been a lot of talk lately about thinking about things more and the idea of outcomes, hat are we trying to produce, than how many hours do we need to produce it. I think just that subtle shift makes you a little bit more focused on a project and the quality of your work.
JJ: It is a fundamental shift, and I think it's the right direction for both the client and for the design professional. Yes, there is some risk involved, one, am I overbidding and is my competition going to be doing the same thing. That's a big risk as well. The other risk is are we spending too much time now getting the thing done, which this ups my cost.
Bill: Thank you, JJ, for being on and thoughts. I'll probably have to have you on again as we digest this a little bit more and as we come up with new and great questions for this kind of subject. Thank you.
JJ: Thank you.
Charlie: Thank you. Bye, everyone.