2. Introductioin to Consultancy Practice

7/28/2019 2. Introductioin to Consultancy Practice

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NIGERIAN SOCIETY OF ENGINEER

MANDATORY CONTINUING PROFESSIONAL DEVELOPMENT

COURSE MATERIALS ON

INTRODUCTION TO CONSULTING ENGINEERING PRACTICE

BY

ENGR.BAYO ADEOLA

MANAGING DIRECTOR

COMPREHENSIVE PROJECT MANAGEMENT SERVICES LIMITED


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TABLE OF CONTENTS

1. Introduction2. Scope of Consulting Engineering Practice3. Characteristics of Consulting Engineering Practice4. General Goals of Consulting Engineering Practice5. Understanding Clients6. Managing Clients7. Managing Professional Staff8. Creating Profit9. Business Structure of Consulting Firms10. Managing Projects


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INTRODUCTION TO CONSULTANCY PRACTICE

1 INTRODUCTION

The scope of career opportunities for the engineer may be divided into five broadareas as follows:

Research and DevelopmentConsulting EngineeringConstruction, Manufacturing and MiningMaterials and Equipment Sales and InstallationFacilities Operations, Maintenance and Management

The industries offering these services are varied, with several of them combining twoor more of the five broad areas. Indeed, the biggest of them combine the five. Typical

engineering organisations include research institutes and universities, consultingengineering firms, construction, manufacturing, mining and exploitation companies,

project management and facilities management firms among others. In the recent past,the variety of companies offering engineering services has grown to include propertydevelopers and management consulting firms.

The Consulting Engineering sub-sector is thus part of the global engineering industry.The scope of work of this sub-sector is very broad as it cuts across all engineeringdisciplines, and can be found in a wide variety of engineering industries. Allengineering products, infrastructures and services go through the process ofconceptualisation, feasibility, preliminary and detailed design, construction,fabrication or manufacturing, commissioning, operations and maintenance withintheir life cycle. In this process, they pass through all the phases of the practice ofengineering listed above. The consulting engineer is usually involved in conceptdevelopment, feasibility, design, supervision, project management, commissioning,operations management and facilities management. He may also provide professionalservices directly to contracting and manufacturing firms for the management andimprovement of their organisations.

While the consulting engineer may be found in all engineering industries, there is asub-set of the sub-sector whose practitioners are predominantly engaged in consulting

engineering practice. These practitioners organise themselves as engineeringconsulting firms and provide services in this focussed but very wide area to thesociety. They are generally privately owned and run and provide independent adviceand services to clients. When such organisations are owned by government, or are adepartment of multi-disciplinary organisations with different primary objectives, theyare usually not classified as consulting engineering practices, even though they domostly the same types of activities. The main difference is the independent role ofconsulting engineering practices, as against the dependent roles of departments ofcompanies and agencies of government.


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2 SCOPE OF CONSULTING ENGINEERING PRACTICE

As implied above, the scope of consulting engineering services can be as varied as thenumber of disciplines of engineering services existing, and any combinations of them.In the modern, technology driven world, the discipline in terms of scope is very wide

indeed.

The more traditional disciplines include civil, electrical and mechanical engineering.Civil engineering may be sub-divided into roads and highways, structures, waterresources and geotechnics; electrical engineering may be sub-divided into power,circuits and systems, electronics and control and acoustic; mechanical engineeringincludes heating and ventilation, engines and mechanics of machines. Each of thesesub-divisions has also been fragmented by modern development to even narrower andfiner areas. Chemical, aeronautics, bio-medical, agricultural, marine, automobile,railway, computer and several other engineering professional sub-specialities havedeveloped over time.

In terms of professional practice, however, the scope of consulting engineeringpractice is much narrower and includes essentially the following:

Feasibility StudiesPlanningDesignSupervisionManagementInvestigations and Advisory ServicesOthers

In feasibility studies, the consulting engineer assists the project owner to evaluate thetechnical alternatives available for the achievement of his objective and advice on thechoice of a feasible option. This may involve collection of existing and generation ofnew data, investigations, experiments and research.

Planning involves the further development of a viable option to the first outline forimplementation and may include process and space flow diagrams, layouts,determination of process through-puts and facilities, resource requirements,scheduling and budgeting.

Designs include the development of drawings, specifications and documents inenough details for construction, manufacture or implementation. It is usually sub-divided into preliminary and final designs, depending on the language of the industry.

The supervision stage involves the over-seeing of the construction, manufacturing orimplementation stage to ensure compliance with design and specification, and oftenincludes contract administration, final testing and commissioning and project closure.

In the recent past, the need for technical managers has given rise to consultingpractices such as project management, facilities management, construction

management, etc. The engineering professional in this category combine technical and


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managerial skills to provide particular solutions to the management of engineeringprojects.

Investigation and advisory services are often trouble shooting and solution seekingexercise by experts to address specific engineering problems. The most common of

these include geotechnical investigations, Computer analysis of complex problems,water sample analysis, hydraulic modelling, among others.

Others include several ways in which the engineer gives professional consultingengineering services and may include arbitration and alternative dispute resolution,expert witness, valuation of engineering facilities and infrastructures, etc.

3 CHARACTERISTICS OF CONSULTING ENGINEERING PRACTICE

Each of the five broad areas of engineering practice has its own characteristics and

peculiarities. Research and development tends to focus on specific, fairly narrow areaof a problem and finds solutions and/or improvement to such problems. Consultingtries to think through the whole process from start to finish and produce designs thatcan be built or manufactured. The contractor, manufacturer or miner must produceactual products for consumption by end users. The materials and equipment sales andinstallation engineers market and install engineering equipment for the service of thetargeted end users, while the Facilities Operations, Maintenance and Managementengineers ensure that the facilities are in good condition and working efficiently.

The consulting engineer, therefore, needs to understand the outcome of research andindustry, the requirements of the contractors and the desire of the client to conceiveand design products, infrastructures and processes that are contemporary, efficient toconstruct, and meet the users requirements.

The consulting engineer needs to keep abreast of contemporary thinking in researchand development, especially applied research, manufacturers products, and clientsneeds. He is, therefore, a person who must continuously update his technicalcompetence.

The characteristics that distinguish consulting engineering practice from other formsof engineering practice may be summarised as follows:

Intellectual Versus Physical: The nature of work in the consulting engineers officetend to more intellectual than physical. His outputs, drawings reports andspecifications are essentially input to other processes rather than end products inthemselves. Although the preparation of drawings, models and specifications can betedious and time consuming, they are only worth their intellectual contents, which areof much higher value than the materials on which they are presented. This should becontrasted with the physical output of construction works such as buildings, dams,

power stations; and the outputs of manufacturing which are often end user consumerproducts.

Human Versus Material Assets: Because of the intellectual nature of both the input,the process and the output, the most valuable assets of consulting firms are the people,


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especially the professional staff. Very often the physical assets are grossly out ofproportion with the human assets. This should be contrasted with the plants andequipment of contractors, and the process machinery of manufacturers. This emphasison human assets as against materials assets is more emphasised in highly complex

projects where it is the thought process of the experts that are most critical.

Differentiation Versus Standardisation: Much of consulting works tend to bepeculiar and specialised, rather than routine, and hence can only be standardised up toa point. Of course the range of services offered by the consulting engineer is widelyvaried, and can range from highly specialised, rocket science type one-off projects to

procedural works that can be significantly standardised. Even procedural works,however, cannot be fully automated and need a minimum of professional input.

Pragmatic Versus Academic: Consulting also differs from research and developmentin that it generally adopts existing and tested solutions, compared with research anddevelopment which is usually at the frontiers of knowledge. Consulting engineers are

therefore more pragmatic and adopt solutions that are tested and work for much oftheir work.

4 GENERAL GOALS OF CONSULTING ENGINEERING PRACTICES

Three main primary goals may be prescribed to virtually all consulting engineeringpractices. These are

1. Client Satisfaction2. Professional Development3. Profitability

The emphasis on clients satisfaction has not always been fully understood orappreciated by the consulting engineers in the Nigerian environment, and technicalsolutions and profitability have often been given the priority. Indeed, there has beensome level of arrogance in responding to clients expressions of dissatisfaction. Thereasons for this are complex and include ignorance and unreasonable demand on the

part of the clients on the one hand, and poor business training on the part of theconsultants on the other hand. Ultimately, however, it is the consultants who have theresponsibility to educate the clients to be able to serve them better. Consulting

engineering practices must of course want to please their clients by meeting theirdesired objectives. Often, the consulting engineer has to assist in the definition ofthese objectives, which may be hazy and not clear to the client. At the end of the day,however, the client must perceive that he has received value and must be pleased.

Consulting engineering practices also desire to have professional fulfilment in theirwork. This is perhaps the priority of a majority of them. They want to enjoy theirwork and feel satisfied that they are developing professionally. This requires bothcontinuous training and exposure and appreciation by the society at large. They,therefore, invest in professional development by providing both the training andconducive working environment.


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Finally, the business of consulting engineering must be profitable enough to supportboth the quality of life desired by the consultants, and the growth of the company.Poor remuneration makes the profession unattractive to new graduates, who wouldrather go to more financially rewarding professions. No matter the sentiments onclients satisfaction and professional development, unprofitable consulting practices

will die and meet none of the objectives.

It is, therefore, important that the three objectives be held in balance. Clientssatisfaction creates more work. More work provides opportunities for professionaldevelopment. Good management of work and professional development create profit.Profit, in return, creates the environment for more networks, attraction of the rightcalibre of staff and professional development. The three factors are thus mutuallydependent, and the management of consulting engineering practice is a continuousassessment of each of them with a view to maintaining a good balance.

The business of consulting engineering practice may thus be summarised as follows:

Getting commissions for work from clients and satisfying clients bymeeting their needs and taking them through a good experience

Recruiting, training and retaining competent staff to carry out clientsassignments, and

Rewarding the staff and owners by generating income and profit, and havingsome money left for the growth of the organisation.

These three areas are going to drive our discussions on the management of consultingengineering firms. Not only must each area be properly managed, the three must be

properly harmonised if the consulting firms are to prosper.

5 UNDERSTANDING CLIENTS

Client management is important because clients create work, engage consultants andpay them. If consultants do not manage clients successfully, then they will not buildsuccessful practices.

If we are going to properly manage clients, then we must understand their needs and

profiles. It is only after this that we can prepare and position ourselves to managethem. Clients needs can be as varied as their profiles, and the two must first beseparated before being harmonised.

5.1 Clients NeedsClients needs may be separated into three broad categories, determined by thecomplexity of their problems. At one end are clients with complex and sophisticatedneeds. These require high level experts to solve their problems. As is it is usually said,rocket science or brain surgeon level competences are required. At the other endare clients with basic requirements with standard, known solutions and relatively lowlevel customisation. Generally low level competences are required for these. In

between these two extremes are projects with varying degrees of complexity andfamiliarity. While these do not require rocket science type expertise, they are much


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more than procedural and require a considerable amount of experience. These threetypes of clients needs are generally referred to as brain-type, procedure-type andexperience-type projects.

5.2 Clients Profiles

Clients profiles may also be separated into three broad categories. At one end aretechnically competent clients with professional engineers in their employment. Theseusually understand the complexity of their problems, and the required solutions,whether such solutions are within their organisations or not. At the other end of thespectrum are clients who are not technically competent and do not appreciate thecomplexity of their problems, or the required solutions. In between these two clearlydefined client types are those with varying degrees of understanding and appreciationof the problems and the solutions.

Thus, a matrix of client profile and client needs may be developed as shown below:

PROJECTTYPES

CLIENTS PROFILES

TechnicallyCompetent

Not TechnicallyCompetent

ComplexProjects

1.1 2.1

ExperienceBased Projects

1.2 2.2

ProceduralProjects

1.3 2.3

5.3 Analysis of Clients Types and ProfilesAnalysis of clients types and profiles against these objectives provides the firstinsight to managing clients.

1.1: Technically competent clients with complex projects are often easier to manage.Their requirements are clear to them and are generally well defined. They also dealmostly with well known or established consultants with whom there is mutual respect.They can, however, be quite demanding of consultants as they are also competent inthe field. Consultants wanting to work for such clients need to be clearly competentand be at the front end of the profession. Membership of professional associations,

paper publications and opinion on highly technical ends of the profession will go along way in preparing them for such clients. This must of course be as addition to corecompetence and continuous project implementation. There is relatively easy entry foryoung but academically and technically sound new consultants to cultivate theseclients as has been demonstrated by the IT sector.

1.2: Technical competent clients needing experience based projects also know theirbasic needs, generally know the consultants they require, and just go for them. As inthe case of 1.1 above, however, they can be quite demanding. Consultants in thiscategory need to build medium size firms, have good experience and good market

presence. They need to have proven experience demonstrated by volume of successful

projects carried out, and good references from previous clients. Consultants wantingto cultivate these clients often need to prove themselves, which takes time and


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organisational development. Those who have worked for experienced firms beforestarting their own are able to build the reputation and good will necessary to enter thismarket segment.

1.3: This represents technically competent clients with need for procedural projects.

Generally speaking, their need for this type of projects usually derives from nothaving enough time or staff to carry out the works, or just having an outsourcing

policy. This is the usual entry level for consultants, and professional qualification andsome experience are all that are usually required. In-house staffs in theseorganisations sometimes resist the use of external consultants for such work as theythemselves can more often than not, do the work. They can, therefore, be very criticalof the consultants delivery and difficult with negotiation of fees. Because of the easeof entry, practitioners are many, and cost becomes the main competitive factor.

2.1: Technically non-competent clients on complex projects require carefulmanagement. Not being technically competent, they need the management skills of

the consultants as much as their technical skills. Indeed, what they are doing is toentrust the technical skills to the consultants and take it for granted. Consultantswanting to work for such clients therefore need to pay great attention to theinterpersonal relationship in addition to technical competence. They should rememberthat not being technical, demanding that they take decisions on technical issues can bedisturbing, including such issues as fees and schedules. They select consultants basedon recommendations and being comfortable with the consultants.

2.2: Technically non-competent clients needing experience based projects rely mostlyon reputation, references and visibility for the choice of consultants. Being reasonablyaware of the project end product, they tend to select firms that are reasonably wellknown in that sort of work. Company brochures showing company experience andcurriculum vitae are the key determining factors. They rely on the consultants to helpthem through project definition, planning and execution and this requires a highdegree of trust. In addition to technical competence, therefore, good interpersonalrelationship skills are required to manage and win the confidence of this type ofclients.

2.3: Technically non-competent clients requiring procedural projects may be tooassuming and under-estimate project requirements. Care must therefore be taken tomanage this category of clients. They expect that projects will be delivered as

conceived and awarded and do not feel comfortable with changes in scope, time, costor quality. It is, therefore, important for the consultant not to be too assuming andbrief the client in details as to the requirements of the project. Technical jargons andstandard procedures should not be assumed as the client will challenge these oncommon sense grounds.

In-between the technically competent and those that are not are a wide variety ofclient types, whose fundamental attitude to projects will vary with the degree ofcompetence. There is a particularly difficult group of clients who claim competence

but are not as competent as they claim. This group can be particularly dangerous astheir project briefs can be inadequate, wrong or inappropriate and this can frustrate

project delivery.


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5.4 Ownership of Client OrganisationThere is a third classification of clients in the Nigerian environment, based onownership of clients organisations. The first broad separation is between Governmentand Private Sector clients. A third sector that must be treated on its own is the oil and

gas sector which has partial government ownership but are technically managed byforeign oil conglomerates.

Government SectorThe government sector has the largest volume of work in the country as well as thegreatest spread. It thus has the potential to provide work for the greatest number ofconsulting engineers if properly managed. The ownership in the sector includes theFederal, State and Local Governments.

The matrix of client needs and clients profiles discussed above may be directlyapplied to Government clients. Category 1.1, knowledgeable clients with complex

projects will include organisations like NEPA, Water Corporations, Ministry of Minesand Power, owners of Ajaokuta Steel Complex, Nigerian Ports Authority and similarorganisations. Category 1.2, knowledgeable clients with experience based projectswill include the Ministry of Works, Ministry of Agriculture and Ministry of Transportamong others. An example of Category 2.2, experience type projects and clientswithout technical competence will include Ministry of Health in the development ofhospitals, while category 2.3 will be Ministry of Education in the development ofschools and Local Government Boards in the construction of rural roads and marketstalls. Generally speaking, level of technical competence tends to be highest inFederal institutions and lowest in Local Government institutions. The same may besaid of the complexity of their projects. This sector has the complete spectrum ofcomplex, experience based and procedural type projects, and consistently has work.

There is no clear procurement policy on consulting engineering works by thegovernment sector, and different regimes have adopted different attitudes over theyears. Some have embraced the use of consultants while most have shunned it. Thesector is characterised by irregularity and inconsistency in the use of consultants,over-negotiation of fees, and delays and difficulties in effecting payments. Althoughthe Federal Ministry of Works regulates fees on public works and has a guideline onthis, even this ministry tries to pay below the provisions of this guideline.

The Private SectorThe private sector may be sub-divided into formal and informal sectors. The formalsector is present only a few States, depending on the degree of industrialisation and

population. Players in this sector use consulting engineers for their development andare more responsive to their obligations. The volume of trade is, however, relativelysmall, and as already stated, they can be found only in few locations in the country.They therefore do not provide a broad base for consulting engineers. The fewconsulting firms that are able to penetrate this sector tend to have stable work and doreasonably well. Much of the consulting work, however, tends to be of the experienceand procedure type, with very little complex projects.

The informal sector consists of private developers and small and medium scaleenterprises. Although they need consulting engineering services, these are generally


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of the procedural type and they are usually unwilling or unable to pay commensuratefees. Much of the work is also irregular, being one-off private developments.

Oil & GasThe oil and gas sector is a very big sector with a huge amount of work and potentially

the most lucrative sector for consulting engineers. The business size is of the order ofUS$3 5 billion, and the range of work cuts across the complex, experience and

procedure range. Unfortunately it is all in the hands of expatriate companies withlocal input less than 1%. There is a new Federal Government policy of activelyincreasing local contents in the oil and gas sector, and this should provide greatopportunities for consulting engineering practice.

6 MANAGING CLIENTS

Having understood clients needs and profiles, consulting engineering firms can thenbegin to position to derive benefits from this understanding. As already stated above,there are four basic objectives as follows:

To get commissioned by clients at profitable feesTo meet clients needs and exceed their expectationsTo get paidTo get repeat work from them and/or recommendations

6.1 Getting CommissionedThe starting point is that the firm has to have clarity as to its target clients and prepareappropriately for them. Is the firm focussing on complex, experience based or

procedural projects, or a particular mix of them? Once a strategic choice of this ismade, all the resources and efforts of the firm can then be mobilised to address theselected market segment or segments.

For firms focussing on complex projects, a minimum team of very senior staff,appropriately located office with up to date infrastructures, presence at key functionsof relevant clients functions, and presentations and publications by the key staff to berecognised as authority in the relevant fields will be the strategy to pursue. The

gestation period might be relatively long, and initial business capital required to takecare of this period. The firm therefore needs to be properly capitalised to meet theserequirements. Sooner than later, there will be a break, which will more than justify theinvestment. Only consultants with the appropriate profile and capital can play in thismarket.

Getting invited to bid and getting commissioned for the first job is the greatestdifficulty. Success performance technically and in client management, however,opens the door wider and usually guarantees future patronage. Bungled performance,either technically or in client management, closes the door and re-entry is even moredifficult.


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Firms focussing on experience based projects need to approach the client with theprerequisite experience, as the project description suggests. The firms therefore needto have been practicing for a relatively long time. With a good brochure of previous

projects carried out and experienced staff, established physical infrastructures andgood market presence, they are poised to market the relevant clients. For newly

created firms wanting to play in this arena, previous experiences of the key players intheir former organisations, the roles played and the market presence established willgo a long way in giving credibility.

For this particular focus area, the consultant needs to market by networking widely,much more than for complex projects, as there is a wider range of clients. The firmalso needs to be perceived as stable and successful by the market. Good visibility bylocation, a decent number of staff, presence at professional activities and awareness ofsome of their on-going projects go a long way. A partner with strong networkingskills and interpersonal relationship helps a great deal. The gestation period is not aslong as in complex projects and the chances of successful delivery are better if

adequately prepared.

Procedural projects are generally free for all and good for the new entrants with nottoo much skill. The critical success factor here is good social network and greatinterpersonal relationships. Being aware of the several projects going on and beavailable to pursue them is critical, as a large volume of work is required for survivalin this sector. Clients that generate a lot of such work be particularly important as theyoften provide a base stream of work.

It is of course possible to play in more than one sector if the firm is large enough,particularly a combination of experience based and procedural projects. For smallfirms, however, there is a need for focus to ensure consolidation.

6.2 Satisfying the ClientSuccessful delivery of projects is a very satisfying reward for the client. This is,however, not enough as there is usually intense interaction during the process ofdelivering the project. Most consulting firms focus on only the technical end of the

project and generally lose the client on the human end. It should be noted thatsatisfaction is a function of expectation and perception:

Satisfaction = Perception Expectation

The three factors are subjective and their measurement cannot be objectivelyanalysed. In prospecting for projects, consultants often make promises andcommitments which are not always easy to deliver when the project starts. These

promises and commitments, often contained in our brochures, proposals and promisesat presentations significantly raise clients expectations making our ability to satisfythen difficult. If we must get the project, we must create some expectation, and thisleaves us at a disadvantage in our effort to satisfy the client.

On commencement of the project, we are then left with only perception to manage.


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The first obligation of the consultant is to deliver on technical competence. Theproject must therefore be staffed with competent and capable personnel who knowtheir onions. Technical incompetence cannot be tolerated by clients at all, especiallytechnically competent clients. Clients without technical competence soon becomeanxious when the consequences of incompetence start manifesting in delays on

projects, indecision, conflicts among players, among others. To be able to delivertechnically requires that staffs are properly trained, equipped and motivated.Consulting firms therefore have to be adequately prepared for projects. Too manyfirms claim the expertise they do not have, and are shoddy on projects.

Technical delivery alone is, however, not enough. Both types of clients, technicallyand not technically competent, assume the consultant is technically competent. Whenconsultants focus on technical competence alone, therefore, the expectation is alreadyhigh and it is difficult for the perception to exceed this. While we can disappoint theclient in this respect, we are not likely to impress him significantly. Indeed, it is easierto impress the technically competent client.

Working with consultants, therefore, goes beyond technical delivery. Several softtissues make the experience pleasant or unpleasant for clients, and these are what theconsultants must work on. Some of these are as follows:

Do we submit reports in a timely manner?Are our reports easy to read or are they full of jargon?Are we late to meetings?Are our meetings disorganised and confused with too many arguments?Do we write minutes accurately and follow up on them?Do we take clients along on decisions or impose on them?Are consultants generally professionally arrogant?Does the client feel that we are working in his interest?Are we readily available?Do we take time to explain difficult issues?Are we understanding of his pains and doing something about them?

These are some of the soft tissues that make working together a good experience andon which the client will make judgement. And it is in this area that most consultingfirms fail. When we manage the soft tissues well, the client enjoys working with usand we can look forward to longer relationship. It should be strongly noted, however,

that this is not a substitute for technical delivery, which has been taken for granted.

Of course, if we are excellent technically and are the only ones providing the services,then we may get away with not attending to soft tissues. We must remember that theclient is then only a hostage and as soon as competition surfaces we would be out ofwork.

As Maister said in his book, Managing Professional Firms, quality work is notquality service. For a service organisation, both are important.


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6.3 Getting PaidA sales and marketing friend of mine told me that a sale is a gift until payment isreceived. Working without payment is, therefore, either charity or foolhardiness. Andyet consulting engineers continue to work without getting their due payments. I usedto think that this was only a Nigerian problem until I heard consultants from other

countries complain of the same problem. There are, however, cultural differences asto the causes and how to solve the problem.

The first advice is to tie all payments to milestones, and be able to stop work at somepre-determined milestone if the payment is not received. The consulting firm shouldbe willing to take some risks on projects and invest time, money and energy. Thereasonable amount to invest should, however, be carefully determined and once this isexceeded, work should stop until the appropriate payment is made. It is better to countones losses than to continue to invest against poor chances of being paid. As a Yorubasaying goes, if the gods cant save you, they might as well leave you not worse off.

A possible approach is to be willing to invest on the project up till the preliminarydesign stage, at which an invoice should be sent in. Work may then proceed to thefinal design stage. If payment is not received within the stipulated time, however, thework should slow down or stop, depending on the risk classification of the client. Thisway, the message gets to the client that payment is required to prosecute the work.

For government projects in particular, it is important that enough payment is receivedto carry the project to a logical milestone, as interim payments are usually difficult toobtain. Negotiation of terms of payment should be well negotiated at the time of theaward.

Two major factors prevent consulting engineers from negotiating rigorously. The firstis that most consultants do not have negotiation skills, and often do not do enoughhomework before going for negotiations. The implications of the percentage discountsthey give are therefore not always clear to them. Consultants need to know their breakeven point so as not to negotiate below it.

The second factor is fear. Most consultants are in desperate need of work, and areafraid that they will lose the project if they do not agree to the fees offered. StevenCovey in Seven Habit of Highly Effective People discussed the concept of courageand consideration for others. Consultants must have enough courage to walk off

projects that are not profitable. When projects are accepted at unprofitable fees, theconsultant is subsidising the clients project. While this is bad enough, worseconsequences are that the client now believes that he can get the project for this priceand offers even less the next time. And worse still, if the consultant is unable todeliver, he loses his reputation, cannot retain his staff and is generally frustrated.

7 MANAGING PROFESSIONAL STAFF

The management of professional staff is critical to the survival of consulting

engineering firms as these are the people who carry out the core assignment of the


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firms. Professional staff should, therefore, be well managed to get the best out ofthem.

The requirements of professional staff are generally three:

Professional developmentCareer development andRemuneration

7.1 Professional DevelopmentProfessional development involves the acquisition of knowledge, skills andcompetences to execute professional works. Young engineers are, therefore, attractedto consulting firms with enough work to engage and develop them professionally.

Firms with focus on complex projects are more interested in recruiting first classcandidates who are self motivated, love challenges and can cope with the intellectual

demand of complex and demanding projects. Symbiotically, such candidates are alsoattracted to such firms. These are usually the best graduating students from the bestengineering schools, people with high academic qualifications or exposure to researchand development. Firms like this tend to keep a large number of specialists asconsultants, with the senior partner having only a coordinating responsibility, almostlike a vice chancellor in a university.

Firms with focus on experience type projects are more flexible in their intake andtheir requirements are not as stringent. They generally prefer people who have stable

personalities and are willing to stay the long haul. They tend to be able to absorbpeople within a broad range of experiences, from the fresh graduate who can betrained on procedural jobs, to the experienced professional who can bring his wealthof experience to contribute to the organisation. This is in contrast to high-tech firmswho are looking only for the most innovative and up to date candidates. These firmstend to keep a fairly large number of partners to manage their broad scope ofactivities.

Procedural firms tend to keep a few partners as only large volumes of work can justifyan increase in partnership. Their employees tend to be of average professionalcompetence as the work is mostly procedural with relatively little technicalchallenges. The challenge is essentially that of delivering high quality work

efficiently. It is usually a good starting place for the average graduate who learnsbasic engineering quickly. Because there is not usually much room for partners at thetop, and not much engineering challenge, there is a high turn-over of staff with thesmarter ones moving to firms with more challenging projects, and the average onesstarting their own firms.

7.2 Career DevelopmentCareer development involves the opportunity for promotion and increasedresponsibilities leading up to the highest level in the organisation. The primaryobjective of a professional in a consulting engineering firm is to become a partner,

and this significantly influences the management of professional staff.


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Firms with focus on complex projects are very discerning. As already mentioned,their staff intake usually consists of bright and smart professionals. Competition is,therefore, very keen. People in which the management do not see much potential arecounselled out of the organisation very early. Conversely, employees who do not seemuch prospects, or who are impatient resign to join other organisations. Thus, there is

a high turn-over of staff with only the smartest and better appreciated (wellconnected?) staying to become partners. There is, however, room for outsourcingspecialist input from highly competent specialists, which provides an alternativecareer path.

Firms with focus on experience based projects have a better spread of staff, and thus abetter range of career opportunities. Not everybody in such firms needs to rise topartner level, as there are opportunities for senior professional staff to headdepartments and projects. The route to partnership is also a mix of technical and

business competences, with staff with dominantly business competences having aslight edge over those with technical competence. Experiences from these firms are

also transferable to similar firms, providing a reassuring career future.

Procedural firms do not provide much career future and are mainly training grounds.Growth being mainly by volume, relatively few partners are required. Staffs with longexperience requiring increased salaries are difficult to justify and are counselled out ofthe firm. The staffs, on the other hand, seek better opportunities in bigger or morechallenging firms and move on. Thus both the management and the staffs understandthe game and are generally comfortable with the position.

With these guidelines, the fundamental issues in professional staff management aredefined. Confusion, problems or frustration may arise when management is not clearabout where they stand and either employ the wrong type of people, or operate on thewrong principles. The same goes for the professional staff who has expectations thatare not consistent with the firms position, whether this is appreciated by managementor not.

7.3 RemunerationRemuneration is the third factor in the management of professional staff and includesthe pay packet, allowances and perquisites of office that the employment provides.The emphasis for the young professional on graduation is usually professional

development, and this makes him willing to accept relatively low salaries, provided hecan survive on it and it is within industry average. As he grows older and acquiresmore experience and official and private responsibilities, remuneration and career

prospects become major factors in his decisions. Firms then have the problem ofretaining trained staff and experienced seniors.

In the Nigerian environment, salaries of young graduates vary widely (for those whoget employed), with the IT sector paying the highest, and the professional sector

paying the lowest. There is indeed a factor of 8 between the lowest salary of about=N=15,000 and the highest of about =N=120,000 per month.

The table below shows the range of salaries across sectors in June 2004.


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Monthly Salaries of Fresh Graduates across industries(Punch Newspaper 29 June 2004)

Sector Salary

Upstream Oil & Gas (Engineering) 100,000

Telecom 120,000

Downstream Oil & Gas (Engineering) 75,000New Banks 80,000

Old Banks 65,000

Medicine 35,000

Law 30,000

Public Relations & Advertising 25,000

Journalism 16,000

Teaching 15,000

Consulting Engineering 25,000?

The basic factors influencing salaries payable by consulting engineering firms arework volume, fees earned and payments on schedule. These are then compounded byorganisational values and culture.

Organisations with low work volume, low fees charged, and poor fees recovery are ofcourse distressed and pay very little. Several are frequently unable to pay salaries andowe staff over several months. Unfortunately there are many of these in Nigeria. Thestaffs that stay with these firms are the ones who do not have any other options, forthere is no professional satisfaction, career prospect or income.

On the other extreme, organisations with adequate volume of work, decent feescharged and good fees recovery are generally able to pay decent salaries. The salaries,even in these companies, are still relatively low compared with the more lucrativesectors such as banking, oil & gas and telecommunication. This is because of thestructural constraints that limit the potential earnings from standard projects.

In-between are firms at different levels of health based on the volume of work, feescharged and fees recovered.

7.4 Overview of Professional Staff ManagementThe sum total of above discussions is that the sector is not able to retain the brightestand smartest engineers in the consulting sub-sector. Salaries in the sector are very lowand are within the bottom 25%; opportunities for professional development areavailable in very few firms with fairly steady work; and there are not enough stablefirms to ensure career development.

Exit of professional engineers from the consulting engineering sub-sector to the morelucrative sectors therefore continues to increase, especially of the brightest and ablest.


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8 CREATING PROFIT

The third leg of the management of the consulting engineering firm is to create profitand wealth for its partners, and good income for its staff. This requires that incomeinto the firm must be in excess of expenditure.

8.1 Consulting Firms IncomeThe income in Nigeria is made up of three components, the volume of work done, thefees charged and the percentage of fees recovered. Thus:

Income = volume of work x fees per work x % fees received

Unfortunately, all these parameters are currently controlled by clients, with theconsulting engineering practices having little or no leverages. As they say, it is the

buyers market.

The ability to charge appropriate fees varies with the market segment on which theconsulting firm is focusing. Clearly, complex projects can attract appropriate fees asthere are usually very few experts who can prosecute such works. Being complex andinnovative, clients are usually more reasonable or have little choice but to agree toreasonable fees. Sometimes the consultant is in a position to determine his own fees,

but this is very rare. Complex projects do not however attract large volumes and thefees must be high enough for the firm to survive. The third factor, percentage feesreceived may be influenced by the percentage payments received before projectconclusion so that the risk of non-payment of fees is severely reduced.

On the whole, therefore, complex projects have a good chance of charging appropriatefees and receiving a large percentage of it.

Experience based projects are more competitive than complex projects, and firmsleverages are less. Even then, there are usually a finite number of consultants playingin this field. Proposals are written and man-month rates are used to determine fees. Inthis category, reasonable fees can be negotiated, although government clients can bevery difficult and reduce man-month rates to unprofitable levels. Generally the

projects are large enough to create enough volume of work. Again, generally theterms of payments are fair, and the first few payments are usually made. However, the

projects may run into difficulties subsequently and payments difficult to receive.

Procedural projects are the most difficult in terms of fees negotiations and collection.Being a commodity type product, players are many and clients are able to negotiaterigorously on fees. Only very few firms are able to create the critical mass necessaryto survive in this field. It is also the easiest entry point for most engineers startingtheir own firms.

8.2 Consulting Firms ExpendituresOn the other hand, expenditures of consulting firms are made up of salary costs,overhead and project expenses. Salary costs usually constitute about 30 to 40% of

these expenditures. Overhead costs include office rental, NEPA, generator,computers, photo-copying machines, maintenance, telephones, etc., and these could


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be as high as another 30 to 40%. Project expenses include the direct costs of executingprojects such as printing of drawings, documents and reports, site visit expenses, etc.and mostly account for the remaining. This will of course vary depending on thenature of the project.

Thus,Expenditure = Salary costs + Overhead + Project Expenses

Overhead costs, being of the order of 30 to 40% of firms expenditure, must bemanaged efficiently. Carelessness with this relatively large budget can make a firmlose a lot of money. Beyond a point however, very little can be done to improve itscontribution to profitability. The optimum office space, equipment and infrastructurefor efficient performance must be provided, and these must be maintained efficiently.The quality of the office is part of the brand image of firms, and installed equipmentand infrastructures contribute to quality project delivery. In Nigeria, most firms musthave generator back-up for electricity, locate in easily accessible places and provide

modern working infrastructures, which cost money.

Project costs are directly related to projects on hand. A few projects allow forreimbursable expenses which may be used to offset some of these costs. Many do not

provide specifically for these and the consultants must fund the services from his fees.Site visit transportation costs, production of drawings and reports, telephone calls anddispatch of letters all add up to significant amounts. With the advent of the mobile

phone, and increase in call rates, as high as 2% if fees received may go on telephonesalone. This cost category must therefore be properly managed. As in the case ofoverhead costs, however, beyond a point, very little contribution can be made to profitas the project execution must be properly funded.

We are thus left with salaries as the only controllable factor in the expenditure.

David H. Maister in his book, Managing the Professional Service Firm, stated that theratio of junior, middle level and senior staff in the firms organisation, referred to asthe firms leverage, has a pre-eminent position of all the factors bringing the firmsgoals into harmony. Since the primary objectives of the professional service firms areto please the client, to have professional fulfilment, and to make profit, he illustratedthe significance of this leverage by looking at its effect on the client marketplace, the

people marketplace and on profitability.

8.3 Professional Staff Mix and Profitability

As already stated above, firms with focus on complex projects need high quality staff,mostly seniors, with relatively little mix of juniors as generally little delegation can bedone since the experts have to think through most of the processes to come up withsolutions. Firms with focus on experience based projects can do with a high mix of

junior middle and senior level staff as a significant portion of the work can bestandardised and juniors trained to execute them. Finally, firms focussed on

procedural projects may have a very large number of juniors as most of their work canbe programmed and juniors trained to do them. The focus and emphasis of firms will

thus determine the mix of staff that they should keep.


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The mix of junior, middle and senior level personnel and the efficiency of staffutilisation constitute the two major factors to manage the salary component of theexpenditure of the firm. As already stated, overhead costs and project expenses can at

best be optimised.

For much of the work in Nigeria, fees are based on a percentage of the estimated costof works. This applies mostly to experience based and procedural type projects. Theconsulting firms mix of staff to execute them is not, however, determined. By usingan optimal mix of staff to carry out a project, salary costs can be considerablymanaged to create profit.

For much of procedural projects, however, the fees are severely negotiated. Sincethese are relatively simple projects with relatively low technical requirements, entryinto this sector is easy, and there are always consulting firms willing to accept lowerfees. If fees are then negotiated to the point that it is only by using junior staffs thatthe project can break even, then the opportunity to leverage is lost.

For the more complex projects, however, man-month charges are used to determinefees. For such projects, therefore, being able to use junior and middle level staff toleverage the time of the senior staff can go a long way in reducing salary costs andcreating profit. Firms, therefore, want to keep the optimum number of senior staff fortheir work load, and leverage these staff with junior and middle level staff to create

profit. Too few senior staff will, however, not adequately prepare them for complexprojects as in-house experience will be inadequate.

Firms have responded to this by forming keeping the minimum number of senior staffand out sourcing or forming joint ventures to carry out complex works. While thesealternatives reduce their salary costs over time, project margins are considerablyreduced as they have to pay high rates for the outsourced staff, or share profit with

joint venture partners.

Some conclusions may be reached from this analysis as follows:

1. Firms with focus on complex projects have no choice but to chargeappropriately as the seniors have to be used to carry out the projects, with verylittle leverage. The number of such projects is usually few and each projectmust generate enough income to meet the overheads.

2. Firms with focus on experience based projects must keep a mix of seniors andjuniors so that they can leverage on the working hours of seniors with juniorsto create profit and train staff. Each project must also generate enough incometo meet overheads.

3. Firms with focus on procedural projects must generate large volumes of work,keep a large number of juniors and automate their procedures to maximumefficiency to create profit. They should also carefully determine their costs sothat they do not negotiate below these costs.

4. While outsourcing and joint ventures allow for hedging against recurrentexpenses, outsourcing increases the staff cost of projects, while joint ventures


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reduce income. Each of them should be strategically used to the firmsadvantage.

9 THE BUSINESS STRUCTURE OF CONSULTING FIRMS

Consulting firms are business entities with peculiar structures. Historically, theindividuals owning firms and their firms were legally inseparable. Most of the olderfirms were therefore either sole proprietors or partnerships.

9.1 Sole ProprietorsIn a lay mans language, a company is said to be a sole proprietor if it is owned byonly one person, in which case, the law sees him and company as one. Theimplication of this is that all the assets and liabilities of the company are the owners

and any claims on the company will be claims on the owner. A sole proprietor cannottake a partner or another owner without restructuring the company. Conventionally,sole proprietors are called partners in the industry, although they are technically not.A sole proprietor practicing in his name does not need to register a company. If he,however, wants to adopt another name, then he needs to register a business name.

9.2 PartnershipsThe most popular form of consulting engineering practice is the partnership. A

partnership is formed when two or more people come together to work under a singlebusiness entity, but with the entity not having any separate identity from theindividuals. As in the case of sole proprietors, the assets and liabilities of the companyare the owners, for which they are jointly and severally liable. There is always a needto register a partnership so that the law recognises the individuals involved and therelative shares of their ownership. The owners are appropriately called partners. A

partnership that is taking on another partner technically dissolves the old partnershipand forms a new one. It is required that all partners of a consulting engineering

practice be engineers for them to be registered to practice. Partnerships do not paytaxes as they are not independent of their owners, who have to pay taxes. Partners alsodo not receive salaries, but drawings, as the total amounts received by them, salaries,allowances and profits are treated as partners income for tax purposes. Operatingexpenses are, however, allowed in the name of the partnership.

9.3 Limited Liability CompaniesIn the past twenty years or so, there has been a relaxation on the restriction ofconsulting engineering practices to sole proprietors and partnerships, and limitedliability companies have been allowed. This is a significant development, as thelimited liability company is a separate entity from its owners. From a lay mans pointof view, a limited liability company is formed when two or more persons put theirinvestments to create a new legal entity which is the company. Their liabilities on thiscompany are limited by the amount of their investments. The company pays taxesdifferent from its shareholders, and can sue and be sued.


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This was a significant shift for the consulting engineering industry. Under the earlierregimes of sole proprietors and partnership, if a failure occurred and the consultingengineer was found guilty, he was liable to the extent of his total worth, irrespectiveof his investment in the company or the fees received. And this liability was for theduration of his life. With a limited liability company, he was only liable to the extent

of his investment in the company, as it is the company that is directly liable and cango bankrupt. Professional integrity is then protected by professional bodies and

professional indemnity insurance.

Several engineering firms are now limited liability companies. It is required that forthem to practice as consulting engineers, a majority of the owners must be consultingengineers, although this provision is being relaxed. A limited liability company doesnot need to change its structure to admit new owners, or change the ratio ofownership. It is run by a board of directors who take salaries and allowances and aretaxed like any other staff. At the end of a financial year, the firm prepares its accountand declares a profit or a loss. A decision is taken by the board on how to use the

profit. The total profit may be retained in the company and invested for growth orreserve. A portion or all of the profit may be distributed to the shareholders asdividends.

9.4 Public Limited CompaniesConsultancy practices have grown very big in developed countries with some of themhaving over 3000 employees and several branches nationally and internationally.Some of these companies have decided to offer their shares to the public at large bytaking them to the stock exchange. Such companies retain a percentage of the sharesfor the core technical team and sell the rest at the open market. The accounts of suchcompanies are now made public, ensuring greater visibility, transparency andaccountability.

9.5 Other RelationshipsConsulting engineering firms now operate in several other forms of relationships. Acommon one is when two or more firms agree to work together, either to prospect forwork generally, or to bid for a particular project, or to work together on a project inwhat is called a Joint Ventures. This may be between a foreign and a local firm, twofirms with complementary services, two firms with the same services but inadequate

personnel in each, or just for the spreading of risks.

Consultants also form Consortiums with other firms for similar purposes. Arelatively recent practice is for consultants and contractors to come together to form aDesign and Build Consortium. In this relationship, the traditional role of theindependent consulting engineer gives way to a partnership between the consultingengineer and the contractor to deliver projects. Sometimes the consulting engineerleads this team.


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10 MANAGING PROJECTSThe business of the consulting engineer is to manage projects, and consultingengineering firms must acquire skills towards this end. Three broad sets of skills arerequired to run a successful consulting engineering practice. These are as follows:

Technical CompetenceGeneral Management CompetenceProject Management Competence

10.1 Technical CompetenceThe business of the consulting engineer is technical and intellectual. Technicalcompetence is therefore the primary requirement to operate in this sub-sector. Thisrequires that there is continuous training of staff and updating of knowledge. In arapidly changing world of technology, consulting engineers cannot continue to rely ontheir old skills. Anyone who left the university over ten years ago and has notcontinued to re-educate himself is definitely technically incompetent and obsolete bymodern standards.

Not only are there new ways of doing old jobs, new disciplines are continuouslyemerging as new discoveries are made. The sub-division of engineering into civil,electrical and mechanical is completely obsolete and there are at least a hundred sub-specialities today.

Consulting engineers must therefore broaden the scope of their technical competenceas well as sharpen and update their skills, equipment and methodology in the old

disciplines.

10.2 General Management CompetencesBecause consulting engineering practices are businesses, consulting engineers mustacquire general management skills. The Project Management Book of Knowledge,(PB BOK) provides a list of general management skills required to manage project asfollows:

Finance and accounting, sales and marketing, research and development,manufacturing and distribution;

Strategic planning, tactical planning, and operational planning;Organisational structures, organisational behaviour, personnel administration,

compensation, benefits and career paths;

Managing work relationship through motivation, delegation, supervision, teambuilding, conflict management, and other techniques;

Managing oneself through personal time management, stress management andother techniques

All these skills and more must be acquired by the consulting engineer if he is tomanage his organisation effectively.

10.3 Project Management SkillsIn addition to technical and general management skills, consulting engineers need tomaster the art of managing projects. A large body of knowledge have been compiled


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and documented by project management organisations, and this effort is continuing.The consulting engineer must acquaint himself with these developments and improvehis project delivery skills.

The combination of technical competence, general management competence and

project management competence are what is required to successful manage anddeliver projects.

Documents

2. Introductioin to Consultancy Practice