Engineering Consultancy - A Review Of The Overhead Expenses

An engineering consulting organization is typically a part of the service industry and the core strength of such an organization is it's manpower. But when I say manpower there is a catch in it. What kind of a manpower should an engineering consultant typically sustain and grow is the million dollar question.

Let us first discuss the haves for an engineering consultant in the chemical process industry which includes but is not limited oil and gas, refining, petrochemicals, fossil fuel power, chemicals and pharmaceuticals.

Engineering Specialists:

These include chemical, mechanical, electrical, civil and instrumentation engineers who handle the various engineering documentation and sizing aspects of the project being engineered. There may be further specialization amongst the core engineering people such as mechanical rotating machinery specialists, mechanical static equipment specialists, process simulation specialists, pipeline specialists, water engineering specialists , mechanical plant erection and plant commissioning specialists and even super-specialization such as fired heater specialists, Compressor specialists, Gas turbine specialists etc. These people are the core people of any engineering consultant organization and thus should be given their fair due and say in the organization. By my experience some of the super-specialists command very decent man-hour rates compared to the engineer who is not a super-specialist and thus are undeniably the best source of revenue for any engineering consultant.

Support Staff:

These include the Human Resources, Office Administration, IT Support, Business Development, Finance and Accounts staff. Without any apologies I would like to maintain that the aforementioned categories do not generate any revenue for the engineering consultant. The expenses on such staff are purely overheads for the engineering consultant. The endeavor for any engineering consulting organization should be to minimize the number of heads under these categories. Going by my logic these categories should account for maximum 3% of the staffing requirements of an engineering consultant. Anything more than 3% simply means lost revenue and profit for the engineering consultant. I would also like to maintain that these people are definitely required for the smooth functioning of the organization. However, limiting their numbers would be beneficial for the support staff themselves. The limited support staff could work more effectively and could be paid better thereby generating a sense of self-fulfillment amongst them. As a side note, I have never understood the logic behind hiring people with a Business Administration degree and no engineering background in any engineering consulting organization. I think it is a total lack of understanding about what are the business objectives and goals of an engineering consultant.

Workplace Location:

Offices should be located in such locations which are hubs for the type of business that the engineering consultant wants to pursue. As an example, if an engineering consultant in the oil and gas domain wants to set up shop in Canada, he should naturally be looking for office premises in Alberta and not in British Columbia. In a nutshell, you are supposed to be at the place of action. The cost of setting up an office is a critical factor in balancing your overheads. While the office premise should have good ambience and ergonomics it does not need to have the trappings of a luxury 5-star hotel. Remember, an engineer's seating does not require anything more than a comfortable seat to spend 8 hours in the office and a well designed and installed workstation for ease of use and prevent fatigue and stress. With the idea of a paperless office catching on more and more, offices with large storage areas (racks/shelves) are becoming redundant. More office space, more the rent or interest you are paying. Mind you, I am not advocating squeezing more people into small areas but only suggesting that paper storage areas could be reduced by going electronic most of the times.

Consultant-Client Coordination:

With today's advanced technology in voice and image electronic transmission maximize the usage of video and audio conferencing to resolve project issues. This is going to save you thousands of dollars in travel related expenses. In case the coordination requires being on a more personalized basis, either the consultant could put his personnel at the clients office or the client could be accommodated in the consultants office for a fixed time duration rather than having frequent travel and thus building up overheads.

Software:

Software costs money. The more sophisticated the software the greater the cost and greater the overheads for maintaining and upgrading the software. Critically review the requirement of the software and the return over investment if you are contemplating purchasing a software. As an example, if for a particular project, ten Shell & Tube Heat Exchangers are required to be designed using HTRI software do I really need to buy HTRI. If it is envisaged that this a one-off project where S&T heat exchangers need to be designed and designing S&T heat exchangers is not a regular engineering design activity then the answer is a categorical NO. I would just outsource the design to a third-party for this one-off design activity rather than spending thousands of dollars on acquiring a HTRI license.

Contract Personnel:

All businesses are cyclic in nature. A prime example is upstream Oil and Gas. An upsurge was encountered in 2005-2006 whereas 2009-2010 saw a severe downturn. People were hired without much thinking by engineering consultants during the upsurge. When the downturn came people were fired who had envisaged long term careers with the organization they had joined. The smart engineering consultants opted for the strategy of hiring short-term contract personnel. The contract conditions were very clear, at the end of the contract, re-hiring only at the sole discretion of the engineering consultant. No cause for heartburn when terms and conditions were crystal clear unlike the case where some engineering consultants hired personnel promising long term careers and a sense of belonging. What I am trying to point at is when you are suddenly flooded with work you don't have to go overboard in hiring personnel on a permanent basis. Carefully evaluate your hiring options and maximize hiring of short-term contract personnel at attractive man-hour rates. This will optimize your resources during work-heavy periods as well as keep your overheads in check during lean periods.

I have said enough about a subject which is not entirely my forte but these are observations based on closely working with planners and management staff in several engineering consultancies over a duration of more than 15 years.

Would love to hear from veterans in the engineering consulting business about what I have to say.

Regards,

Ankur