Three risks facing consulting engineers
Prepare for these business calamities to avoid risk.
Whatever the specialty or discipline, your work as an engineer requires you to account for risk all the time. If you didn't, we'd have motors dropping out and buildings falling down all around us.
You can mitigate business risks, like the threat of a pricey lawsuit, the same way you work to prevent a wall collapse—by identifying and assessing the potential hazard and designing a plan that minimizes your vulnerability. Here are three risks that you face as an engineering consultant, along with some ideas for how you can shore up your defenses to keep them from draining your bank account.
1. Inconsistent income
Consulting can be a feast-or-famine career, and that can make risk management difficult. Just imagine what would happen if you were slapped with that pricey lawsuit during one of your lean months. But with cash on hand, you can cover it and many of the other unpleasant surprises that might come your way. Consider making up for your inconsistent income by:
- Outsourcing jobs that aren't worth your time. Some tasks, like taxes or paperwork, take time away from income-generating activities like prospecting clients. If you can pay someone less than your hourly rate to do a job, outsource. That way, you can focus on the engineering work that brings in a paycheck.
- Developing sources of passive income. You can also generate income from business activities that require a little less effort than engineering. Lots of people earn passive income from rental properties or owning stocks, and you can also publish (and sell) e-books, revenue-generating online ads, and more. Passive revenue helps keep things steady when you're not earning as much actively.
- Managing cash flow. Requiring a deposit, offering monthly payment plans, and saving a portion of each fee collected for taxes and other expenses are just a few of the ways you can compensate for your fluctuating income.
- Creating an emergency plan and backup resources. An emergency plan can mean the difference between a smooth recovery and days of anxious waiting when disaster strikes. Scout for temporary work locations and backup generators before you need them, and make sure you have an emergency fund to pay for the items you forget.
- Buying insurance. It might seem backward to spend money when you're looking for ways to keep cash flowing, but insurance actually protects your savings by transferring certain risks to your provider. Instead of being liable for, say, the entire cost of a property repair or lawsuit, your insurance carrier picks up some of the cost.
Cash is one of the best tools you can have in your risk management toolbox. Whether you're facing costly repairs in your office or medical bills after an injury, cash is usually part of the solution.
Before you dismiss the possibility of a data breach in your consulting business, ask yourself if you:
- Store client information in your system. Cyber criminals see the names, phone numbers, and credit card numbers in your computer as gold. Protecting current clients and properly deleting the out-of-date information is important to managing this risk.
- Are always on the move. The more you travel to clients' offices and work sites, the more chances there are that you might lose a flash drive or hook into an unsecure network.
- Use cloud-based software. Cloud computing is convenient, but it isn't always as secure as you might assume. Some vendors outsource portions of their service, and the third-party vendor may not have the same security standards as the one with which you contracted.
And data breaches aren't just a problem for the Fortune 500. An article in Property Casualty 360 notes that 62% of cyber security breach victims are small and mid-sized businesses. Moreover, the National Small Business Association's 2014 Year-End Economic Report estimates the average cyber attack on a small business costs $20,751.97.
Why would a hacker go after small prey rather than a huge corporation with stockpiles of cash? Most likely, the criminals consider small businesses like yours to be low-hanging fruit. Few have the resources required to optimize their security, so hackers have an easier time getting in and siphoning off large amounts of data before anyone notices. However, you can take steps to protect your business, including:
- Being vigilant about updating your antivirus software
- Establishing a protocol for backing up data
- Creating complex passwords
- Using an encrypted cloud service.
Even with best practices in place, you may find yourself the victim of a cyber attack. Remember, too, that data breaches can result from silly mistakes that are hard to guard against, like a lost smartphone or a misdirected e-mail. That's why it's also wise to purchase a cyber liability insurance policy to help cover the costs of a data breach.
Dissatisfied clients and scope creep
Most simply, scope creep is when additional items (like goals or deliverables) are added to a project. Sometimes this happens as the client makes requests, but it can also be the result of necessary changes you see as the project moves along. Either way, scope creep is a problem. First, it eats away at your profits as you do more work for no more pay, which is never a good thing. More important, it can also make for unhappy clients who either misunderstood the original scope document or who do not appreciate the costs added to the project.
Your written contract is one of your the best defenses against scope creep. Consider including language that:
- Defines the project's scope
- Requires additional work to be agreed to in writing
- Lists the deliverables for each project phase
- Stipulates dates to reassess the scope (and, if necessary, adjust budget) during each project phase.
You may also want professional liability coverage. Should communications break down to the point of a lawsuit, a professional liability policy may cover the cost of your defense.
Every engineering project has risks that you must assess and plan for, and your consulting business is no different. Execute your plan appropriately to safeguard your assets while you build your clientele.
Ted Devine is CEO of Insureon, an online provider of business insurance to small and micro businesses with more than 30,000 clients.