Tuition Tuesday - Tuition Continues to Rise

Some new data released last week by the College Board shows that tuition and fees at both public and private 4-year institutions. A few highlights - or low points - from their research:

• In-state tuition and fees at public four-year institutions averages $8,244 in 2011-12, 8.3% higher than in 2010-11. When you include room and board, this number goes up to $17,131, an increase of 6.0%
• Out of state tuition and fees averages $20,770/year, up 5.7% from 2010-11. Including room and board, total charges are $29,657, up 5.2% from 2010-11.
• Tuition & fees at private, four-year colleges and universities averages $28,500 in 2011-12, up 4.5% from 2010-11. Average charges including room and board are $38,589, up 4.4%.
• While the average increase at public institutions is 8.3% for in-state students, and 5.7% for out-of-state students, 20% of students are attending schools where the cost of attendance rose more than 12%.

It is no wonder that total outstanding student debt has now passed $1 trillion, surpassing even the credit card debt in the US - and it’s rising. The Education Department announced that in September, the student loan rate had risen to 8.8 percent, which apple only to the first two years students are required to make a payment.

The research from the College Board also points out the dilemmas that administration at these colleges and universities wrestle with before raising tuition - declining support at public institutions, and financial aid covering less of the overall cost.

• In 2011-12, full-time undergraduates at public, four-year institutions received an average of $5,750 in financial aid and federal tax benefits.
• Full-time undergraduates at private, four-year institutions received an average of $15,530 in financial aid.
• The average cost of attendance after subtracting aid has outpaced inflation an average rate of 1.4%/year over the last 5 years.
• State funding per FTE student is 23% lower in 2010-11 than it was 10 years ago.

The cost of education remains a significant challenge for practices as they recruit, retain, and promote staff. Here at the Design Futures Council, we are finalizing our 2011-12 Tuition Research, looking at the cost of an architectural education in the US. Look for that in the coming weeks. In the meantime, the entire report from the College Board can be found at here.

Tuition Tuesday - Student Loan Debts & Past Due Rates Increasing

2 notable reports this week already regarding the impact that economic conditions are having on various types of credit (mortgages, credit cards, student loans, etc.), both from the Wall Street Journal and the Federal Reserve Bank of New York.

The first, from the Real Time Economics blog, shows that while U.S. household debt has declined 8.64% since it’s peak in the 3rd quarter of 2008 to $11.42 trillion, student loan debt is up sharply, rising 25% over the same period. This increase from $440 billion to $550 billion might be reflective of more people going back to school in the hopes of increasing their skills and value in a difficult job market. The report doesn’t indicate the reason for the increase, however the drastic increase certainly will affect future spending and compensation expectations. The graphic from this report showing this change is below:

Monday’s news was followed yesterday, by another report showing a steady climb in delinquency rates of student loans. The article says, “11.2% of students loans are more than 90 days past due”, and the delinquency rate steadily increasing. Credit cards are the only type of loan with higher delinquency rates, however those numbers have been declining for the last year.

We’ve set up an educational system - and an employment system - that requires students to take on incredible amounts of schooling, and in many cases the associated debt. It impacts the diversity of our profession and the economic condition of employees of every professional practice in the country.

The question for leaders of professional practices is simply this: Do you know the cost of education at the institutions you typically recruit from? If so, do you know the associated debt load or student loan payments made by graduates coming from that institution to your firm?

Once you know this information, the opportunity is to develop unique strategies for recruitment and retention that help minimize the pressure these individuals feel financially. As competition remains high for talented, committed employees, helping your youngest professionals and recent graduates can lead to significant increases in loyalty and retention. And that, is one of the best investments your practice can make in today’s economy.

China overtakes US as largest construction market

A recent article in the Financial Times noted that in 2010, China spent more than $1 trillion on new building projects, overtaking the United States. Comparatively, investments in construction - both private and public - decreased in the United States from roughly $1.5 trillion in 2005 to $983 billion in 2010. Decreasing opportunities in the United States - and increasing opportunities abroad - are of no surprise to most architecture firms in the US and firms of all shapes and sizes are now working in overseas markets.

Since 1998, Greenway Group, on behalf of the Design Futures Council, has conducted the Multinational Design Firm Fee Survey, which examines the 30 largest exporting architecture firms headquartered in the United States. Nine firms have held a spot on the Top 30 list for the past 12 years:

• Arquitectonica
• Cannon Design
• Gensler
• HOK
• Kohn Pedersen Fox Associates
• NBBJ
• Perkins + Will
• RTKL
• WATG

Fee growth by firms in the DesignIntelligence Top 30 US-Based Multinational Design Firms has taken place every year for 12 years without exception - and we expect 2011 to be no different. The annualized growth rate for the DI Top 30 in their non-US based revenue is 29.9%. A report released by Global Construction Perspectives forecasts that China will account for 20% of total construction by 2020, up from 14% today.

We believe that developing resilient strategies and engaging foresight scenarios is critical for firms engaged in international work, and for those exploring opportunities in these markets. Is there money to be made? Of course. But for inexperienced firms, there may be more to be lost. Are the design opportunities unique? In many cases yes.

The design professions, particularly the A/E/C community, have a tremendous opportunity to impact future development of cities, whether in China or in another slice of the $97.7 trillion global construction market over the next decade. How globalization continues to shape our practices - and how we in turn shape our environment - is a constantly developing paradigm of practice. We may not know exactly how, but we certainly know that within the challenges of global practice lay numerous opportunities for growth, prosperity, great service, and meaningful design.

What Just Happened?

A Brief History of the 21st Century and What It Means for Design

A mere 10 years ago, our biggest worry was Y2K. We were bombarded with dire predictions about computers going crazy at one second after midnight on Jan. 1, 2000, snarling all things digital and randomly rearranging our e-mail, financial records, and air traffic control. Some people even canceled their New Years travel plans, fearing that their jumbo jet could become hopelessly lost in the heavens. Alas … didn’t happen. But in the intervening decade, a lot of other stuff did.

With 9/11, the prospect of systematic terrorism on U.S. soil was thrust onto center stage. This was followed in short order by a war that seemed to be over within months but hasn’t ended yet. Then a huge surge in the stock market created historic levels of new wealth, which in turn fueled unprecedented growth and prosperity worldwide, especially in China. Awareness of global warming also made an appearance, just in time to cast a pall over the burst of industrialization. Then, of course, the Great Recession, from which we learned that if enough people in Florida get behind on their mortgage, an entire country can be bankrupted (Iceland). Who knew?

While all this was going on, nerds from Stanford (Larry Page and Sergy Brin) and Harvard (Mark Zuckerberg) were pulling all-nighters inventing Google and Facebook, which allow us to find out pretty much anything we want to know on a 24-7 basis and then share it (along with our most intimate secrets) with thousands of our closest personal friends.

Toss in a few natural disasters (tsunamis, hurricanes, and volcanoes), and just for good measure, add the very real prospect of nuclear proliferation, courtesy of Iran and North Korea. That’s a lot to digest in just a few years.

What have we learned from all this?

The key lesson is connectivity. Politics, finance, commerce, weather — everything is intimately intertwined, we’ve come to understand. Even a very small change, like a degree or two in the average temperature of the ocean, can have huge consequences. As a result, we have developed a new appreciation for systems thinking and the power of context. From this, a different kind of economy has emerged — one that is more about creating networks and experiences than making tangible things. In turn, individual effort is being supplanted by the power of teams, with a focus on partnering, value creation, and collaborative learning. Indeed, mass collaboration is the only way we can succeed from here on out.

Why is this so important for designers? Because design thinking is what creates the interface between technology and people. Design helps us deal with change, making disruptive innovation possible. Case in point: Technology made Internet banking plausible, but it was the design of the ATM that made it accessible and then pervasive. Ditto for cell phones, iPods, and e-books.

Access to huge amounts of information would be meaningless without a way to organize, manage, interpret, and apply it. The amazing tools that have been developed in the past 10 years are merely a preview of things to come. For example, now that the human genome has been decoded, the possibilities for inventing new medical therapies are literally boundless. Google maps already keep us from getting lost, but pretty soon they’ll actually be doing the driving as well, knowing in advance which motels have vacancies.

And what about buildings? Today, they are relatively inert, but in the future, they’ll develop thinking properties, manufacture their own energy, adjust their heating and cooling systems automatically as weather and occupancy change, and even make more coffee when the pot runs low. They might even become kinetic, swiveling on their foundations to catch every available solar ray or gust of wind, essentially becoming very large, self-charging batteries in which people happen to live and work. Design will make all this, and much more, possible.

Throughout history, various classes of leadership have emerged to shape society and culture. There have been religious leaders (pharaohs and popes), military leaders (kings and generals), business leaders (industrialists and financiers) and even artistic leaders (from the Renaissance to rock-n-roll). Because the world has become so complex and interconnected, the next generation of leaders must include a new kind of priesthood: design thinkers.

We’ve already seen how powerful design can be when applied to improving mundane products such as vacuum cleaners and luggage. How much more pervasive will it be when applied to whole systems, such as health care, education, or even government? Could designers create a justice system that is swift, fair, and inexpensive? Why can’t going to court be as simple as renting a car?

You get the idea. Design, which is both a verb and a noun, is about process as well as things. This is powerful stuff. Design enables us to explore the unimaginably small (via the Large Hadron Collider at CERN) and the immensely huge (via the Hubble telescope), plus everything in between. It’s how we envision and invent. Most important, it’s essentially optimistic. Design thinking assumes successful outcomes and carries a conviction that there is always more than one way to solve a problem. Design is also democratic. It’s about what works, and anybody can do it. Design transcends borders and is not inhibited by cultural or language barriers. A great idea travels fast and is easily adopted and adapted.

But here’s a question: What will we call the great designers of the second decade of the 21st century who will provide the new ideas, strategy, and leadership that are so desperately needed? Will they be architects? Architects are creative, to be sure, but to be truly effective, they also need to develop an appetite for risk and entrepreneurship.

Perhaps it’s time that design thinking is applied to the design profession itself. How should we be training the next generation? What do they really need to know? How fast can they learn it, and by what means? How can design thinking be broadened to include other disciplines, such as finance, politics, and medicine? Why not think of business managers as process designers, law enforcement officials as designers of secure neighborhoods, and public health officials as designers of our collective good health? Getting the right answers starts by asking the right questions, and designers can lead the way.

Fast Forward to What?

It is very likely that your role in the design professions and in our industry will be changing rapidly. This is because there are new competitive threats from outside the traditional A/E/C industry structures and there are new technologies to navigate … not to mention all the reasons associated with the economy.

This changing context often leaves people confused about their long-term goals. Our position at Greenway Group is that the future is and will continue to be brimming with opportunities. If you are planning new goals for next year here is what I recommend:

• Develop a coherent and positive point of view. Right, it’s not easy to do today, but it is essential that you do this now. No one outperforms his or her own aspirations. Your point of view should be expansive and should get your adrenaline rushing. This is an essential choice you must make. This is your angle on the future.
• Revise your vision for the next three years. Backcast the action steps that will be needed to achieve the vision. Think non-linearly about inventing your future. Your plan should be edgy, not last year’s formula.
• Make more friends and be more likable. Build relationships with a quality network.
• Extinguish inertia. That is to say, co-opt and neutralize the anti-change forces around you. Push away negative forces.
• Create and use a posture and a vocabulary of action and motivation. This will become your personal dynamism. Don’t worry and stew over today’s molehill problems; take advantage of this time to think in new ways. Build bridges toward new opportunities that are often just outside the boundaries you’ve been operating in.

If you want to change anything major, you have to make a choice to do some things differently. Then, you will ride the ascendancy path toward some very interesting opportunities ahead. You’ll be amazed not only by what has been accomplished but also what you’ll be looking forward to.

Conventional Wisdom: A Modest Proposal

Though there are recent signs of a thaw, the effects of the recession on the A/E/C industry as a whole have been severe and will be long-lasting. Construction spending is way off, there have been widespread layoffs, and financing for new projects is still very difficult to come by. Recovery, when it comes, is likely to be slow and incremental. In response, firms have cut expenses and are looking for ways to use technology and new processes, such as IPD, to create a much leaner, more efficient business model.

At the same time, there are significant leadership roles that need to be filled: Both the AIA and NCARB are currently in search mode for new CEOs. This is an ideal time to take a close look in the mirror and decide how to shape the future of the A/E/C industry as whole.

It’s time for some fresh thinking, and we won’t get there by replicating the paradigms of the past. Here’s a thought: create a “super convention” that will gather together the combined membership of the entire industry, including AIA, NCARB, NAAB, IIDA, AGC, the USGBC, etc. If all of these organizations would agree to hold their annual conventions at the same time in the same city, the assembled brainpower would be enormous and would provide a unique platform for cross-fertilizing the best ideas from across the country and around the world.

Such a gathering would be huge and would demonstrate just how influential the combined resources of the A/E/C industry could be when working in concert. This would provide the springboard for a host of new ideas, energy, and optimism, all of which are desperately needed. A better future tomorrow depends on great thinking today.

Leaders for Today’s Challenges

Each day I get asked about — or find myself in a discussion about — executive level leadership. Both the American Institute of Architects and the National Council of Architectural Registration Boards are looking for their next chief executives. Several of the largest firms in the country are also considering transitions in their leadership brought about by economic, demographic, and opportunity shifts in their professional practices.

These search and selection processes give us pause. The stakes are high. How should these organizations determine the best leaders?

Whatever else the leader’s role in an association or professional practice, there are 10 base essentials. When these foundational characteristics are present, the organization functions with energy and competence to serve its mission. Here is what I believe is essential.

1. Leaders act as both visionary and key day-to-day resource for overcoming difficulties. They set the tone for the can-do culture of the organization.

2. They develop and conceptualize the organization’s tactical plans to accomplish strategic ambitions. They develop and keep clarity around goals. This develops strategic optimism.

3. Communications are sincere, open, and energized. The leader is not intimidating and has the wisdom of perspective, good humor, and agility to work with a diversity of situations.

4. Leaders are able to manage demanding schedules, and their agenda is always focused on what matters most.

5. They listen and then coach every situation they find themselves in.

6. Financial matters are monitored, measured, and communicated, and these leaders tend to consistently bring in the bottom line — no matter the excuses of the day.

7. There is an ambassadorial quality about them. They are sought out to problem-solve and inspire along the way while building bridges.

8. Today’s issues are never ignored, and there is a sense that the longer-term plans can be realized through today’s actions – no matter how painful.

9. Resilience is manifested in the language of the leader who is prepared for inevitable surprises.

10. Accountability is never shirked and the leader takes final responsibility for results and outcomes. This is a stand-and-be-counted attitude that becomes contagious in the life of the organization.

Leadership is demanding. Great leaders are rare. These 10 characteristics are framed by lifestyle and attitude. Leaders are not perfect, but they have an uncanny knack for applying sensible, inspired, day-to-day actions that make all the difference.

Fee Trends Not Always What You Think

“Recent interviews and fee negotiations have convinced me that it is a race to the bottom on fees,” a client just told me during a phone conversation. I know this is a very real feeling among many in the design professions. The truth is that it is increasingly common for professional practices to lower their fees to get scarce work. While it is a legitimate business model used to survive the economy, it is not fun. It is often not sustainable, either.

Regrettable quality problems often follow these hastily put together fee models. There are limits to how low fees can go and still serve clients’ needs responsibly. The good news is that there are tools and attitudes to adopt when you find yourself in this situation.

One of the DesignIntelligence benchmarks in real-time productivity, for example, measures best practice revenues per full-time staff. It is currently in the $172,000 range. But some firms are getting that number today. Others are still hovering around $100,000. The difference is in categorical commodity services provided by firms that range from high to low.

Those at the lower ends are feeling more squeezed and threatened. They know that it is difficult to deliver quality results to clients without resources. Moreover, it is common for firm partners to settle on low fees before negotiating tangible benefits to clients. There is measurable value in such overt services as schedule acceleration and reduced risk of project delay, optimal construction sequencing, and reduction in errors resulting in unbudgeted change costs.

The irony here is that fee trends are not always led by clients. Too often it is the practice leaders who panic and forget the value of their services, their brand, and their long-term measurable benefit.

Iceberg Logic

Like buildings, icebergs come in all shapes and sizes. They can be beautiful and also a little mysterious. On average, only about 12 percent of an iceberg’s volume sits above the water line. What’s visible is quite small compared to the whole. The part that really matters, the part that provides buoyancy, is hidden from view, though we can sense its presence.

This is not a bad analogy for how design is often perceived. Architects tend to focus most on form and aesthetics — what you see is what you get. But a building is so much more than that. It’s impossible to tell just by looking at a building what it cost to construct or how much it takes to operate or how efficient it might be in terms of space utilization. Unlike cars, buildings don’t come with dashboards that provide real-time feedback about speed, fuel consumption, oil pressure, and so forth. But perhaps they should.

Studies have shown that over a building’s useful life, the original capital cost accounts for only about 12 percent of the total — just like an iceberg. The true cost (and the real value proposition) lies below the waterline  — out of sight and out of mind. It’s territory worth exploring.

Capital cost matters a great deal, of course, because it’s most often the gating issue that determines whether or not a project gets built in the first place. But it’s only a small part of the overall picture and, considered by itself, tells us relatively little. Capital expenditure reflects market dynamics at a given point in time. The cost of labor and materials can vary significantly over a relatively short period. To be meaningful, first cost must be measured against something. When considering the location, size, and program of a building, savvy owners understand that it’s not what you spend up front, it’s what you get back that counts. That’s why building lots in prime locations cost more and why zoning regulations matter so much. The largest possible structure built on the best available site will naturally generate the most cash flow and hence create the highest value. It will also consume more energy to operate and cost more in staffing, taxes, and maintenance. All these factors and more go into calculating the underlying value stream of a project. And it’s this underlying value — the part below the waterline — that provides the buoyancy needed to float the project.

Design matters, and of course this includes form, function, and aesthetics. But there’s more to it than that. For too many years, true value creation has not been part of the design dialogue between owners and architects. Remember that design can be both a verb and a noun — a process as well as a thing. The how is often just as powerful as the what. Great designers are always on the lookout for hidden meanings and new ways to inject something extra into the equation. For example:

• For a new office building, an architect managed to design a floor plate that was 90 percent efficient compared to the expected 84 percent, delivering more useful area (and resulting revenue) per square foot.
• For a new dormitory, an architect managed to include one additional floor while still respecting the height limit imposed by zoning. This created space for 50 additional beds, making it possible to finance the project.
• For a new hospital, design for nursing unit that required fewer staff to run efficiently saved $1 million in staffing and operational costs annually while still improving overall outcomes for patients.
• For a new hotel, compelling design helped raise the average occupancy from the normal 75 percent to nearly 85 percent. This increased sales in the restaurant, lobby bar, and shops.
• For a multi-tenant research lab, sophisticated metering systems allowed the tenants to monitor their individual energy use, saving more than 10 percent each year.

You get the idea. These are all real stories from real projects that have won multiple design awards. They were successful in unexpected ways because the design teams took pains to truly understand the owner’s underlying value proposition and roll it into their design approach. By considering all these factors, they were able to create more thoughtful, sophisticated solutions.

The lesson is clear: Focusing only on form, function, and aesthetics is forgetting the 88 percent of the iceberg that sits below the waterline. Ignore it at your peril.

The Design Decade

We seem to have a habit of thinking in 10-year cycles. The 1970s are remembered for the oil crisis and stagflation, the ’80s brought us Reagan tax cuts and the fall of the Iron Curtain, and the ’90s saw the invention of the Internet (which we called the “information highway” back in the day) with the resulting dot-com boom (and bust). But what of the first decade of the 21st century? There does not seem to be a convenient nickname for it. The zeros? The aughts? The Os?

Endings are also beginnings. As the inaugural decade of the 21st century is closed out, the curtain rises on the next. A lot of people are relieved to see this one recede into the rear view mirror, as it was difficult on many fronts.  We started off with a crisis that failed to materialize: Y2K, which predicted the world-wide crash of computer systems. This was followed in short order by a real but unexpected disaster on Sept. 11, 2001, that marked the beginning of an era in which world-wide terrorism became an undeniable fact of life. Two wars and unprecedented prosperity followed. Then the Great Recession, which, in addition to wiping out homes, jobs, and 401(k)s, shook our collective sense of self confidence to the bone. And let’s not forget the tsunami in Sri Lanka, reminding us all of nature’s incredible destructive power.

Yet despite it all, we are still substantially better off than we were 10 years ago.

Looking back, it seems that the first decade of the 21st century will be remembered most for establishing global connectivity. We now understand that a coal-burning power plant in Shanghai not only pollutes China but also Canada, and it’s painfully clear that a bunch of unpaid mortgages in Detroit and Phoenix can tank a pension fund in Ireland. Cell phones have become ubiquitous and can be loaded with hundreds of “apps,” including cameras, games, texting, twittering, and GPS (allowing us no excuse to get lost anymore).  With Google we can find out just about anything we want at any time. And as Tiger Woods knows all too well, real privacy has ceased to exist. All this has happened in an astonishingly short time.

So while life is more complicated, challenging, and dangerous, we can be comforted by the fact that we are all in it together, for good or for ill, which in turn creates a huge incentive for mutual cooperation.

Global connectivity also alters our sense of scale, as things that once seemed far away and relatively unimportant, like a hurricane in Louisiana, now really hit home. Everyone everywhere has become our neighbor, and that may be the biggest revelation of all.

Global connectivity has tremendous implications for the A/E/C industry. The buildings we produce consume huge amounts of natural resources to construct and maintain, and they are responsible for nearly half of all carbon emissions — far more than any other source, including transportation. Wise use of our natural resources is essential if future generations are to survive and thrive.

It’s clear that design is not just about creating objects but also processes. More than ever, society can benefit by adopting the designer’s problem-solving mindset when grappling with issues, be they in health care, education, the economy, or even politics.

This first decade was difficult in many ways, but it also opened new doors.  For designers everywhere, it’s a profound leadership opportunity.