Architecture & Engineering Firms: Are you on top of your project KPIs?

Posted by Deltek on March 31, 2022

Colleagues discuss KPI stats

TwitterTweet it:'Rolf Hansen, Sales Director at Deltek, shares his 30+ years of experience in advising A&E firms, large and small, on the importance of KPIs and what to track and how, in order to improve efficiency and profitability.'

Tracking and analysis of key performance indicators (KPIs) is important for most businesses and in particular, for firms in the Architecture and Engineering (A&E) industry where projects are the lifeblood of the business and profit margins can be tight. Whether your firm is looking to improve project performance, profitability, cost variance or resource allocation, keeping on top of the numbers is key.

We invited Rolf Hansen, Sales Director at Deltek, to be part of our recent webinar, Unlock Your Business with the Right KPIs. Rolf shared his 30+ years of experience in advising A&E firms, large and small, on the importance of KPIs and what to track and how, in order to improve efficiency and profitability.

What KPIs should your firm track?

A&E firms are unique compared to many other industries in that they are project-based, which makes tracking a specific set of project-led KPIs necessary. However, the Deltek Clarity study published in 2021 found that less than two thirds of Nordic A&E firms track any project-specific KPIs. Many of the firms surveyed, 69% in fact, confirmed that the main KPI they focus on is client satisfaction, which is critical, but also shows a gap in tracking project performance and project-specific KPIs that could lead to major business improvements.

According to Rolf, “as a minimum A&E firms should track financial, customer and employee metrics. All these areas are important.” He also goes on to say that he believes “it should be mandatory for A&E firms to track project KPIs. It’s a low margin industry, and not tracking your project KPIs actually puts the business at risk.” He highlights just how crucial tracking project KPIs and project success is with a simple statistic, “many A&E firms have an EBITDA of between five and eight percent so it would take 20 profitable projects to cover just one project that may not have been successful.” He continues, “tracking the right KPIs can help you to avoid that situation.”

 

"Many A&E firms have an EBITDA of between five and eight percent so it would take 20 profitable projects to cover just one that may not have been successful."

Rolf Hansen, Director Enterprise EMEA, Deltek

 

With client satisfaction the most commonly tracked KPI by Nordic firms, Rolf pointed out that delivering projects on time, to budget and to scope is the best way to improve your client satisfaction score. He states that, “to improve your project performance, you need to be focused on tracking project KPIs.”

Is there a magic KPI formula for A&E firms?

When you track KPIs in your A&E firm, it’s important to consider the size of your business, and whether you are operating locally or internationally as this will affect which KPIs you should focus on and how those should be tracked. For example, if you’re a smaller niche company, you are more likely to have comparable projects to benchmark and measure KPIs against than if you handle a more varied portfolio of projects. However, just because you’re a small A&E business does not mean you should disregard your KPIs says Rolf, as “KPIs are fundamentally your indicators of whether you are meeting your goals.”

 

"KPIs are fundamentally your indicators of whether you are meeting your goals."

Rolf Hansen, Director Enterprise EMEA, Deltek

 

Firms might struggle with tracking their KPIs for a couple of different reasons. Firstly, the technology doesn’t support the data capture required. Technology in this context is all about the ease of data capturing and the ability to report on the data you have captured. The easier and more transparent the methods and results, the better.

Secondly, the data capture culture isn’t quite right, i.e. it’s not specified how data will be captured, classified and used. In Rolf’s experience, getting the data capture culture right is something larger businesses struggle with the most but developments in automation of process and data capturing are set to make this easier.


 

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Track your project KPIs by looking at yesterday, today and tomorrow

Rolf explains that to measure your project KPIs successfully you first need to distinguish between fixed price projects, and time & materials projects. The KPI indicators for these types of projects differ.

The most essential project KPIs to track across all project types are Profit Margin, Aging Work in Progress (WIP) and Estimate to Complete (ETC). This relates to history, current state and the future state of your projects.

Profit Margin: This can be tracked as a past and future metric. Many small to medium sized A&E firms use a factor-based KPI where you compare basic salary cost to revenue and if that’s higher than two, then the project is considered profitable and acceptable.

Large companies will typically carry out a more detailed, and in many cases more accurate, analysis of their project profitability. Most of them work with fully loaded cost, which takes, into account all costs included in an hourly rate.

Work in Progress: WIP is interesting from a project cash flow point of view and is a good quality indicator. If you can minimize your WIP then you improve your cash flow. Monitoring this KPI allows you to test the impact of changes to how the project is run, altering payment terms for example, on the profitability of the project.

Estimate to Complete: ETC is looking at the future and is an essential KPI to track on fixed-price projects on a monthly basis. This allows you to track the progress of your project deliverables and spot any delivery issues ahead of time.

In the UK and the US, firms often take it one-step further by also considering the indicator of Earned Value (EV). This a concept where you combine financial progress with the progress of your deliverables. This requires strong data capture but it’s beneficial because it produces a second opinion on project progress. It’s not very common in the Nordics yet, but might become more so in the future.

It’s not all about project KPIs

Rolf also points out that while it’s essential for A&E companies to focus on project KPIs, this is only one aspect of the business. Companies also need to focus on KPIs related to billable hours and resourcing projects. These are also crucial to monitoring the success of your projects and feed well into the project KPIs already highlighted.

 

"Project KPIs are one side of the coin, and the other side is your resources and hours."

Rolf Hansen, Director Enterprise EMEA, Deltek

 

Quality is key

It’s imperative to invest in accurately tracking key KPIs. If your firm’s KPIs are not trustworthy, they won’t be used in the right way or give you the timely insights that you need to identify and dig into potential issues within individual projects.

If your company is struggling to gather quality insights from its KPIs, there could be a couple of reasons. The first is an inability and lack of accountability around tracking and reporting. The second is inefficient processes and KPIs due to using outdated technology.

So how can you invest in tracking the right KPIs for your firm? Rolf’s view is that it’s straightforward in theory.

Overall, the KPIs that you should be focusing on are the KPIs that will drive your employees’ behaviors towards the goals of your company. Start by looking at your goals, and then compare these with your KPIs. If your KPIs support your goals, you are on the right track.

Once you know which KPIs will be most beneficial to track, you need to have the processes, systems and levels of trust and accountability in place to support this activity. And remember that your goals may change and develop over time, and so will your KPIs.

To find out more about how to set your A&E firm up for successful KPI tracking, watch the webinar on demand.

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