Deltek Clarity: Process Improvement, Engagement, and Cash Flow Are Top Priorities

After eight years of strong financial performance, architectural and engineering (A&E) firms are facing a period of business disruption and uncertainty and it’s not surprising that firms are looking for ways to leverage technology and improve processes to better support their business.

In the 41^st Annual Deltek Clarity Architecture & Engineering Industry Report, the results indicate firms are facing challenges and identifying opportunities in three areas – process improvement, employee engagement and maintaining cash flow with an overarching theme of technology resonating throughout the results. The Deltek Clarity Report provides industry benchmarks and trends to empower firms to compare their performance with similar companies in the industry.

Although 2019 was another strong financial year for the industry, it is more important now than ever to continuously monitor KPIs and address challenges in key business areas. 

Maintaining Cash Flow

The A&E industry had another strong financial performance in 2019 with many key financial performance indicators showing minimal year-over-year change, putting companies in a solid financial position coming into 2020. Although overall performance was strong, firms indicated their top challenges in financial management are increasing profitability, finding and retaining qualified staff and managing growth followed closely by increasing financial savvy of project managers. As firms continue to navigate unprecedented times, it’s vital that companies are monitoring key performance indicators (KPIs) on a more regular basis to allow firms to identify challenges and pivot to accommodate project or client changes. Here are some of the benchmarks for the 2019 fiscal year:

• Operating profit on net revenue rose for the 10th straight year to 15.8 percent, up 1.4 points year over year; high performers achieved an average of 24.3%
• Average collection period decreased by two days to 73 days; high performers saw a decrease of 8 days this year
• Utilization rate (by dollars) continues to remain relatively steady at 59.9 percent
• Overhead rate decreased to 154 percent, dropping six points year over year

Although it wasn’t identified as a top challenge during the surveying period, it is anticipated that firms will focus more on cash flow in coming months. This is one area where firms should take an in-depth look at processes in place and the technology available to determine if they are getting the most from their solutions. Many firms have a disconnect between their technology and their processes that cause significant delays in the billing and collections process. For example, a firm may be using a financial management solution that supports a completely paperless financial environment, but internal policies and procedures require outdated processes like paper receipts or manual approvals and data entry costing valuable time.

Employee Engagement

Similar to previous years, firms continue to struggle recruiting employees and retaining the right staff to deliver projects. In the Deltek Clarity report, firms of all sizes indicated their top challenge in acquiring talent is availability of good candidates in the marketplace and the top challenge for managing talent is employee engagement. Companies continue to struggle with inexperienced project managers and the financial impact of finding and retaining qualified staff. With nearly 30 percent of companies indicating they have more open positions than last year, the tendency is to focus on recruiting, but many firms are not investing enough in engaging employees, leading to more open positions and more recruiting challenges.

• Employee turnover decreased slightly to 13.2 percent this year, but still higher than ideal
• Only 43 percent of firms have succession plans and a small percentage have plans that apply to all employees
• Nearly 30% of firms provide career development plans, making it difficult for many employees to stay engaged and understand their career opportunities with their current firm

Many firms identified numerous learning opportunities offered to employees, but there seems to be a disconnect between what is offered and what is effective for staff. In times when engagement is critical, firms need to focus on the employee experience by offering career development plans, learning opportunities, time to invest in their careers and a more modern performance management experience. It starts by surveying employees to better understand their needs so you can better align resources and leverage technology to deliver a better experience and keep your employees engaged.  

Process Improvement

Delivering projects and managing financials are centered around processes and yet A&E firms continue to struggle with processes that are effective, efficient and automated. In the Deltek Clarity report, top initiatives for project management and financial management focus on process improvement – improving project information management processes for project management and business process improvement for financial management. There are other areas where firms are struggling with business processes:

• Only 46% of firms reported using a clearly defined project management process for the majority of their projects
• One in four firms have a formal business development process
• Less than half of firms measure client satisfaction

While there is not a clear correlation to these metrics and performance, it’s worth noting that overall win rates decreased this year and firms are seeing nearly 30 percent of project over budget. Human capital management is also ripe for process improvement to make it easier to recruit talent and improve the overall employee experience.

Firms should focus on where their processes are hindering progress and determine where technology can not only streamline processes, but eliminate manual steps so teams can focus on what they do best.

Leveraging Technology to Bring Clarity to Your Business

Many firms are looking to implement emerging technology trends like Internet of Things, geo location and augmented reality for project management and project execution, taking steps toward digital transformation. Firms should also look at the entire business to identify areas that technology built for project-based businesses can be leveraged to improve how they run their business every day. Whether it’s emerging trends, process improvement, employee engagement or streamlining cash flow, technology provides ample opportunities to turn challenges into opportunities to uplevel your business and power your project success.