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deltek.com
33rd Annual Comprehensive Report
Architecture and Engineering Industry Study
Chapter Title Information
Doing more with less
Contractors today are under more pressure than ever. not only do you have to deliver on your project, you are expected to deliver more with less. And, in response to increased oversight, you have to more tightly manage project performance while meeting progressively more stringent government mandated reporting requirements like earned value.How do you accurately determine how your project is performing so you can more tightly manage it? You may think your project is doing well if you’re hitting your deadlines – but that’s only half of the story. Do you know how much you spent to get to that stage? how much more will you spend to complete the project?Then you face the challenge of reporting on earned value – with limited or untrained resources. For those unfamiliar with EVM, it can be a mysterious and complicated process.
Ideal SolutionTo truly get an accurate picture of your project’s performance, you have to look at your costs and schedule together with your budget, plan and actuals. You need an easy-to-use system capable of meeting the government’s increasing demands for tighter control and reporting on earned value – a system like Deltek Cobra.
The Deltek Cobra differencetDeltek Cobra is an easy-to-use, powerful system for managing project costs, measuring earned value and analyzing budgets, actuals and forecasts. with its intuitive interface, helpful wizards and powerful
reporting engine, even new users can quickly use Deltek Cobra helps manage project
performance and oversight by providing increased control over project costs and the ability to easily report on earned value requirements. it satisfies all the requirements of the American national standards institute (Ansi) EiA/748 Ansi standard on EVMs and provides 11 earned value techniques to provide flexibility in measurement, all standard EVM reports for all federal agencies and export of the un/CEFACt XMl for electronic data interface and helpful wizards to guide users step-by-step through processes, Deltek Cobra is designed to get users up to speed quickly. Its design enables you to improve processes for all phases of a project – from budgeting, status reporting and forecasting to change control. through online analysis and powerful reporting tools, you can easily determine the true health of your projects in time to apply effective corrective action. it allows you to regain control, be more effective and get more done.
Revolutionary reportingIf you can use Microsoft® Excel, you can easily run, modify and customize your Deltek Cobra reports. reports are built and output in Excel, making it easy to change reporting fields and layout. Deltek Cobra saves time and effort with batch processes and more than 49 pre-defined reports from which to choose, including CPr Format 1-5, Project status and 1921-1. reports are also easy to customize – helping youmeet all your reporting needs.
With a reporting wizard to guide you through the
“Pull quote vitam con vilius, norum ius siliis. On se facipte rfeceninclat imis. Mares in Etrunihil ublin diem qua terisquem actusquam plineque.” First Lastname
2
deltek.com
Know more. Do more.
Architecture and Engineering Industry Study 33rd Annual Comprehensive Report
4 Introduction
5 Executive Summary
6 Section 1: Diagram of Today’s Firm
10 Section 2: Breaking Ground for Tomorrow’s Business
16 Section 3: Blueprint for a Winning Firm
22 Data Profile
23 Deltek Profile
4
It’s been a long, trying few years for Architecture and Engineering firms. Few industries felt the economic downturn as deeply as A/E – and few continue to wrestle as vigorously with its aftermath. However, just as character is forged in adversity, business efficiency is honed in difficult times and that’s certainly been the case in the A/E world. The battering A/E firms took through the late 2000s has challenged organizations to find better, more efficient ways to operate.
This next decade will likely bring about a sharp divergence of paths for A/E firms. One path will be forged by firms that rise to this challenge. They are the firms that scrutinize profitability down to the project level, diversify portfolios so they can follow the ebbs and flows of the markets, and leverage technology for close monitoring of upcoming opportunities or potential problems. On the other path will be the firms that remain rooted in the old ways of doing business, trusting that the strategies that led to their success in the past will continue to lead to success in the future. This divergence is likely to separate tomorrow’s leaders from the firms that must scramble to figure out how to make their business work.
In this Clarity: Architecture and Engineering Industry Report, we present the key findings from our extensive annual survey of the North American A/E industry. Beyond revealing where firms stand today on many important metrics, we reveal their outlook for key markets, their plans for technology investments and other critical forward-looking information. We also single out a select group of top performers and examine the factors that have enabled them to rise above the crowd. More than 400 firms of all sizes participated in this year’s study, providing our most thorough view of the industry yet.
We invite you now to dive into the comprehensive metrics and insights contained within these pages. We hope they arm you with the information you need to leap ahead of your competition and advance you along the path of success as you move forward into 2012 and beyond.
Know more. Do more. Profit more.
Introduction
CLARITY: Architecture and Engineering Industry Report 5
As the A/E industry continues to emerge slowly from the economic crisis that devastated most A/E sources of work, firms are seeking every edge to help them succeed within today’s market realities. This report reveals some of these competitive edges. Packed with critical metrics, this Clarity: A/E Industry Report reveals the latest data about the performance, operation and future plans of more than 400 firms. It also uncovers the most significant areas where the industry’s top performers are setting themselves apart, providing a blueprint of sorts for organizations seeking a path to excellence.
We hope the insights contained in these pages help you as you continue adapting to the new economic reality of today’s A/E environment.
Here are a few highlights from this year’s study:
• Overall, firms reported a 9.1% average net profit, up from 7.7% in 2010, a modest gain. However, at the same time, they reported smaller net multipliers in 2011 compared to 2010. The biggest drop occurred at the largest firms, where net multiplier fell to 2.6 in 2011 from 3.3 in 2010. What is causing this divergence in profit and net multiplier? Where are these numbers anticipated to head in 2012?
• Firms of all sizes are most bullish about Private Sector work. Across the board, more than 40% of respondents expect to see their level of work here to grow. Public Infrastructure is also being viewed with optimism by A/E companies. In what other markets are firms expecting to see work grow? Where are the industry’s high performers focusing their efforts?
• Upwards of 70% of firms expect to invest in Information Management systems in the next 18 months, a shift from last year when the majority of respondents planned investments in Design and Documentation solutions. One potential reason for the shift: Mobile Tools are gaining in relevance and popularity. What else is causing this shift? What other Information Management-related capabilities are firms planning to add?
• Among high performers, 38% consider an international strategy to be Critical or Very Important versus just 20% of all other firms. Yet overall, the percentage of firms expecting international business to be critical fell sharply, especially at the largest firms. How important should a global strategy be to your organization in the coming years? Can firms retain a focus within their own borders and still expect to rise to the top?
• High performers reported a lower overhead rate of 160% compared to 163% for all other firms. One of the biggest disparities within those overhead costs was in marketing: average firms spent 4.5% of total revenues on marketing, 32% more than the top firms. What’s causing such a difference in marketing spend? And how are leading companies making their marketing dollars go further?
Executive Summary
6
Introduction
The A/E industry in 2011 was a story of recovery and improving profitability. Through the worst of the economic downturn, firms were focused on surviving. Today, they are digging deep into every detail of their operations, making each moving part as efficient and effective as possible. Where once overall profitability was the primary measure, today each client and each project is scrutinized.
While times are still tough and the industry has a long way to go before anyone will consider it “recovered,” the efficiencies gained over the past few years will pay big dividends going forward. The question many firms seem to be asking themselves today is: How can I climb out of the recession faster than my competition? The answer, respondents to this year’s Clarity survey tell us, lies in employing the right tools and technologies. To effectively drill down to the project level and resource level, and manage profitability there, the right people, processes and technologies are required.
Better tools. Improved efficiency. Increasing profits. This year’s Clarity results indicate that A/E firms are taking these marching orders to heart. Common wisdom indicates that firms willing to make the right investments and the right decisions today will reap the advantages.
Key Data Points From the Survey:
1. Overall, firms reported a 9.1% average net profit, up from 7.7% in 2010.
2. Firms reported smaller net multipliers in 2011 compared to 2010. The biggest drop occurred at the largest firms, where net multiplier fell to 2.6 this year from 3.3 in 2010.
3. Average marketing expense was 4.5% of revenues in 2011, almost unchanged from last year.
Section 1: Diagram of Today’s Firm
Better tools.
Improved efficiency.
Increasing profits.
A/E firms are taking these marching orders to heart.
CLARITY: Architecture and Engineering Industry Report 7
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Figure 1: Net Profit by Firm SizeNet Profit
Across the board, firms reported an increase in year-over-year net profit. Average profit for firms of all sizes was 9.1% in 2011, up from 7.7% in 2010. However, this still lags significantly behind 2006’s level of 11%. Mid-sized and large firms, in particular, cited a significant leap, climbing 2.3 and 1.9 points respectively.
The results were in line with our expectations for several reasons. First, with the economy on a slow climb out of the trenches, firm performance is conservatively rebounding along with it. Second, the recession has forced organizations to take a hard look at their business development practices. Many have implemented technology solutions to help them better select profitable work and that project-selection rigor is now beginning to impact firm performance. Third, as the economy bottomed out, firms began looking deeper into their operations to assess profitability. Where profitability previously was evaluated only from a macro perspective, firms are now drilling down to the client, client and resource level to ensure every component of their work is profitable. This appears to be paying off in overall margins.
When we sliced net profit by industry, we found a continuing trend of Architecture firms reporting smaller profits than their Engineering counterparts. However, Architecture profits have spiked sharply, to 7.2% up from 4.1% last year. One possible reason: the uptick in retrofit projects. While the industry is not getting the volume of new-build work that poured in during the mid-2000s, a growing number of clients are choosing to upgrade existing buildings and turning to Architecture firms to help them put on a modern exterior or implement energy efficiencies. This bump in work, combined with increased business rigor, has combined to boost Architecture profits to the highest levels in recent years.
We anticipate continued flat to moderate growth in net profits over the next year or two. Firms that continue to apply the financial and business development discipline they have established in recent years are most likely to log continued increases in profitability.
8
Net Multiplier
2011 saw smaller net multipliers across the board. The biggest decline occurred at the largest firms, where respondents told us their net multiplier dropped from 3.3 to 2.6. We have heard many firms tell us they are increasing their use of contractors as opposed to maintaining a larger employee base as a way to manage the ebb and flow of changing market conditions. If this is true, then perhaps the portion of revenue kept within the firm (and not paid to contractors) is that portion with the lower multiple of labor cost.
Sliced by industry, Architecture’s net multiplier stayed flat year over year while Engineering saw a big drop, from 3.0 in 2010 to 2.7 this year. That drop reversed last year’s results when Engineering’s multiplier was higher than Architecture’s. While the difference between the two industries is small (Architecture’s multiplier is only 0.3 higher than Engineering’s), in service industries like A/E, even a very slight difference in net multiplier can have great impact.
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Overhead Rate Before Distributions
The A/E industry’s overhead rate decreased slightly across the board this year. Similar to the results we’ve seen in previous years, smaller firms tend to have a higher overhead rate than their mid-sized and larger counterparts, which makes sense as they are less likely to benefit from the same economies of scale. By firm size, we were not surprised to see this figure decrease as A/E companies have been aggressively cutting any costs that don’t contribute to the bottom line.
When broken out by industry, Architecture firms showed a much smaller drop in overhead rate (2 basis points) than Engineering firms (14 basis points). One possible explanation is that Engineering firms tell us benefits such as 401K matching programs and low medical deductibles are being sent to the chopping block, perhaps more aggressively than in Architecture firms. At the same time, we hear Architecture firms – and smaller firms in particular – are executing pay reductions and some layoffs, which would nudge up the overhead rate.
As firms of all sizes in both industries maintain a laser focus on profitability, we expect to see continued downward pressure on overhead rates. 140%
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Figure 3: Overhead Rate by Industry
CLARITY: Architecture and Engineering Industry Report 9
Marketing Expense
Analyzed by firm size, overall marketing spend was essentially unchanged from last year. This is not surprising given the trends of previous years. In response to the slowdown of 2008-2009, many firms allocated a greater percentage of (declining) revenues to marketing. We were unlikely to see a continued rise in marketing spending as the economy began picking up but it was encouraging to find businesses haven’t decreased their investment in this area. The flat results indicate A/E firms on the whole have maintained a heightened marketing spending level, likely a response to increased competition.
Parsed by industry, Architecture firms reported they are spending nearly 5% of their revenue on marketing, consistent with last year. The decrease in available projects has forced firms to diversify and pursue more projects than they had to historically, causing a continued investment in marketing expense. Tougher competition in this segment has forced firm leaders to realize that to win today, every step of finding the right leads and converting them into clients must exude professionalism and robust market intelligence. Regardless of size, firms must present themselves as capable and differentiated, so we anticipate marketing expenses to remain steady over the next year or two.
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Figure 4: Marketing Expense by Firm Size
Clarity Outlook
High-level firm profitability can no longer be the sole measure of success. If your firm isn’t already scrutinizing each line item for maximum profitability on every undertaking, start now. The way forward for the A/E business demands a tight rein on expenses, a deep understanding of ROI on every dollar going out the door, and the ability to discern profitable work from unprofitable work. Savvy firms are already making this distinction and turning down the latter. Technology can help here, both in alerting an organization to forthcoming work and enabling it to run detailed cost models. The future is about selectivity. All work is not created equal – nor is all marketing. Tomorrow’s winning companies will be highly selective about the work they accept, the marketing and advertising they do and the clients with whom they partner. That selectivity will pay off in higher margins, better profitability and an improved reputation for excellence.
10
A growing number of companies are realizing that technologies which enable them to spot opportunities early and get in ahead of their competition will play an increasingly important role in the new economy.
Introduction
As the North American economy moves forward in its long, slow recovery, firms are coming to grips with a new reality. Gone is the plethora of new build projects of the past. Gone is the certainty of existing client relationships delivering a steady stream of new work. Gone are the days when projects in a firm’s home geography were enough to keep a firm growing and thriving.
We asked firms to look into the future and tell us where they believe their work was going to come from and what they are doing to optimize their business. Architecture firms reported that in the new economy, retrofit work – not new builds – will be their bread and butter. And while existing relationships are still paramount to finding and winning that work, a growing number of companies are realizing that technologies which enable them to spot opportunities early and get in ahead of their competition will play an increasingly important role in the new economy. Finally, smart firms are building capabilities outside their borders, giving them the flexibility to shift with changing economies.
Flexible, adaptable and technologically enabled. These traits are emerging as the hallmarks of success for tomorrow’s leading A/E firms. How are companies doing in these areas? Where are they focusing their efforts to grow and win over the next couple years? Results are mixed, but the industry appears to be slowly shifting in the right direction.
Key Data Points From the Survey:
1. Firms of all sizes are most bullish about Private Sector work. Across the board, more than 40% of respondents expect to see their level of work here grow.
2. Nearly 30% of firms expect Public Infrastructure work to grow, likely due to rumblings of forthcoming financial injections into this area.
3. Nearly 1 in 4 respondents told us green projects are a Major Source of work, up from 1 in 5 last year.
4. The percentage of firms expecting international business to be critical fell sharply, especially at the largest firms.
5. Fully 60-70% of firms expect to invest in Information Management systems in the next 18 months, a major change from last year when the majority of respondents planned investments in Design and Documentation solutions.
6. Existing Client Relationships remain the most important factor influencing whether a firm submits a project proposal.
Section 2: Breaking Ground for Tomorrow’s Business
CLARITY: Architecture and Engineering Industry Report 11
Which best describes your firm’s market position in the next 18 months?
When we asked firms to tell us about their anticipated market position over the next year and a half, their responses illuminated the most – and least – likely sources of work in the near future. Respondents were most bullish about the Private Sector. The vast majority of firms of all sizes are already playing in this arena and expect work to either grow or remain steady.
On the whole, firms also told us they expect steady to expanding work in Public Infrastructure. This response was in line with our expectations as there are murmurings of government injections of infrastructure spending and companies may be positioning themselves to grab a piece of it. It is worth noting that on the flip side, 15% of small firms expect their work here to decline. This is likely due to their realization that competition for work in this area will be fierce. Firms that might not have considered certain local projects during the economic peak will aggressively pursue them now. It is also worth noting that when we break out Public Infrastructure by industry, many more Engineering firms expect growth here than Architecture firms. This makes sense as Public Infrastructure dollars are typically earmarked for engineering work.
On the Institutional side, more Architecture firms than Engineering firms foresee steady or growing work, but there don’t seem to be signs of explosive growth. The collective wisdom on Institutional work is that school spending will remain steady and the medical industry will grow to accommodate an increasing patient load. However, there is not expected be a surge in new building in favor of simply adding on to existing buildings.
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Figure 5: Market Position in 18 Months by Firm Size
12
How much of your work in the near future do you foresee will be driven by retrofitting and rehabilitating existing buildings to adhere to current standards and green principles? Nearly 1 in 4 respondents indicated green projects are a major source of work, up from 1 in 5 last year. However, when we slice the results by firm size, we find the biggest companies have slightly shifted away from this kind of work. This is not surprising when viewed through the lens of economic recovery. During the worst of the crisis, firms pursued retrofit projects simply to bring in work. Now, as the market rebounds, they are able to ease up on this less lucrative work in favor of more profitable jobs.
Despite that trend, small and mid-sized firms tell us green projects are still a significant source of income, particularly for Architecture firms. Their clients are less likely to be building new today as adding wings or updating lobbies and exteriors. Still, we are not seeing a gold-rush shift toward green and do not anticipate one in the near future. Firms will continue to take on this kind of work, but the marketing benefits they once received from tooting the “green” horn may be waning.
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Figure 6: Anticipated Work in Green Building Principles by Industry
How important will international business be to your firm in the next 18 months?
We changed this question in 2011 to include a broader spectrum of answers. In aggregate, there was a significant decrease in the percentage of firms expecting international business to be Critical to their portfolio. This shift was most noticeable at the largest companies. We saw the same picture when we broke down responses by firm size. Compared to last year, many fewer companies in both Architecture and Engineering said international business will be Critical or Very Important to their business over the next 18 months.
Going forward, we anticipate an increase in the number of firms placing importance on growing their international capabilities. The reality is that companies must follow the work. As global economies become more important and more variable, winning firms will follow the projects, whether they are in the U.S., Africa, India or South America. The ability to accept projects anywhere insulates top firms from downward economic cycles because they can shift their focus to where work is expanding.
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Figure 7: Anticipated Work Internationally by Firm Size
CLARITY: Architecture and Engineering Industry Report 13
In which areas of technology do you expect to invest in the coming 18 months?
Depending on size, 60% to 70% of firms plan investments in Information Management systems during the next 18 months. This is a notable jump from last year where more respondents planned Design and Documentation investments.
The shift is likely due to growth in two sub-categories of Information Management. First, many firms told us Project and Resource Management tools are gaining in importance. This is no surprise considering industry efforts to improve profitability down to the project level, become more efficient, increase chargeable rates and boost other key performance metrics. Second, firms told us they are looking to expand their use of Mobile Tools. Like other industries, A/E firms recognize that everyone has a mobile device and they are looking for ways to capitalize on those tools. They are asking themselves important questions such as: How can I reach potential clients on their mobile devices with messages that matter? How can we use the tablet PCs to collaborate with teams? How can I get snapshots of critical metrics delivered to me when I need it, wherever I am located? We expect this trend to continue picking up steam in the coming years.
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Figure 8: Investment in Technology by Firm Size
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Figure 9: Factors Influencing Project Proposal
Which factors influence you when deciding whether to propose on a project?
The order of responses to the question about factors that influence a decision to bid on a project remained largely unchanged from 2010. The only major shift was Likelihood of Profitability jumping from the fourth position in 2010 to the #2 spot in 2011 – an exclamation point on the industry’s intense focus on this area.
It is interesting that Existing Client Relationships remain the most important factor in a firm’s decision to submit a project proposal. On the one hand, this is what we would expect to see from an industry
that has always relied heavily on reputation and longstanding relationships. However, on the other hand we foresee a future in which these factors don’t carry as much weight. As the world shifts to working in a more global, online environment, we expect to see a leading slice of companies begin to put more emphasis on choosing projects that will build their international portfolio as well as improve overall firm profitability.
CLARITY: Architecture and Engineering Industry Report 15
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Figure 10: Firm Success Factors
Please rank the following factors in order of importance to the success of your firm.
As in previous years, A/E firms told us People were the most important element in achieving success. The People factor encompasses the top three responses: It takes the right talent (#1) to develop and maintain client relationships (#2) and to build and maintain the best reputation (#3). This is no surprise in a professional services business and we do not expect it to change much going forward.
In light of the importance firms place on people and relationships, the big question for principals today is: What is your transition plan? By nature, many A/E firms – particularly the smaller ones – are led by a dynamic principal who tends to be the rainmaker and relationship builder. Typically, these heads of firms carry most of the institutional knowledge and most of the major client relationships but have not created a solid plan for handing over the reins. Their firm’s long-term success may ultimately lie in their ability to develop a bench of players ready and able to take the reins at any time.
Clarity Outlook
The next few years will be crucial ones for the A/E business. As the economy recovers, business is slowly picking back up, but it won’t return to mid-2000 levels for a very long time. As a result, competition is increasing at the same time that the nature of the work is changing.
Where relationships and firm reputation have always played the leading role in a firm’s success, we foresee a future in which these traits slide into a supporting role. As in many other industries, the winners of tomorrow may well be the ones that are most agile and can adapt most quickly to changes in the market and changes in the way clients want to communicate and collaborate. A/E firms that are moving in that direction now seem to have a better shot at being the leaders of tomorrow.
16
Introduction
Excellence has never been achieved by benchmarking against a median. In order to rise to the top, firms benefit from examining leaders. How did they become top performers? Where do leaders see the industry headed and how are they planning to move in that direction? What do they look at to gauge their own performance?
With those questions in mind, we cherry-picked the top performers and analyzed their responses versus all the other firms. We defined this top tier as firms that (1) posted a net profit greater than 15% of total revenues and (2) reported a net multiplier greater than 3.0. While there were many firms that met one of these criteria, only an elite group of 39 firms met both.
Demographically, 50% of this high performing group are mid-sized firms, compared to 30% in the population as a whole. Canadian firms comprised about 15% of the high performers versus just 6% of all other firms. And the industry breakdown between Architecture and Engineering is roughly the same for high performers and all others. So how are these 39 leaders maintaining their status? The following pages examine the most salient differences between the high performers and the remainder of respondents.
Key Data Points From the Survey:
1. High performing firms significantly outperformed average firms, reporting 24.8% net profit margin, compared to a 7.1% average for all others.
2. Nearly 1 in 2 high performers expect Public Infrastructure work to grow, compared with 1 in 3 average firms.
3. Only 8% of high performing firms expect growth in the Residential market compared to 26% of all other firms—a significant disparity.
4. Among high performers, 38% consider an international strategy to be Critical or Very Important versus just 20% of all other firms.
5. Overall, both high performers and all other firms have similar technology investment strategies over the next 18 months. The greatest disparity is in anticipated spending on BI/Reporting Tools: 14% of high performers plan investments here versus just 7% of others.
6. High performers reported an overhead rate of 160%, compared to 163% for average firms – a significant difference given the size of many firms.
Section 3: Blueprint for a Winning Firm
Where do leaders see the industry headed and how are they planning to move in that direction?
CLARITY: Architecture and Engineering Industry Report 17
Market Position in Public Infrastructure
Overall, high performing firms are more optimistic about Public Infrastructure than other firms. About 45% of high performers expect work here to grow while just 5% expect it to decline. In contrast, 35% of the remainder of firms expect growth while 13% anticipate declining work in this segment. There may be two explanations for this difference. First, High Performers understand the inevitable. They know Public Infrastructure projects will be completed regardless of political climate, and they know that in spite of declining Federal and State budgets, infrastructure is a priority. Second, they are always ready for these projects. They won’t wait until after money flows into the market and then begin thinking about how to go after it; instead, they are looking ahead and anticipating. High performers will have completed projects in their portfolio they can use as references. They are leveraging tools that track Public Infrastructure projects so that when a project is posted, they are already on top of it. This perennial state of ‘dialed-in readiness’ makes high performers more apt to bid – and win in this arena.
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Figure 11: Market Position in Public Infrastructure
18
Market Position in Private Sector and Residential
High performing firms overall expressed less optimism than all other firms in both Private Sector and Residential work. On the Private Sector side, 31% of high performers expect work to grow compared to 44% of all other firms. In Residential, the difference is even more striking: just 8% of high performers anticipate growth while 26% of remaining firms expect it.
We were surprised to see such a high percentage of average firms so bullish in Residential and Private Sector. They would do well to heed the expectations of high performers, whose deep understanding of the industry landscape not only got them through the past few years, it got them through on top. Leading firms know spending in these two areas will be flat at best in 2012 so they are putting their emphasis elsewhere – but are always poised to jump back into these markets at the first signs of a turnaround.
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Figure 13: Market Position in Residential Markets
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Response Category
We have worked in this market in the past and expect to re-enter in the next 18 months.We expect our level of work in this market to decline.
We expect our level of work in this market to remain steady.We expect our level of work in this market to grow.
Figure 12: Market Position in Private Sector
CLARITY: Architecture and Engineering Industry Report 19
How important will international business be to your firm in the next 18 months?
More high performing firms recognized the importance of having an international strategy: 38% of high performers considered it Critical or Very Important compared to just 20% of all other firms. At the other end of the spectrum, 47% of all other firms said international business was Unimportant compared to 33% of high performing firms.
The message here is one of diversification. High performers understand that to stay at the top they need a diverse portfolio of clients and projects enabling them to chase work wherever it might be. For instance, South America and India are currently investing huge sums in their infrastructure. Firms that have developed an international presence and built their experience in these areas will be well positioned to win lucrative contracts in these geographies, keeping them at the top.
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Figure 14: International Strategy
20
In which areas of technology do you expect to invest in the coming 18 months?
In general, high performers and all other firms have similar technology investment strategies over the next 18 months. When we slice the data more finely, we find the biggest difference is in their views regarding Business Intelligence (BI)/Reporting Tools. Here, about 14% of high performers anticipate investments versus just 7% of others. This disparity likely comes back to profitability at the project level. As margins get tighter, firms are being forced to peel back more and more layers of the business to elevate efficiency. BI and associated dashboards put critical data at leaders’ fingertips, providing early warning of problems. High performers understand the value and necessity today of these types of tools and are budgeting for them now.
It is worth pointing out that Design and Documentation is getting less planned investment by high performers in the coming months. That’s not because high performers don’t see value there. In fact last year, this showed up at the top of the list. It is more likely that high performers have already made investments in Design and Documentation and are now shifting their focus to the next wave of efficiency technologies. Similarly, those in the top tier who replied they have No Investments Planned perhaps did so because they invested early and are now able to back away.
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Figure 15: Technology Investment Strategy
CLARITY: Architecture and Engineering Industry Report 21
Clarity Outlook
Firms today cannot rely on doing business the way it has been done since a principal – or perhaps a principal’s parent or grandparent – first launched the business. Where once a carefully nurtured relationship could guarantee a decade of business from a client, today that no longer holds true. Success today – and tomorrow – depends on diversification. It rests on a firm having a portfolio with depth in all areas of the business so the firm can react instantly to changes in the market. It relies on understanding borders are more fluid than ever and that to thrive in the next decade, company leaders may even have to be willing to follow work onto new continents.
Coupled with these trends is the rising relevance of robust technology solutions. To win going forward, firms must employ tools that enable them to spot forthcoming projects in advance of the competition. They need dashboards that put critical data at their fingertips and let them see a potential issue looming, giving them the warning they need to head off problems before they escalate.
Finally, winning in the next decade will be about incremental excellence. It will likely not be about making major sweeping changes, but rather improving efficiency in every corner of an operation, creating significant cumulative improvements.
Where once a carefully nurtured relationship could guarantee a decade of business from a client, today that no longer holds true. Success today – and tomorrow – depends on diversification.
22
Data ProfileKey Metrics High Performers All Other Firms
Performance Metrics
Net Profit Before Tax (%, Ave.) 24.8% 7.1%
Net Multiplier (Ave.) 4.0 2.8
Chargeable Rate (%, Ave.) 54.6% 54.5%
Financial Metrics
Overhead Rate Before Distributions (%, Ave.) 160% 163%
Return on Owner’s Equity (%, Ave.) 52.6% 22.4%
Marketing Expenses (as % of Total Annual Revenues. Ave.) 3.4% 4.6%
Collection Period Metrics
Completion to Billing Period (Days, Ave.) 24.7 22.6
Billing to Collection Period (Days, Ave.) 66.9 67.5
CLARITY: Architecture and Engineering Industry Report 23
Deltek for Architecture & Engineering Firms
Perhaps no other kind of professional services firm faces more complex project management and operational challenges than one in the Architecture & Engineering industry. Managing project time and expenses to a variety of project activities under a number of contractual arrangements and tight deadlines requires tools that provide visibility, control, and trusted information.
Deltek specializes in resolving these challenges with solutions built on years improving the performance of AE firms. We can help you profitably manage and grow your business with tools that help win new projects, build the right project portfolio, capture and share project/financial/marketing information; meeting financial governance standards, manage resources and control costs.
GovWin from Deltek - Find and Win Government AEC Contracts
Architecture and Engineering firms continue to face an uncertain market. While the overall economic picture is slowly improving, there are still a limited number of new opportunities and competition for those opportunities is fierce. It is tough to gain a competitive advantage.
The U.S. Federal Government spends billions of dollars a year on architecture and engineering projects and initatives, and now you have the tools you need to capture that business. It’s called GovWin from Deltek.
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GovWin enables you to:
• Find government contracting opportunities—GovWin’s database contains a repository of over 2,000 planned A/E/C project opportunities valued in excess of $130 billion, each researched and verified by industry analysts, that you can use to build a sales pipeline
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• Create visibility federal task orders—gain visibility into spending patterns on Multiple Award Task Order Contracts (MATOCs) used to procure A/E/C related services and on individual task orders awarded under those contracts
Deltek Profile
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Deltek (Nasdaq: PROJ) is the leading global provider of enterprise software and information solutions for professional services firms and government contractors. For decades, we have delivered actionable insight that empowers our customers to unlock their business potential. Over 14,500 organizations and 1.8 million users in approximately 80 countries around the world rely on Deltek to research and identify opportunities, win new business, optimize resources, streamline operations, and deliver more profitable projects.
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