8 Metrics Every Architecture and Engineering Firm Should be Tracking

Every organization measures itself in a slightly different manner, but certain key metrics are relevant for a high percentage of architecture and engineering firms. Here are 8 of the key performance metrics every architecture and engineering firm should be tracking:

1. Revenue: Revenue recognized by architecture and engineering firms is shaped substantially by the contract type(s) in effect for each project. Revenue is calculated differently for time and materials, cost-plus, and firm-fixed-price contracts — and countless variations exist for each primary type. Evaluate your revenue analytic by organization, project manager, customer, and specific project.
2. Profit: This is arguably the most important metric for any company and is the ultimate measure of your architecture or engineering firm’s success. As with revenue, profit is impacted largely by contract type. Architecture and engineering firms should be able to assess profitability trends across contract type to ensure that they’re pursuing the right type of business.
3. Backlog: Your backlog analytic helps track how much work remains for your organization and allows you to measure whether you’re operating above or below your budget. Make sure that this analytic includes not just existing contracts but also those you’re proposing and hope to win.
4. Labor utilization: This metric evaluates how efficiently your employees are being applied to direct, or billable, projects. The labor utilization analytic can offer insight into which employees are over performing or under performing and let you know whether your staffing levels are appropriate. It’s imperative for management to be able to review both direct and indirect components of the metric.
5. Indirect rates: Many architecture and engineering firms track at least two different versions of rates for indirect pools such as fringe, overhead, and G&A. The target rate is the estimated rate based on its budget, while the actual rate is calculated based on incurred costs. Comparing both as the fiscal year progresses is a critical function and a valuable component of an analytics system.
6. Proposal win rate: Don’t limit your analytics to financial data. Your ability to win new business is paramount to your architectural or engineering firm’s success. Setting targets for proposal win rates across different parts of your company will allow you to evaluate the performance of your business development function.
7. Days sales outstanding: The processes of quickly and efficiently recording costs, billing the customer, and receiving payment have a dramatic impact on your company’s success. Errors in coding vouchers or timesheets or delays in generating invoices can be devastating to your firm’s cash flow. Days sales outstanding, or DSO, is a measure of the time it takes to collect on an invoice, converting a receivable into cash.
8. Projects at risk: Perhaps the greatest potential of an analytics application is the ability to draw attention to areas that need corrective action. Project-based businesses want to quickly know whether they’re operating projects that have the potential to generate losses or leave the company out of compliance with contract terms.

Examples of risk categories include:

• Billing in excess of the funded contract value
• Costs incurred after the project’s end date
• Revenue recognized in excess of the contract value
• Revenue recognized below the budgeted amount