If you’re like me, you’d much rather listen to a dynamic speaker present report findings than read through a document. That’s why we invited Deltek Senior
Director Mike Bourgeois, a charismatic presenter with plenty of colorful anecdotes, to give clients a rundown of findings from the just-released 2015
Deltek Clarity A&E Industry Report. We held events in Dallas and Minneapolis recently, but for those of you who couldn’t attend, here’s a recap:
Nearly 400 North American firms participated this year. The majority were in the 1- to 250-employee range, and firm type was split 63% engineering,
28% architecture and 9% consulting. Mike urged all firms to participate next year, noting that the Clarity Report has become the de facto industry
benchmark, conducted in collaboration with the American Council of Engineering Companies (ACEC), Association of Consulting Engineering Companies |
Canada (ACEC Canada) and the Society for Marketing Professional Services (SMPS).
KEY PERFORMANCE INDICATORS
Most financial indicators inched ahead in 2014, but the industry has yet to return to its pre-recession strength.
Operating Profit on Net Revenue
Average operating profit increased almost a full percentage point in 2014, to 11.8%. Contrast that with the 25.9% earned by high-performing firms.
The difference, Mike said, is high-performing companies “recognize they aren’t just providing a commodity service; they’re focused on business performance.”
With the average utilization rate at 60%, it’s essentially flat from last year. The ideal, Mike recommended, is 70%. To determine your utilization
rate, divide your direct labor dollars (charged to projects) by your total labor dollars, then multiply by 100.
Net Labor Multiplier
This metric measures the actual mark-up on labor costs. In 2014, the average was 2.97, about where it’s been the past few years. The threshold to be
considered a high-performer is a multiplier of 3.0 or higher, although Mike cautioned that this is one metric where higher is not always better. “Firms
with 3.5 or higher have a difficult time getting clients to pay,” he said.
This was a new area of focus for the Clarity survey, and it uncovered some good news: firms are optimistic about their prospects in 2015. But Mike
also discussed some challenges the survey discovered, including:
Lack of a Formal Go/No-Go Process
Only 29% of respondents use a formal process to evaluate every opportunity. Mike urged every firm to evaluate every opportunity on the basis of both
“Can we win it?” and “If we win, can we make money?”
Too Much Reliance on PMs
Responsibility for business development rests largely on project managers, second only to the executive team, and followed much further behind by dedicated
business development staff. “Firms need to go further into the rank and file; everyone should be helping with business development,” Mike suggested.
He drove home the point by noting that one of the biggest challenges firms identified was finding the time to nurture client relationships, a result
of PMs wearing too many hats.
This was another new area of focus for the Clarity survey. The findings uncovered a major issue for the industry: project managers are considered one
of a firm’s greatest assets, yet the top challenge identified for the next three years was having inexperienced project managers. Clearly, more training
and succession planning needs to happen.
This summary was just the tip of the iceberg. You can get greater insight into the state of the industry — and what it means for your firm —through
the resources noted below.
Questions? Contact me at Steve.McTavish@centralconsultinggroup.com or 210-932-8049.
About the Author: Steve McTavish
Steve is CCG’s Vice President of Client Development. He spent 12+ years at ERP providers, including Deltek, so he knows the systems inside out. He’s
still well connected at Deltek, to keep us abreast of the latest developments, and has become our go-to expert on Deltek First Vision Essentials cloud