Neil Davidson, global vice president at Deltek, explores how setting the right KPIs in architecture and engineering can define success and identify areas in need of development
The best architecture and engineering firms keep the cadence and have a clear direction of where they want the business to go. A core part of delivering on their strategy is setting attainable but equally aspirational goals- otherwise known as Key Performance Indicators (KPIs).
They know who the business is targeting, their ambitions for profits and revenues, as well as advancing aspirations to thrive and not merely survive, in challenging economic conditions.
The right set of KPIs can help to define the firm’s overall performance in a specific and measurable way. These KPIs provide business leaders with an understanding of the company’s efficiency, productivity, and utilisation to name a few.
In today’s business environment, with interest rates holding high and in a customer centric, technologically disruptive era, KPIs are essential to effective management performance and encouraging meaningful achievement.
New KPI’s will emerge; like percentage of processes automated by Robotic Process Automation, and the impact of AI on productivity.
With the importance of KPIs in mind, Deltek conducted it’s 4th Annual EMEA and APAC Clarity Industry Study looking at the challenges and opportunities of the sector and the analysis offers some important insights.
The state of KPI adoption in A&E
Overall, the report found that the majority of respondents track KPIs, especially for financial performance. This is a really positive sign, showing businesses have clear strategies and measure progress. However, there is room for improvement. The Clarity report revealed a gap in firms tracking critical business performance metrics, which needs to be addressed.
According to those surveyed, the most likely KPIs to be tracked are margins (77%), net revenue (74%) and revenue factor (73%). The KPIs least likely to be tracked are backlog (70%) and net labour margin (67%).
Based on this insight, it’s no surprise that A&E firms are focused on profits. However, it is essential that firms don’t overlook less glossy statistics. Backlog and net labour margin KPIs hold huge opportunities to make operational efficiencies, which in turn boost profits, client satisfaction and reduce chances of employee burnout.
That said, businesses do have ambitions for improving KPI monitoring. When asked which KPIs are not tracked well enough, the top answer was average collection period (28%).
Firms cited client profitability (39%) and backlog (43%) as ‘needing work’. With only half (53%) of firms having high confidence in the ability to accurately report on the scheduling project performance metric, there is a clear opportunity to improve the setting and tracking of business and performance metrics in the industry.
Setting the right KPIs
There is no one size fits all approach to setting KPIs and selecting the right KPI’s is both a science and an art. The KPIs that are tracked depend on the goals and objectives of the business. Concentrating on the metrics that best align to the overarching business strategy and indicators that can make a real, tangible difference to the business will ensure performance is addressed to either trigger action or reward.
To start, business leaders should consider their short and longer-term goals. There are likely to be different goals across different areas of the business.
For example, the company’s overall objectives will not be the same in project management and human resources. By determining what success looks like in different areas of the business, leaders can then use KPIs to determine if the company is reaching that goal – or at least making the right progress.
KPI evaluation strategies: Getting it right from day one
With realistic goals aligned to the business in place, the company then needs to focus on tracking these goals. This is often where the disconnect is. Monitoring KPIs goes far and beyond the data. It is also what businesses do with that data that helps them to learn, take corrective action where needed and use it as a guiding force to make smarter decisions.
There is no set timeline to review and monitor KPIs and more often than not, it is going to vary from KPI to KPI. Outlining a tracking period at the same time as setting goals is important. Whether the company is refreshing its KPIs or setting new ones carefully considering regular monitoring is paramount.
KPI’s need to be actively monitored with frequent communication so that employees know where to focus and the organisation can meet their clients’ objectives effectively.
Finally, it is essential that A&E firms are balancing their KPIs. Every goal that a company sets will likely impact the others. Companies should evaluate if there are trade-offs between KPIs.
For example, having a high staff utilisation target may not provide much room to encourage a better work-life balance or further professional developments. In these situations, conversations will need to happen, with some concessions potentially needing to be made. The key is setting goals that do not contradict each other, but instead, support each other to reach the overarching goals of the firm.
In today’s tech-first landscape, there are endless measurements companies can make to evaluate the businesses performance. However, setting clear and personally relevant KPIs is a valuable way business can ensure the firm is on track.
Having a roadmap to delivering the overarching ambitions means the groundwork is being done first. Organisations can make smarter more informed decisions, such as understanding where to contain costs versus concentrating on higher margin work with the best working capital conversions.
In an ever-competitive market, choosing the right KPIs and routinely monitoring them will be key to driving business performance.
You can read more about Deltek’s 4th Annual EMEA and APAC Clarity Industry Study here.
