Top 4 Production KPIs for Architectural Firms
Introduction:
If you want to know how your architectural business is doing real-time, focus on your Key Performance Indicators (KPIs). Looking at the financials each month is important, but there is too much lag in information to allow you to pivot if needed. Financials can be useful when considering long term strategy, but not helpful with immediate concerns.
It is important to have KPIs in each of the major parts of your business, such as Production, Business Development, Accounting, Hiring, and Overall Business. With each of these KPIs, I recommend watching the full year month by month, showing the target value and the actual value. Show this in some type of visual form (such as a graph), since that is easier to communicate with your staff. The following are my recommendations for production KPIs only, in an effort to keep the article at a reasonable length.
Production
- Production Utilization: This is calculated as the billable hours divided by total hours for production staff only, and is reported as a percentage. It reflects the amount of their time that production staff spend working on projects. Each individual will have a different target. For example, managers typically have lower utilization targets because they have a larger amount of time training staff, attending meetings, working in business development, and so forth. A designer, by comparison, will have a higher utilization because most of their time is spent working on projects. Remember to account for paid time off as well. You may find that there are repeatable patterns for actual utilization in certain months due to more people being off. It’s good to set your monthly targets according to those patterns.
- % of Project Budget: This is calculated as the spent dollar amount divided by the invoiced dollar amount for the month, and is reported as a percentage. Spent is calculated as the sum total of hours worked on the project multiplied by the respective billing rates of each person working on the project. If using Deltek Ajera for your accounting software, the Spent is automatically calculated for each project. This metric isn’t looking at individual projects, but rather the business as a whole. The projects that the staff are working on for the month may not be the same ones being invoiced. However, by watching this metric, you have real-time information on whether or not your business is on track.
- Utilization to Budget Ratio: This is calculated by dividing Production Utilization by % of Project Budget and is reported as a number with decimals. This ratio is helpful so you don’t focus disproportionately on either of the two other production KPIs. For example, a person could categorize most of their time to projects, which would show a high utilization, but their project budgets may exceed the target. Alternatively, a person could have little time allocated to projects (which would meet the budget goal), but have really low utilization. The ratio allows you to keep the KPIs in check. As long as you hit the targeted ratio, it’s okay that one of the other two hits the target and the other doesn’t. By reporting both, you can track where you may have potential problems if one is way off target.
- Project Revenue: This is the total amount of project revenue invoiced in the month. This is important to see whether or not you’re hitting the projected revenue. The % of Project Budget will be impacted if the revenue is off target, but this KPI allows you to quantify what the revenue should be in order to meet the % of Project Budget goal.
Conclusion:
Identifying the right KPIs for your architectural firm is important. At Royal Engineering, we’ve found the above-mentioned KPIs useful in knowing how the business is doing real-time, rather than waiting until the end of the month to find out. You can decide how often you want to share these with staff, but I recommend sharing these with your staff on a weekly basis. Schedule additional meetings with the appropriate personnel to address anything that is alarming from the KPIs. By watching these KPIs throughout the month, you will have an updated sense for how your business is doing at the moment.
If interested in other KPIs, please reach out to us at Royal Engineering for a more in-depth conversation.
