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Key performance indicators (KPIs) for architects: measuring the health of your practice

Whether your architecture practice is small or large Key Performance Indicators (KPIs) remain important tools to measure the success of your business. Here, we take a look at some useful KPIs to help you manage business performance and plan ahead. 

Key Performance Indicators (KPIs) are useful metrics for firms to assess how well they are achieving their business objectives. For architecture firms, where it is easy to get wrapped-up in the complexities of long-term projects, implementing KPI reporting is an effective way of keeping track of wider business performance – particularly important in an industry where competition between firms is so high. KPIs can also be used as a way to benchmark your practice against others. 

Over the past year, KPI reporting has become even more important for architecture firms, which have been particularly affected by the pandemic and the move to remote working. In a sector where collaboration is so important for developing design ideas and driving project work, KPIs can be effective in helping monitor work in progress, measuring performance and efficiency, and indicating where staff may need more assistance. 

When done well, they provide management with a useful snapshot of performance and provide goals for the team to work towards. But what should you be measuring? Outlined below are some essential KPIs to help you monitor the health of your practice.  

About the author

Tom Allison

+44 (0)20 7710 0397
allisont@buzzacott.co.uk
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Key Performance Indicators (KPIs) are useful metrics for firms to assess how well they are achieving their business objectives. For architecture firms, where it is easy to get wrapped-up in the complexities of long-term projects, implementing KPI reporting is an effective way of keeping track of wider business performance – particularly important in an industry where competition between firms is so high. KPIs can also be used as a way to benchmark your practice against others. 

Over the past year, KPI reporting has become even more important for architecture firms, which have been particularly affected by the pandemic and the move to remote working. In a sector where collaboration is so important for developing design ideas and driving project work, KPIs can be effective in helping monitor work in progress, measuring performance and efficiency, and indicating where staff may need more assistance. 

When done well, they provide management with a useful snapshot of performance and provide goals for the team to work towards. But what should you be measuring? Outlined below are some essential KPIs to help you monitor the health of your practice.  

Managing the business

Managing the business

A top priority for staying in business is to manage cash flow. Most costs are paid monthly or quarterly (like staff costs and premises costs) but income does not follow the same pattern. Therefore, the easiest ways to run out of cash are to not bill clients promptly and to allow debtors to remain unpaid for too long.

There are a number of KPIs that can provide clarity on where you may need to refocus efforts to improve cash flow:

WIP days = (WIP / Last 12 months of revenue) * 365

WIP days are an indication of how quickly a business is able to generate fees for work done. The lower the WIP days, the quicker the fees are being generated.

Debtor days = (Trade debtors / Last 12 months of revenue) * 365

Debtor days are an indication of how long it takes clients to pay fees. The lower the debtor days, the faster the fees are being paid. This can help you see which clients are slow, or reluctant to settle fees.

Lock up = WIP days + Debtor days

Lock up is the combination of WIP days and debtor days; it indicates how long it takes from starting work on a project to receiving cash for that work. If lock up is high, there is less cash available in the business to meet debts as they fall due, which puts the business at risk.

Here are some of our top tips for reducing your lock up: 

  • Review your processes to identify ways of improving billing and debt collection and how addendums to projects may impact that.
  • Review old WIP balances – should these balances be invoiced or is a WIP provision required?
  • Review old debtor balances – is there an issue you’re not yet aware of?
  • Project managers can sometimes have better success at collecting fees than your finance team because they have the relationship with the client.
Managing projects

Managing projects

Managers are typically responsible for the day to day supervision of projects, with the oversight of partners and directors. This can make it more difficult for partners and directors to get a handle on the WIP.

  • Use the 80:20 approach to focus your time in the right areas (typically 80% of WIP will relate to 20% of clients, so focus on assessing the larger projects). 
  • For loss making contracts, there’s a higher risk of being optimistic about the extent to which the project is loss making. We recommend looking at these in more detail, particularly the estimated time required to complete the project, to see if this is realistic or if an additional provision is required.
Staff utilisation

Staff utilisation

There are a number of ways in which you can review staff utilisation. This could be used to distinguish high performers or to recognise where staff might need more support to achieve their targets. Some KPIs include: 

  • Chargeable vs non-chargeable time spent 
  • Number of overtime hours worked 
  • Profitability of each project

These KPIs can be compared with peers and prior periods. While KPIs are an essential tool for assessing productivity, they can only ever tell part of the story. Organisations should also consider individual circumstances to find the right balance.

Visibility – sharing your KPIs with the team

Visibility – sharing your KPIs with the team

When management are using KPIs to monitor business performance, it makes sense to share these KPIs with the wider team so that everyone is working towards a common goal. This can also help your team to feel engaged and connected to each other.

Additional KPIs for small to mid-tier practices

Additional KPIs for small to mid-tier practices

For small to mid-tier architecture practices, there are some additional financial KPIs to be aware of, which can help you benchmark yourself against practices of a similar size and understand where you can keep your cost base down. Read which financial KPIs you should be tracking here

Speak to an expert
Speak to an expert

If you’d like to discuss what the best KPIs are for your business, or how best to present KPIs to management or the team, get in touch via the form below.  

There are a number of ways in which we can assist you with your KPIs, including:

  • Benchmark reporting against other practices;
  • Determining the best KPIs to monitor business performance; and
  • The best ways to present KPIs to management or the wider team.
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