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

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

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

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

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

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.