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Deltek releases its 41st Annual A&E Industry Study

Deltek recently released its 41st annual U.S. Architecture & Engineering (A&E) Industry Study. To identify the key performance indicators, market conditions and industry trends forecasted for 2020, Deltek surveyed small- to high-performing A&E firms.

The study, which looks at how companies performed during the 2019 fiscal year, shows that while the A&E industry continues to prosper financially, there’s still room for improvement in several key business areas. While much has changed since the survey was conducted earlier this year, making benchmark data becomes even more critical for firms’ future success. Even though the full impact of the global pandemic remains unknown, companies will need to focus on efficient project management, protecting margins and maintaining cash flow. The report helps firms identify key areas of focus to drive their business forward.

Last year, businesses continued to make strategic investments in technology, and that the cost of this implementation, along with the limited availability of resources, caused businesses to look hard at which investments are likely to provide the greatest return. Achieving greater productivity through technology involves increased training for employees, while also encouraging them to explore and adopt new methods and procedures, in an effort to increase operating performance efficiency.

Key findings include:

  • While many financial metrics remained flat year-over-year, firms continued to report strong financial performance. While increasing profitability was a top concern for financial management, so was the need to find and retain qualified staff.
  • Net revenue growth projections were more conservative than last year, and companies saw a decrease in project pursuit success. Fostering client relationships is a key focus for business development, but only 41% of firms use a formal business development process. Firms can look to make improvements that better align limited business development time with projects and clients to have the greatest impact.
  • While firms continue to seek more clearly defined responsibilities for project management, as well as more training for project managers, a shortage of qualified staff and lack of visibility into key project metrics could be putting PMs at a disadvantage to deliver projects successfully. The need for accurate reporting and project performance visibility is critical as only two-thirds of projects are reported being on or ahead of schedule.
  • A&E firms are continuing to struggle with finding good candidates and offer competitive compensation. Only 43% of firms have succession plans, and 29% have career development plans, which could be related to their retention challenges.

The study is broken into a variety of sections, with additional highlights.

Tech Trends:

  • Emerging technology trends continue to be the Internet of Things (IoT), geolocation, big data and data science. AR/VR made this year’s list and is especially important to large firms.
  • Firms are applying tech trends to project execution and project management as part of their strategic plans to earn a tangible ROI.
  • Cost, prioritization and employee education about tech trends are the top challenges.

Financial Statements:

  • Operating profit as a percent of net revenue rose to 15.8%, while the net labor multiplier increased slightly to 3.03.
  • Utilization rates were unchanged from last year, finishing fiscal year 2019 at approximately 60%.
  • Overhead rates went down six percentage points to 154% as small businesses, high performers and architecture-focused firms managed their overhead costs more effectively.
  • As the mix of current assets increased, the current ratio also increased 0.27 points year-over-year to 2.87.
  • The debt-to-equity ratio went down to 0.76 for fiscal year 2019.

Business Development:

  • Net revenue growth forecasts were relatively stable, with the largest forecasted growth in large firms, at 8.2%, and the largest forecasted decline among small firms at -9.4%.
  • While firms reported a win rate of 46.5% and a capture rate of 42.3%, both are down from the previous year. Additionally, more firms reported using a formal go/no process to make better project pursuit decisions.
  • Going into this year, firms anticipated growth in several key markets over the next 18 months, including transportation, water/wastewater/stormwater, health care, and energy/power. Very few markets were anticipated to decline in market position.

Project Management:

  • Firms saw an increase in the number of projects on or under budget (71%) and on or ahead of schedule (66%).
  • Approximately 13% of firms have a project management office or center of excellence.
  • Only 7% of firms report using a clearly defined project management process for all of their projects, compared to 15% last year.
  • 44% of firms measure client satisfaction, about the same as last year.
  • Email remains the primary method for sharing large files both internally and externally.

Human Capital Management:

  • Employee turnover remained relatively flat at approximately 13%, with staff growth slowing to 3.7%.
  • The lack of succession planning processes pose a challenge to business continuity when new leaders are placed in roles without prior development.
  • Only a few firms offer career development plans, which impacted employee engagement, retention and project delivery.
  • 14% of firms have a Learning Management System (LMS), and 32% maintain a skills repository. Investment in these resources can improve operations and upskill existing employees’ skills and competencies.

The 41st annual Deltek Clarity Architecture & Engineering Industry Study can be downloaded here: https://info.deltek.com/clarity-ae