When was the last time you headed for a meeting whose subject was “Reviewing our KPI’s”? If it has been a while, it will probably happen again soon enough. In our increasingly competitive and analytical environment, all of us are in search of the magic score card that will help us guide our firms to astronomical success (or at least make us sound smart at cocktail parties). Let’s not stop there.

A/E firm leadership should identify and agree on specific Key Performance Indicators, quantitative measurements that help START the story. They should review Qualitative Value Indicators (let’s call those QVI’s) to tell the REST of the story about specific clients or markets and compare them to others. Both KPI’s and QVI’s should directly support leaders’ efforts in guiding the strategic development of the firm.

In case this is your first attempt at developing a score card for the firm, let’s review some typical metrics you might want to include. These standard measurements in the A/E industry are very helpful for watching trends in different business units, benchmarking against other firms in your industry, and evaluating internal performance against goals.

Net Income / Net Revenue
Expressed as a percentage, this figure quickly helps us understand the firm’s financial performance for its owners/investors. The key challenges of this calculation are correctly stating Net Revenue (net after removing external project expenses from Gross Revenue) and determining Net Income, BEFORE paying bonuses.

Direct Labor Multiplier (Net Revenue / Direct Labor)
Also referred to as the “net multiplier,” this metric measures how much a firm bills or earns for every $1.00 of direct labor cost. The direct labor multiplier is a good indicator on the profitability of our projects. A/E industry firms are generally looking to achieve 3.0 or better.

Utilization Rate (Billable Hours or Dollars / Total Labor Hours or Dollars)
This percentage measures the “chargeability” of our employees by comparing billable hours with total hours worked. Many firms choose to also run this calculation based on salary dollars to accommodate the range of compensation. If you’re thinking to yourself, “I bet this topic is one of the reasons I get a reminder about my time sheet every day,” you would be correct.

Total Payroll Multiplier (Net Revenue / Total Labor) or (DL Multiplier * Utilization rate)
A personal favorite of the authors, this metric takes the multiplier concept one step further and incorporates ALL labor dollars, no matter what they’re paying for. Generally speaking, we can use this measurement to answer the question “What are able to earn/bill for every $1.00 that we spend our talented employees’ salaries?”

Mathematically, we’re combining the Direct Labor Multiplier and Utilization Rate, which helps to remove the fluctuations of these two metrics from overcharging or undercharging time to billable projects. Further, it allows us to incorporate and measure the effectiveness of ALL activity in the firm paid for with salaries – operations, marketing, accounting, HR, IT – not just direct project labor.

Overhead Rate (Overhead Costs / Direct Labor)
Finally, we address the “beloved” overhead rate. We calculate this number by comparing the firm’s non-project costs with Direct Labor. Operating expenses such as rent, depreciation, marketing, internet service, and coffee are included. We can quickly take stock of how we are managing these costs relative the volume of services delivered. Many of us are familiar with reporting Overhead in certain government markets where this information is required.

The metrics above are great for starting the story, telling it mostly from the internal perspective. Here are a few questions to ponder:

What do these metrics REALLY tell you about your clients?

Have you ever attempted to measure the value of your service AS EXPERIENCED by your clients?

To get a more comprehensive look at how we’re truly performing, why not get creative and come up with a handful of QVI’s – Qualitative Value Indicators? Here are just a few fancied by the authors.

Time
As they say, time will tell. While we didn’t say so specifically above, ALL the KPI’s described in this article are measured over a period, usually by month or by year. Let’s simplify time just a bit – perhaps we should pay attention to how long it’s been since the client hired you to do anything! Simply calculate the time elapsed since each client’s last project start date. Maybe those that calculate “below average” deserve a phone call.

Stickyness
How much work is a client doing with you, measured by (you choose) hours/earnings/billings per year, compared with the median from ALL clients? Better yet, what happened to that client whose Stickyness dropped to an all-time low this year? This measurement can obviously fluctuate due to circumstances beyond our control. However, using a QVI like this one might direct your attention back to a great relationship who’s just waiting for you to suggest billable solutions to their many additional problems. Take that to the bank!

Engagement
We can measure engagement in many ways. Keeping things simple, if you already have a client feedback process in place, which clients are most responsive? Just as an observation - if your money-losing projects are all with the same client who never answers your requests for feedback and additional engagement, that’s clear writing on a very big wall.

Overhead Payoff
Certain KPI’s like Utilization and Overhead can cause stress-laden conversations around the office – slightly twisting your approach to them might help. What if we focused not just on the “amount of,” but on the “activity associated with” these measurements. Non-billable time can produce great results:

• 10 new opportunities from attending a conference

• Saving two hours per week per Project Manager by rolling out a PM Toolkit

• Increased labor multipliers from training lower-cost labor resources in certain delivery tasks

A comprehensive score card that includes traditional KPI’s and a well-selected set of QVI’s can help you get deeper into client relationships, focus on what really matters and keep your firm on course for the long haul. We hope you’ll take these ideas and be better-equipped to tell the REST of the story!

Full Sail Partners is a sponsor and exhibitor at PSMJ's annual conference to held October 22-24 in San Diego. THRIVE 2018 is your chance to learn, to network, and to get an eye-opening perspective on what the world’s most successful architecture and engineering firms are doing right now to thrive. This unique annual conference attracts senior-level executives from a wide range of A/E/C organizations located around the world.