The Future Financial Picture for Firms

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In recent findings from the Deltek Clarity Architecture & Engineering Study, undertaken in association with The Association of Consulting Engineering Companies (ACEC), the study compared 2012 data on the four most important operating metrics for architecture/engineering firms and provided a perspective on just how quickly firms are recovering. Those four vital operating metrics included:

The net labor multiplier: The study finds a measure of markup on labor costs has been relatively flat over the past three years among surveyed firms, fluctuating between 2.85 and 2.95.

The utilization rate (also known as chargeability), which measures the percentage of total staff labor charged to projects. The study’s findings show that it rose in 2012 from 58.3 percent to 59.9 percent and now is up more than five percentage points since bottoming out two years ago. However, it was indicated there is still room for improvement, as it was at 63 percent in 2004.

The overhead rate dropped by more than ten percentage points last year from its peak in 2011. The Deltek-ACEC study stated the overhead is now at the lowest rate since the recession began. The key drivers here are increasing utilization, which decreases labor charged to overhead, and a continued focus on cost control. The overhead rate is calculated by dividing total overhead (before distributions) by total direct labor expense.

The fourth and final factor is the operating profit rate, which after reaching a decade low in 2009 at 8.35 percent, has continually and steadily risen to 10.13 percent during the last year.

As we examine these indicators for our own A/E firm, the results seem to indicate the recovery is slow but steady. This study was originally featured in Engineering Inc. magazine. The full article can be read here.

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