Deltek has published the 45th annual Deltek Clarity Architecture & Engineering Industry Study. The report is substantial, just over 120 pages in length. It is based on a survey of 652 firms from the A&E sector in North America. The report was produced in collaboration with ACEC, ACEC Canada, AIA and SMPS, and contains comments from various business leaders of the organisations involved in the study.
The report begins with an executive summary which identifies that the last year has seen essentially flat operating margins. That should be seen as an achievement with increasing costs, meaning that organisations have had to increase efficiency and be more selective about the projects they undertake. The ACEC reported that 88% of firms have been more selective about the projects they accepted.
The report is then divided into sections that look at key aspects of the industry. They include:
- Technology Trends
- Business Development
- Project Management
- Human Capital Management
- Financial Management
The report concludes with a summary and a breakdown of some of the financial statistics obtained from the survey.
Each section contains a mix of data visualisations and commentary. However, there is no qualitative analysis. A Clarity Outlook completes each section, providing a short analysis and advice for readers to take back to their firms. This might have been improved with either a list of questions or more prescription actions in a list.
Technology Trends
While the press release focused on the impact that AI will have within the industry, the report shares some deeper findings. 62% of organisations expect AI to improve organisational efficiency, although 52% are not currently using AI. Firms also expect it to help with project delivery (52%). Where AI is in use, 24% are using it for creating proposals and marketing content.
However, AEC firms are facing challenges with prioritizing applicable tech trends, cost and a lack of time to learn about technology, in the top three. Despite this, organisations are looking to invest in technology maturity, with most climbing up a maturity scale as they digitally transform their business over the next 3 years.
IT Operational challenges threw out some surprising responses. 6% are concerned about how to apply tech, and 60% see data and cybersecurity as a challenge. Oddly, these were not separated. However, in contrast to other security surveys, only 18% of firms indicated that they were impacted by a cybersecurity threat or attack in the last 18 months; this seems low.
The report also looks at how cloud adoption is progressing. It notes that 23% have started digital transformation projects compared to 18% last year. The report might have shared more detail about the trend in cloud adoption, rather than just this year’s statistics. It is clear that many still need to adopt more automation, with Administration/Management (86%), Accounting & Finance (80%) and Ops/Resource management (77%) still completely to moderately reliant on manual processes in many organisations.
Business Development
The section identifies the top business development challenges, with finding the time to nurture client relationships highest. Megan Miller, Director of Product Marketing at Deltek, comments, “There never seems to be enough time for business development and marketing, and as staffing challenges continue, firms need to look for efficiency through technology. Firms are starting to use AI for improving marketing operations and enhancing BD, but we are just scratching the surface.”
While time is short, many are achieving objectives despite increased competition (46%) and limited BD resources (34%). The number of proposals submitted increased by 15%, though their value decreased, leading to an 86% increase in awarded proposals. Organisations are being smarter about which proposal to submit, citing existing relationships (65%), a good fit (63%) and available resources (45%) key. Though it is unclear how firms understand these criteria, technology, especially resource management, could play a key part here.
Firms are also bullish about the year ahead, with many expecting markets to grow. Only in residential is there considerable caution, with 17% expecting a decline, though 31% expecting as increase. It might have been interesting to investigate whether there was a regional bias in this result. Firms expect to increase revenues by 11% next year, up from their 10.2% for 2023.
The report also takes a brief look at marketing strategy, citing client specific marketing, social media and thought leadership posts as a key factor in the next five years.
Project Management
Again, the section looks at the common challenges faced. The report cites competing priorities (60%), staff shortages (54%), inexperienced project managers (39%), and accurate project cost and timeline forecasting (26%). Despite this fourth challenge, 69% of projects came in under or on budget, up from 68% in 2022.
While costs were kept under control, fewer projects were completed in time, down 2% year over year to 58%. There was no question to judge project quality, the third dimension of projects, though. However, the report did highlight how customer satisfaction is measured by project type and the frequency of measurement. Only 45% of organisations measure CSAT for all projects and only 21% for key project milestones.
The report also looks at the priorities and initiatives that are being undertaken with investment in internal PM training (42%), time spent to clearly define PM, BD and design roles (39%) and the development of internal PM best practices. The report does not look at project methodologies in use though, perhaps something to include next year?
Human Capital Management
Firms are struggling to find good candidates that are affordable and suitably qualified for the roles. However, when they make job offers, they are more likely to be accepted (80%, up 9% from 2022). After the voluntary turnover during the pandemic, firms are looking to do more with fewer people. Employee turnover is down only 0.1% from 2022 at 13.6%, and growth declined slightly (-0.2%) from the previous year. Larger firms (up 9%) are growing fastest though.
The difficulty in hiring is reflected in the average time to hire, with 65% taking more than 60 days to fill positions. The finding that does reflect many of the HR surveys is the initiatives undertaken by firms. The top three are:
- Employee training and development (65%)
- Building visible career paths (56%)
- Improve Manager/Employee communication (46%)
The report also looks in more detail at these. It also investigates the challenges of building DE&I programs across the industry. 82% of firms are unsure what to measure or implement, and 58% indicate a lack of internal knowledge of DE&I. It will be interesting to see if Deltek addresses this over the next few months. 53% of firms are not tracking DE&I. As legislation around this increases, will firms look to change?
Financial Management
For finance teams, the challenges broadly reflect the rest of the report’s findings, with finding and retaining staff (59%) and increasing profitability (54%) as the top two challenges. Interestingly, succession planning and ownership transition (42%) is third. The report does not provide any analysis as to why this is the case though.
Deltek gathered several financial statistics showing ten-year trends across operating profit, net labour multiplier, total payroll multiplier, utilisation rate, and overhead rate. The revenue backlog in months is slightly up (+.21) to 9.15 months. Several other financial statistics are reported, which deliver an interesting benchmark for other organisations.
Firms are looking to make changes with the top three initiatives:
- Training PMs on financials (56%)
- Business process improvements (55%)
- Better forecasting (39%)
Enterprise Times: What does this mean
This is an impressive report with a wealth of information about the architecture and engineering industry. There are some surprises in the report and a lack of depth in some areas. However, it gives an indication that the industry is in a good state and making steady progress on digital transformation, something that Deltek will be only too happy to help with.
Miller gave a summary in a candid comment. She said, “Firms continue to have an optimistic outlook. The A&E industry had a fairly flat but stable year in terms of financial performance in 2023 and is continuing to see revenue growth year over year, which was welcome after several years of economic volatility. It’s great to see firms continue to focus on upskilling existing talent and strategically investing in technology like AI to improve efficiency.
“For the year ahead, firms should continue to focus on engaging employees and invest resources into education and expertise to identify which emerging tech tools to take advantage of and how best to deploy them.”
